Key Committee Actions for 2018
The Committee took the following key actions in 2018:
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Performance Based
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Established new performance metrics for the annual bonus program to better align with shareholder priorities of cash flow and capital efficiency.
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Granted performance-based and time-based LTI awards to provide retention incentives and to further align management’s interests with shareholder value creation.
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Market Based
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Assessed salaries and total compensation relative to competitive data and each officer’s scope of responsibility and performance, and made adjustments where appropriate.
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Re-evaluated our peer group used to measure relative performance for our LTI awards and the competitiveness of executive compensation due to the Company’s growth and changes in the industry.
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Additionally the Committee approved certain changes to the Company's change in control severance agreements to align with market practices and increase consistency across the Company’s compensation arrangements.
Compensation Program Governance Highlights
We believe our compensation programs incorporate many sound practices, including the following:
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What We Do
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What We Don’t Do
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Substantial focus on performance-based pay
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Balance of short- and long-term incentives
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Align executive compensation with shareholder returns through substantial weighting on long-term incentives
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Retain an independent external compensation consultant
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Review of peer group benchmarks when establishing compensation
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Substantial stock ownership guidelines for our NEOs and directors
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Double-trigger change in control severance for both cash severance and equity vesting
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Annual assessment of compensation programs intended to ensure avoidance of excessive risk taking
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NO
hedging or pledging of our stock
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NO
employment agreements
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NO
excessive benefits or perquisites
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NO
single trigger change in control benefits
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Executive Compensation Components and Philosophy
Our pay-for-performance philosophy is demonstrated in the mix of compensation that we provide to our NEOs. The Committee designs our compensation program to maintain a balance between rewarding the achievement of annual performance objectives and the long-term objective of aligning the interests of our executives with those of our shareholders. Accordingly, a significant portion of our NEOs’ compensation in 2018 was in the form of annual cash incentives and long-term incentives. Our executive compensation program is designed to do the following:
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Reward the management team for delivering results against its strategic objectives, thereby creating value for the shareholders;
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Emphasize pay for performance, in which Company and individual performance substantially influence the amount realized by an NEO;
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Attract and retain a qualified and motivated management team by offering industry competitive opportunities;
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Hold NEOs accountable and appropriately reward them for their contributions to the achievement of our key short-term and long-term strategic objectives through the use of variable compensation; and
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Align the compensation of our NEOs with the long-term interests of our shareholders by weighting the programs toward at-risk, performance-based compensation, consisting of an objective-driven annual incentive program, stock grants with three-year vesting, and TSR-contingent incentive awards.
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The Committee believes that this approach compensates our NEOs in a manner that fairly and reasonably provides incentives for the enhancement of shareholder value, the successful implementation of our business plan, and continuous improvement in corporate and personal performance. In order to compete in our industry, the Committee believes that our NEOs’ compensation should include the following components:
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BASE SALARY
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Purpose
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Philosophy
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Pay for expertise and experience;
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Attract and retain talented executives;
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Provide compensation stability; and
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Compete with comparable companies.
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Fixed component of compensation reflective of individual skills, experience and expertise necessary to execute our business strategy; and
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Competitive with similarly sized peers.
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ANNUAL CASH BONUS INCENTIVE
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Purpose
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Philosophy
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Motivate our executive officers to achieve our short-term business objectives that drive long-term performance;
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Reward achievement of financial, operating, and strategic goals for which NEOs are held accountable; and
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Promote and encourage pay-for-performance.
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At-risk component of compensation, with modest or no reward for performance below expectations and potential for increased reward for exceptional performance;
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Goals aligned with our annual business plan and performance targets;
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Provide balance in compensation programs and avoid encouraging undue risk-taking; and
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Competitive with similarly-sized peers.
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LONG-TERM INCENTIVE (LTI) AWARDS
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Purpose
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Philosophy
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Motivate and reward long-term achievement of business objectives, aligning the interests of our NEOs with shareholders;
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Provide
competitive pay to attract and retain NEOs; and
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Provide a mix of LTI awards that focuses NEOs on creating long-term value while avoiding undue risk-taking.
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Ensures that realized value to NEOs aligns with value delivered to shareholders;
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Recognizes and rewards share price performance relative to industry peers;
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At-risk component of compensation that aligns with sustained long-term value creation; and
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Allows NEOs to acquire a meaningful and sustained ownership stake in the Company.
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OTHER (RETIREMENT; HEALTH BENEFITS; CHANGE IN CONTROL SEVERANCE)
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Purpose
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Philosophy
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Provide financial security for the NEOs and their families;
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Provide competitive benefits to attract and retain NEOs; and
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Ensure NEOs consider all possible transactions to increase shareholder value related to changes in control of the Company.
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Attracts and retains NEOs with a comprehensive benefits package;
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Provides financial security and maximizes the efficiency of tax-advantaged compensation vehicles; and
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Ensures NEOs act in the best interests of the shareholders in a change in control.
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Role of Shareholder Say-on-Pay Advisory Vote
We have historically received strong support from our shareholders for our executive compensation practices. In the advisory vote held at the 2018 Annual Meeting, approximately 96% of the votes cast were in favor of our 2017 executive compensation programs. The Committee acknowledged the support received from our shareholders and viewed the results as an affirmation of our existing executive compensation policies and programs. Accordingly, based on the Committee’s analysis of this support, it generally maintained our executive compensation policies for 2018 and into 2019. However, based on feedback received during shareholder engagement, the Committee modified the 2019 annual bonus to include a performance-based, formulaic assessment component as described below. The Committee will continue to review shareholder votes and conduct shareholder engagement on our executive compensation programs to ensure alignment with shareholder interests.
Role of Independent Compensation Consultant
For 2018, the Committee continued its engagement of Meridian Compensation Partners, LLC (“Meridian” or the “Consultant”) as its independent compensation consultant to provide information and objective advice regarding executive officer and director compensation. The Committee retained Meridian because of its extensive familiarity with executive compensation programs in our industry. Importantly, the Committee makes all of the decisions with respect to our executive compensation, and in setting compensation for our NEOs, considers Meridian's advice as only one factor among many other factors discussed within this CD&A. Other factors include our overall performance; individual NEO performance, experience, skills and tenure with the Company; and industry trends.
Meridian reports solely to the Committee, and the Committee determines the scope of Meridian’s engagement. In an effort to ensure that our NEO compensation programs are competitive and consistent with our compensation philosophy, Meridian assisted the Committee as follows:
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Regularly attending meetings of the Compensation Committee and meeting privately in executive session with the Compensation Committee to discuss its recommendations;
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Providing recommendations on executive compensation matters to align the Committee’s actions with shareholder interests, our business strategy and pay philosophy, prevailing market practices and relevant legal and regulatory requirements;
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Periodically evaluating the peer group and providing peer company data for the Committee to use in its decision-making process, including assessment of pay and performance relative to peers;
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Providing competitive market data to consider in evaluating the competitiveness of the executive base salaries and short and long-term incentive plans and awards;
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Reviewing data in connection with the Committee’s determination of annual cash incentive performance objectives and performance-based incentive vesting levels for completed performance periods;
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Advising on the Company’s compensation arrangements for its non-employee directors, including providing peer group data;
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Reviewing and providing feedback on our SEC filings relating to executive compensation disclosures, including our CD&A disclosures; and
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Informing the Committee about compensation trends in the industry, best practices and other general trends and developments affecting executive compensation.
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The Committee did not direct Meridian to perform its services in any particular manner or under any particular method. The Committee has the final authority to hire and terminate Meridian, and the Committee evaluates Meridian annually. Pursuant to applicable SEC and NYSE rules, the Committee has determined that no conflicts of interest exist related to Meridian’s engagement by the Committee. The Committee has retained Meridian as its consultant on NEO and director compensation for 2019.
From time to time, Meridian contacts our NEOs for information needed to fulfill the objectives established by the Committee. However, the Committee established procedures that it considers adequate to ensure that Meridian’s advice to the Committee remains objective and is not influenced by our NEOs or other management.
Role of Management
The Committee considers input from our CEO in making determinations regarding our executive compensation program and the individual compensation of each of his direct reports and other select officers of Callon. The officer team makes recommendations to the Committee regarding potential objectives for the annual cash bonus incentive program and provides information to the Committee regarding the performance of the Company for the Committee’s determination of annual cash bonuses. The Committee makes the final determination of all elements of NEO compensation. Our CEO makes no recommendations regarding, and does not participate in discussions about, his own compensation.
Role of Market Data
The Compensation Committee of the Board strives to ensure that our executives are compensated in a manner that is fair, equitable, performance-based and guided by the long-term interests of investors. In order to attract, motivate and retain talented executive officers, the Committee must also ensure that our executive compensation program remains competitive with the types and ranges of compensation paid by our peer companies who compete for the same executive talent. On an annual basis, the Committee reviews and discusses compensation data for our CEO and other executive officers as compared with compensation data for similarly situated executive officers at peer companies recommended by Meridian and approved by the Committee.
The Committee engages Meridian to conduct annual assessments of our industry peer group (“Peer Group”) in order to ensure each peer remains appropriate year-over-year. The Peer Group is selected based on multiple factors, such as:
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Size, including enterprise value and market capitalization;
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Similar geographic footprint and operational focus, particularly in the Permian Basin;
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Comparability of asset portfolio; and
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Availability of compensation data.
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The Committee believes this Peer Group provides a reasonable point of reference for comparing the compensation of our executive officers to others holding similar positions and having similar responsibilities. The Committee considers Peer Group data relevant to, but not determinative of, the Committee’s consideration of overall executive compensation matters.
The Peer Group used by the Committee in evaluating the competitiveness of executive compensation and making 2018 compensation decisions consisted of the companies in the first column of the following table. The Committee also reviewed data from proprietary E&P benchmarking surveys provided by Meridian for additional market perspective and to validate the Peer Group data.
Due to industry volatility and merger activity, the Committee re-evaluated the Peer Group in preparation for making the May 2018 grants of long-term incentives, resulting in the Peer Group in the second column of the following table. The changes reflect recent transactions in the peer group and better align the Peer Group based on size, geography and ownership. The Committee also revisits the Peer Group as needed to reflect business combinations among peer companies. This Peer Group is being used to measure the Company's relative total shareholder return (“TSR”) performance for the May 2018 grant of PSUs and to evaluate the competitiveness of executive compensation beginning in May 2018.
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Initial 2018 Peer Group
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New 2018 Peer Group
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Carrizo Oil & Gas, Inc.
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EP Energy Corporation
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HighPoint Resources Corporation
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Laredo Petroleum, Inc.
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Matador Resources, Inc.
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Parsley Energy, Inc.
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PDC Energy, Inc.
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QEP Resources, Inc.
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RSP Permian, Inc.
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SM Energy Company
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SRC Energy, Inc.
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Carrizo Oil & Gas, Inc.
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Centennial Resource Development, Inc. (New)
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Jagged Peak Energy, Inc. (New)
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HighPoint Resources Corporation
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Laredo Petroleum, Inc.
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Matador Resources, Inc.
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Oasis Petroleum, Inc. (New)
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Parsley Energy, Inc.
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PDC Energy, Inc.
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QEP Resources, Inc.
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SM Energy Company
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SRC Energy Inc.
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The Committee understands the inherent limitations in using any peer group or data set including fluctuations in survey participation and competition for executive talent by companies potentially much larger than Callon. Accordingly, the Committee does not consider data collected from any of these sources to be prescriptive. Rather, the Committee relies upon this and similar data as reference points around which to make informed decisions about the appropriate level and form of compensation for each NEO.
Risk Assessment Related to Our Compensation Structure
The Committee believes our compensation plans and policies are appropriately structured to encourage and reward prudent business judgment and avoid excessive risk-taking. The Committee, with the assistance of Meridian, reviewed the compensation programs maintained by the Company during 2018 to determine whether they encouraged excessive risk taking. Upon evaluation of the assessment, the Committee concluded that our compensation policies and practices for our employees do not present risks that are reasonably likely to have a material adverse effect on the Company. The Committee’s risk review identified the following risk mitigating features of our compensation programs:
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A balance of short-term and long-term programs to focus management on both elements of Callon’s performance;
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Annual grants of long-term incentives designed to be the largest component of each NEO’s compensation package, with typical vesting periods of three years that are based on the value of our common stock and not on any particular metric that could encourage excessive risk-taking;
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Performance criteria and targets for our annual bonus program designed to encourage performance, but not excessive risk taking, and discretion to decrease payouts if it is believed management exercised excessive risk taking;
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Performance targets measured at the corporate level, rather than at the individual or business unit level;
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Reasonable change in control severance protections; and
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Significant executive stock ownership requirements.
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Determination of Each Element of Compensation
Base Salaries
We provide all of our employees, including the NEOs, with an annual base salary to compensate them for their services throughout the year. Our Committee recognizes that a substantial amount of competition exists in the oil and gas industry for attracting and retaining qualified management teams, particularly in the Permian Basin. Accordingly, the Committee evaluates our NEOs’ salaries together with other components of their compensation to ensure that the NEOs’ total compensation is competitive relative to market practices in our Peer Group and our industry in general and is consistent with the Committee’s compensation philosophy.
Annually, generally in the first quarter of each year, the Committee reviews the base salaries of our NEOs. Individual salary amounts reflect the Committee’s subjective analysis of a number of factors, including:
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Individual officer’s experience, skills, contributions and tenure with Callon;
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Changes to the individual’s position within Callon;
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Trends in compensation practices within our Peer Group and industry; and
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The NEO’s roles, responsibilities and expected future contributions to Callon’s success.
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In addition, the Committee also considers the input and recommendations of Meridian regarding base salaries, as well as the input of the CEO, when evaluating base salaries for the other NEOs.
After considering the market analysis and advice of Meridian, at its March 2018 meeting, the Committee increased Mr. Gatto’s salary from $575,000 to $700,000 to reflect the growth and performance of the Company and his continued development in the CEO role. This increase brought Mr. Gatto's salary closer to a competitive level relative to peers.
Performance-Based Annual Cash Bonus Incentive
A core component of our NEO compensation philosophy is to emphasize pay-for-performance by structuring a significant portion of total annual compensation as “at risk.” Each year, the Compensation Committee establishes an annual performance bonus program, which is designed to promote the achievement of annual financial, operating and strategic goals that are aligned with the creation of shareholder value. Performance is judged at the end of the year, or shortly thereafter, based on evaluation of performance against these specified objectives and the Committee's views of corporate and individual performance.
To motivate employees to pursue our annual business goals in a way most beneficial to our shareholders, NEOs, senior management and other non-management technical personnel have the potential to receive a significant portion of their annual cash compensation as a bonus. The Committee set 2018 annual bonus award opportunities for each NEO as a percentage of the NEO’s annual base salary as follows:
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NEO
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Target Bonus Opportunity
(% of Base Salary)
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Joseph C. Gatto, Jr.
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100%
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Gary A. Newberry
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100%
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James P. Ulm, II
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90%
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Other NEOs
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60% - 70%
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For purposes of evaluating performance, the Committee, in collaboration with management and Meridian, oversees a rigorous process to set performance objectives for the annual bonus program that reflects shareholder and corporate priorities for the upcoming year and provides appropriate incentives for meeting or exceeding our annual corporate plan.
To better align our executive compensation with shareholder priorities including a focus on cash flow and capital efficiency, the Committee modified the performance metrics for the annual bonus program during the first quarter of 2018. The Committee established both quantitative objectives, which measure operational and financial performance, and qualitative objectives, which evaluate progress on safety and environmental performance and key strategic initiatives. The objectives for 2018 and the Committee’s assessment of performance against each are set forth below:
QUANTITATIVE OBJECTIVES
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Objective
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Description
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Target
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Actual
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Assessment
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(LOE + Cash G&A)/BOE
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Measure of critical cash margin components influenced by management.
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$8.60
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$8.29
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(i)
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Exceeded Target
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Production Growth
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Key component in our ability to convert assets into shareholder value and deliver returns on capital investment.
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31,000 (77% oil)
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31,091 (78% oil)
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(i)
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Exceeded Target
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Proved Developed F&D/BOE
(ii)
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Measure of capital efficiency for annual proved developed reserve additions that captures well costs and well productivity.
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$15.50
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$13.40
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(i)
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Exceeded Target
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Cash Flow Growth per Debt-Adjusted Share
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Measure of quality of growth reflecting cash margins, outstanding debt, and share price
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30%
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36%
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(iii)
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Exceeded Target
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Net Debt/EBITDA
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Measure of our ability to cover our debt which ensures focus on a strong balance sheet.
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2.4x
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2.4x
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(iv)
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Met Target
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(i)
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Excludes effects of the Delaware Basin Acquisition which closed August 31, 2018.
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(ii)
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PD F&D/BOE reflects all operational capital including exploration, development and facilities capital. See Appendix A for a reconciliation of Non-GAAP financial measures.
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(iii)
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Pro-forma for Delaware Basin Acquisition and related financings as of September 1, 2018. Calculated using discretionary cash flow (excluding working capital) and CPE average 2018 stock price of $11.23.
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(iv)
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Net Debt to LTM Adjusted EBITDA is calculated as the sum of total long-term debt less unrestricted cash and cash equivalents, divided by the Company’s Adjusted EBITDA inclusive of annualized pro-forma results from its acquisitions completed over the last twelve month period. See Appendix A for a reconciliation of Non-GAAP financial measures.
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QUALITATIVE OBJECTIVES
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Objective
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Assessment and Commentary
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Improve Health, Safety & Environmental Performance
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Exceeded Target.
The Company made meaningful improvements in HES performance in 2018, including improvements of 40% or more in recordable incident rates, proactive safety observations, spill occurrences and spill volumes, while supporting increased production and activity levels.
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Enhance Talent and Organizational Developmental Activities
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Exceeded Target.
The management team added and integrated critical skill sets in subsurface technology, IT, supply chain, risk management and other disciplines. The Company also established an enhanced talent readiness initiative to support employee development.
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Strategic Initiatives
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Exceeded Target.
The
Company advanced its longer-term resource capture model through the refinement of larger pad development concepts, completion designs and landing zones. We also acquired an additional 35,000 net surface acres at competitive prices as strategic “bolt on” assets complementary to our existing footprint. Management also enhanced financial flexibility through capital markets transactions and an increase in the borrowing base to $1.1B with an elected commitment of $850 million.
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The Committee evaluated the NEOs’ performance against the 2018 performance criteria described above and determined that overall the management team exceeded the qualitative and quantitative objectives for the year and did so significantly in several areas. Based on the results set forth above and relevant market survey data, the Committee determined actual bonus amounts paid for 2018 performance at approximately 140% of target, as follows:
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NEO
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2018 Annual Bonus
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Joseph C. Gatto, Jr.
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$980,000
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James P. Ulm, II
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$585,900
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Michol L. Ecklund
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$343,000
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Correne S. Loeffler
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$259,700
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Mitzi P. Conn
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$240,100
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Gary A. Newberry
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$665,000
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2019 Annual Cash Bonus Program
In March 2019, the Committee established the annual bonus program for 2019 to include a performance-based formulaic assessment for 60% of the bonus and a discretionary assessment linked to qualitative strategic objectives for 40% of the bonus. Under the program, each officer’s bonus is capped at 200% of target. The formulaic portion of the bonus is designed to align executive officers’ interests with shareholder priorities of corporate returns on capital and progress towards free cash flow generation and is based on achievement of defined performance levels and weightings related to:
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Quantitative Objective
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Weighting
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Oil Production
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10%
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(LOE + Cash G&A)/BOE
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12.5%
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Proved Developed F&D/BOE
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10%
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Net Debt/EBITDA
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15%
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Cash Return on Cash Invested
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12.5%
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The Committee also established strategic qualitative objectives for the 2019 annual cash bonus program related to the following:
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Health, safety and environmental performance
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Organizational and talent development
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Advancement of "life of field" development plans and associated well productivity initiatives
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Other strategic initiatives, including selective divestitures of non-core assets to reduce capital intensity.
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Collectively, these qualitative factors will carry a weighting of 40% in the bonus calculation for 2019.
Annual Award of Long-Term Incentives
We believe that a long-term incentive program that includes awards of both restricted stock units (“RSUs”) and performance stock units (“PSUs”) provides appropriate retention incentives and effectively aligns our executive officers’ interests with the interests of our shareholders on a long-term basis. Our PSUs have a performance-based component that compares our total shareholder return ("TSR") with that of the Peer Group over a defined performance period. We believe this combination of LTI awards provides appropriate incentives that capture absolute performance of our common stock as well as comparative returns relative to other oil and gas companies. The Committee believes that granting LTI awards is an effective means to provide substantial forward-looking incentives to our executive officers that emphasize:
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Long-term value creation by linking compensation with long-term operational success;
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Alignment of the long-term interests of our executive officers with those of our shareholders by directly linking rewards to shareholder return;
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Retention incentives for our executive officers; and
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Meaningful equity participation by our executive officers.
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The Committee administers our long-term incentive programs, approves award recipients and amounts, and determines the vesting and performance criteria. For the grant of LTI compensation to executive officers, the Committee will typically consider market information provided by Meridian related to the program design and award amounts. We have no program, plan or obligation that requires us to grant LTI compensation on specified dates.
For the 2018 LTI grants, the Committee approved a 40%/60% mix for our executive officers of time-based RSUs and performance based awards tied to relative TSR, respectively. The performance awards are granted as PSUs that settle 50% in cash and 50% in stock. The following table sets forth the number of RSUs and PSUs awarded to the executive officers at our normal annual grant in May 2018:
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NEO
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Total Value
$
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RSUs Payable in
Common Stock
(a)
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PSUs Payable in
50% Stock and 50% cash
(b)
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Joseph C. Gatto, Jr.
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$3,899,990
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110,169
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165,254
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James P. Ulm, II
(c)
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$1,062,000
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—
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75,000
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Michol L. Ecklund
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$700,000
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19,773
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29,662
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Correne S. Loeffler
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$357,993
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10,112
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15,170
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Mitzi P. Conn
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$330,990
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9,349
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14,026
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Gary A. Newberry
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$2,099,999
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59,321
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88,984
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(a)
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Amounts represent RSUs that are subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche will vest on June 1, 2019; the second on June 1, 2020; and the third on June 1, 2021 and each tranche will settle in Company common stock on the vesting date.
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(b)
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Amounts represent PSUs that are scheduled to vest on December 31, 2020 and settled in 50% Company common stock and 50% cash at a variable rate between 0% and 200% based on our TSR when compared to pre-determined peer companies.
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(c)
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Mr. Ulm was awarded a hire-on grant of RSUs upon joining the Company in December 2017 in lieu of an annual grant in May 2018.
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RSU program
In 2018, the Committee awarded NEOs with time-based RSUs that will vest in one-third increments annually beginning June 1, 2019, provided the executive officer continues to be employed on the vesting dates, and will be paid in shares of the Company’s common stock.
PSU program
In 2018, the Committee awarded PSUs to the NEOs that will vest at the end of the 32-month performance period based on the Company’s TSR ranking relative to the "New 2018 Peer Group" listed on page 36. TSR is the change in the common stock price plus dividends over the defined performance period using a 20-day average at the beginning and end of the performance period. The Committee believes relative TSR is an appropriate long-term performance metric because it provides a strong alignment of the interests of management and the Company’s shareholders. The Committee also believes that the PSU program provides a good balance to the restricted stock unit program. PSUs are eligible for vesting if the employee continues to be employed until the vesting date on December 31, 2020. PSUs will vest at the percentage set forth below based on the Company’s relative TSR ranking for the performance period. Vesting will be interpolated for percentile ranks between the percentiles described:
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Callon’s TSR Percentile Rank Among the Peer Companies
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PSUs Vesting as a Percentage of Target
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>=90th Percentile
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200
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%
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70th Percentile
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150
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%
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50th Percentile
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100
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%
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30th Percentile
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50
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%
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<30th Percentile
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0
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%
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If the Company's TSR is negative during the performance period the payout will be capped at 100% of target. The vested PSUs will pay out 50% in cash and 50% in shares of the Company's common stock.
Vesting of 2016-2018 Performance Awards
In May 2016, our Compensation Committee granted PSUs to the executive officers that vested on December 31, 2018. Under the provisions of these awards, the awards were subject to our relative TSR performance compared with the TSR of the peer companies specified in the award agreement. The Company's TSR during the performance period ranked fifth relative to the 13 peer companies, resulting in vesting of 142% of the target PSUs awarded. Vested units were paid 50% in cash and 50% in Company common stock.
The table below summarizes the PSUs earned by the executive officers for the 2016-2018 performance period:
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NEO
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Target Number
of PSUs
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Percent of Target
PSUs Earned
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Actual Vested PSUs
(Settled 50% Cash and 50% Shares)
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Joseph C. Gatto, Jr.
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65,100
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142%
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92,442
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James P. Ulm, II
(a)
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—
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—
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—
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Michol L. Ecklund
(a)
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—
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—
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—
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Correne S. Loeffler
(a)
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—
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—
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—
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Mitzi P. Conn
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17,902
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142%
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25,420
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Gary A. Newberry
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65,100
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142%
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92,442
|
|
|
(a)
|
Executive was not employed by the Company in May 2016 when award was granted.
|
Other Compensation
Perquisites and Other Benefits
Benefits represent a relatively small part of our overall compensation package; however, these benefits help attract and retain senior level executives. We review these benefits annually to ensure that they are competitive with industry norms. We provide benefits commonly offered in the oil and gas E&P industry to all of our employees. These benefits consist of:
|
|
•
|
Group medical and dental insurance program for employees and their qualified dependents;
|
|
|
•
|
Group life insurance for employees and their spouses;
|
|
|
•
|
Accidental death and dismemberment coverage for employees;
|
|
|
•
|
Long-term disability coverage;
|
|
|
•
|
Callon's sponsored cafeteria plan; and
|
|
|
•
|
401(k) employee savings and protection plan.
|
We pay the full costs of these benefits, including the 401(k) plan administration, for all employees. Employee life insurance amounts that surpass the Internal Revenue Service maximum are treated as additional compensation to all employees.
Under our 401(k) plan, employees may elect to defer a portion of their compensation up to the statutorily prescribed limit. The Company provides contributions for qualified employees, including NEOs, of 5% of the employee’s IRS eligible salary. We also match employee deferral amounts, including amounts deferred by NEOs, up to a maximum of 5% of IRS eligible salary.
Our NEOs are entitled to certain benefits, or perquisites, that are not otherwise available to all of our employees. We provide our executive officers with use of a Company automobile. We purchase the automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to recognize taxable income using the Internal Revenue Service’s annual lease value method for personal use of the vehicle. The costs associated with these benefits for the NEOs are reported as “Other Compensation” in the Summary Compensation Table. The Committee believes these perquisites are modest, yet competitive with the perquisites provided to similarly situated oil and gas industry executives.
Change in Control Severance Protection
We have no employment agreements with our executive officers, but we do provide change in control severance compensation agreements (“SCAs”) with each of our executive officers that provide certain protections upon a change in control. The Committee believes that SCAs serve shareholders’ best interests by diminishing potential distractions for our executive officers in the event of a potential corporate restructuring or change in control transaction. These protections also help ensure continuity of management in the event of certain corporate transactions. However, the Committee believes that executives should not be unduly enriched, and all benefits under the SCAs require a "double trigger." For a more detailed explanation of the SCAs, including amendments adopted as of January 1, 2019, please see “Employment Agreements, Termination of Employment and Change in Control (“CIC”) Arrangements” on page 50.
Stock Ownership Guidelines
Consistent with its goal of driving long-term value creation for our shareholders, the Committee’s stock ownership guidelines require significant stock ownership by the executive officers and directors. The Committee believes that requiring meaningful stock ownership by our executive officers and directors is an important way to further align their interests with the interests of our shareholders and discourage undue risk taking. Accordingly, the Committee has adopted a stock ownership policy which applies to the CEO, the other executive officers and outside directors as described below. The guidelines require the executive officers and directors to hold the following amounts of our stock:
|
|
|
Executive Officers/Directors
|
Required Common Stock Ownership as a Multiple of Annual Base Salary / Annual Retainer
|
CEO
|
6x
|
Directors
|
5x
|
Other Executive Officers
|
2x
|
The Committee evaluates compliance with these guidelines on an annual basis. For purposes of the guidelines, shares owned indirectly, shares in the executive officer's 401(k) plan and any unvested time-based RSUs are included. The value of unvested PSUs is excluded.
Each executive officer has a transition period of five years from the date the individual becomes subject to the guidelines to attain the required investment position. If an executive officer becomes subject to a greater ownership requirement due to a promotion or an increase in salary, the executive officer will be expected to attain the higher level within three years of the change.
Each outside director is required to achieve the ownership requirement within five years following their election as a director.
All participants are currently in compliance with the stock ownership policy, either through meeting the ownership requirement or by being within the transition period.
Internal Revenue Service Limitations
Section 162(m) of the Internal Revenue Code places a limit of $1.0 million on the amount of compensation that we may deduct in any one year with respect to compensation paid to each covered employee. For years prior to 2018, an exception to the deduction limit for compensation qualified as “performance-based.” The enactment of the Tax Cuts and Jobs Act on December 22, 2017 repealed the "performance-based" exemption from Section 162(m)‘s deduction limit. In addition, the limitation on deductibility was expanded to include any individual who is an NEO in 2017 or any later calendar year. As a result, compensation paid to our NEOs in excess of $1 million will not be deductible for years subsequent to 2017, subject to limited transition relief for arrangements in place as of November 2, 2017. Despite the change in law, the Committee intends to continue to consider the deductibility of compensation and to implement compensation programs that it believes are competitive and in the best interests of the Company and its shareholders.
Insider Trading Policy
The Company’s Board has adopted a comprehensive Insider Trading Policy for employees and directors to promote compliance with federal and state securities laws. The policy prohibits certain persons who are aware of material non-public information about a company from: (i) trading in securities of that company; or (ii) providing material non-public information to other persons who may trade on the basis of that information. When material non-public information about us may exist and may have an influence on the marketplace, a trading blackout period is placed in effect by management. In addition, this Insider Trading Policy also applies to family members, other members of a person’s household, and entities controlled by a person covered by this Insider Trading Policy. Officers, directors, and designated employees, as well as the family members and controlled entities of such persons, may not engage in any transaction in Company securities without first obtaining pre-clearance of the transaction from our General Counsel.
Under the Insider Trading Policy, directors, executive officers and other employees are prohibited from entering into any hedging or monetization transactions relating to Callon's securities or otherwise trading in any instrument relating to the future securities' price. This Insider Trading Policy also prevents directors and executive officers from pledging Callon common stock as collateral for loans or holding Callon securities in a margin account.
Recoupment Policy
We have no recoupment policy applicable to annual incentive bonuses or LTI awards other than those required under Sarbanes-Oxley legislation, though the Committee regularly evaluates the need to adopt such a policy.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the CD&A required by Item 402(b) of Regulation S-K promulgated under the Exchange Act, and based on such review and discussions, the Committee has recommended to the Board that the CD&A be included in this Proxy Statement relating to the 2019 Annual Meeting of Shareholders.
Respectfully submitted by the Compensation Committee of the Board of Directors,
Matthew R. Bob,
Chairman
Michael L. Finch
L. Richard Flury
Anthony J. Nocchiero
James M. Trimble
Executive Compensation Tables
Summary Compensation Table
The compensation paid to the Company’s executive officers generally consists of base salaries, annual cash incentive payments, awards under the 2011 Omnibus Incentive Plan and the 2018 Omnibus Incentive Plan (approved by shareholders in 2018), contributions to the Company’s defined contribution 401(k) retirement plan and miscellaneous perquisites. The table below sets forth information regarding fiscal years 2018, 2017 and 2016 compensation awarded to, earned by or paid to the Company’s NEOs, in each case for the years in which these individuals constituted "named executive officers" under SEC rules. This includes all individuals who served as the Company's CEO or CFO during 2018, the three other most highly compensated executive officers serving at the end of the fiscal year, and our former Chief Operating Officer who would have been in the top three but stepped down from the role prior to year-end:
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
Year
|
Salary
|
|
Bonus
(a)
|
Stock
Awards
|
|
All Other Compensation
(b)
|
Total
|
Joseph C. Gatto, Jr.
(c)
President & CEO
|
2018
|
$666,346
|
(d)
|
$980,000
|
$3,899,990
|
(e)
|
$31,430
|
$5,577,766
|
2017
|
$494,568
|
|
$690,000
|
$2,599,998
|
|
$41,816
|
$3,826,382
|
2016
|
$367,308
|
|
$630,000
|
$1,907,000
|
|
$35,948
|
$2,940,256
|
James P. Ulm, II
(f)
Senior Vice President
& CFO
|
2018
|
$465,000
|
|
$585,900
|
$1,062,000
|
(e)
|
$39,245
|
$2,152,145
|
2017
|
$17,885
|
|
$52,000
|
$989,100
|
|
$0
|
$1,058,985
|
Michol L. Ecklund
(g)
Senior Vice President, General Counsel
& Corporate Secretary
|
2018
|
$340,577
|
(h)
|
$343,000
|
$700,000
|
(e)
|
$38,131
|
$1,421,708
|
Correne S. Loeffler
(i)
Vice President - Finance
& Treasurer
|
2018
|
$259,615
|
(j)
|
$259,700
|
$357,993
|
(e)
|
$31,167
|
$908,475
|
2017
|
$164,904
|
|
$176,400
|
$537,239
|
|
$3,710
|
$882,253
|
Mitzi P. Conn
(k)
Vice President &
Chief Accounting Officer
|
2018
|
$239,615
|
(l)
|
$240,100
|
$330,990
|
(e)
|
$30,987
|
$841,692
|
2017
|
$225,000
|
|
$189,000
|
$329,997
|
|
$30,118
|
$774,115
|
2016
|
$198,370
|
|
$250,000
|
$471,400
|
|
$28,811
|
$948,581
|
Gary A. Newberry
(m)
Former SVP &
Chief Operating Officer
|
2018
|
$475,000
|
|
$665,000
|
$2,099,999
|
(e)
|
$45,361
|
$3,285,360
|
2017
|
$440,529
|
|
$570,000
|
$2,799,995
|
|
$41,171
|
$3,851,695
|
2016
|
$367,308
|
|
$630,000
|
$1,907,000
|
|
$40,613
|
$2,944,921
|
|
|
(a)
|
Cash bonus awarded in first quarter of following year in recognition of previous year's performance. See "Performance-Based Annual Cash Incentive" in the CD&A above for further information.
|
|
|
(b)
|
See the "Table of All Other Compensation” below and related footnotes for reconciliation.
|
|
|
(c)
|
Mr. Gatto was promoted to Chief Executive Officer in May 2017.
|
|
|
(d)
|
Mr. Gatto's salary was increased from $575,000 to $700,000 in March 2018. See page 37 for more information.
|
|
|
(e)
|
Represents the grant date fair value of the RSUs and PSUs granted to the NEOs on May 10, 2018, computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to our consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 27, 2019.
|
|
|
(f)
|
Mr. Ulm began serving as our Chief Financial Officer in December 2017.
|
|
|
(g)
|
Ms. Ecklund was not an NEO prior to 2018.
|
|
|
(h)
|
Effective April 2, 2018, Ms. Ecklund's salary was increased from $315,000 to $350,000.
|
|
|
(i)
|
Ms. Loeffler began serving as our Treasurer in April 2017.
|
|
|
(j)
|
During April 2018, Ms. Loeffler's salary was increased from $245,000 to $265,000.
|
|
|
(k)
|
Ms. Conn was promoted to Vice President and Chief Accounting Officer in August 2016.
|
|
|
(l)
|
During April 2018, Ms. Conn's salary was increased from $225,000 to $245,000.
|
|
|
(m)
|
Mr. Newberry was promoted to Chief Operating Officer in August 2016.
|
Table of All Other Compensation
|
|
|
|
|
|
NEO
|
Year
|
Company
Contributions to 401(k)
(a)
|
Company
Provided
Auto
(b)
|
Total
|
Joseph C. Gatto, Jr.
|
2018
|
$25,000
|
$6,430
|
$31,430
|
|
2017
|
$31,500
|
$10,316
|
$41,816
|
|
2016
|
$26,500
|
$9,448
|
$35,948
|
James P. Ulm, II
|
2018
|
$26,493
|
$12,752
|
$39,245
|
|
2017
|
$0
|
$0
|
$0
|
Michol L. Ecklund
|
2018
|
$25,312
|
$12,819
|
$38,131
|
Correne S. Loeffler
|
2018
|
$25,902
|
$5,265
|
$31,167
|
|
2017
|
$3,710
|
$0
|
$3,710
|
Mitzi P. Conn
|
2018
|
$23,961
|
$7,026
|
$30,987
|
|
2017
|
$22,500
|
$7,618
|
$30,118
|
|
2016
|
$20,212
|
$8,599
|
$28,811
|
Gary A. Newberry
|
2018
|
$27,500
|
$17,861
|
$45,361
|
|
2017
|
$27,000
|
$14,171
|
$41,171
|
|
2016
|
$26,500
|
$14,113
|
$40,613
|
|
|
(a)
|
Subject to IRS limits, Company contributions to each employee's 401(k) account consist of a 5% non-matching contribution plus a matching contribution at the rate of 0.625% in cash for every 1% that the participant deferred up to 5%.
|
|
|
(b)
|
Represents annual depreciation based on a three-year life, plus insurance, fuel, maintenance and repairs, pursuant to IRS rules.
|
Grants of Plan-Based Awards During 2018
The following table presents grants of equity awards during the fiscal year ending December 31, 2018:
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
(a)
|
|
|
NEO
|
Grant
Date
|
Threshold
|
Target
|
Maximum
|
Other Awards
(Shares or Units)
(b)
|
Grant Date
Fair Value
(c)
|
Joseph C. Gatto, Jr.
|
5/10/2018
|
—
|
—
|
—
|
110,169
|
$1,559,993
|
|
5/10/2018
|
—
|
165,254
|
330,508
|
—
|
$2,339,997
|
|
|
|
|
|
|
|
James P. Ulm, II
(d)
|
5/10/2018
|
—
|
75,000
|
150,000
|
—
|
$1,062,000
|
|
|
|
|
|
|
|
Michol L. Ecklund
|
5/10/2018
|
—
|
—
|
—
|
19,773
|
$279,986
|
|
5/10/2018
|
—
|
29,662
|
59,324
|
—
|
$420,014
|
|
|
|
|
|
|
|
Correne S. Loeffler
|
5/10/2018
|
—
|
—
|
—
|
10,112
|
$143,186
|
|
5/10/2018
|
—
|
15,170
|
30,340
|
—
|
$214,807
|
|
|
|
|
|
|
|
Mitzi P. Conn
|
5/10/2018
|
—
|
—
|
—
|
9,349
|
$132,382
|
|
5/10/2018
|
—
|
14,026
|
28,052
|
—
|
$198,608
|
|
|
|
|
|
|
|
Gary A. Newberry
|
5/10/2018
|
—
|
—
|
—
|
59,321
|
$839,986
|
|
5/10/2018
|
—
|
88,984
|
177,968
|
—
|
$1,260,013
|
|
|
(a)
|
Amounts represent PSUs payable 50% in cash and 50% in stock on the vesting date, currently scheduled for December 31, 2020. See "PSU Program" in the CD&A above for further details.
|
|
|
(b)
|
Amounts represent RSUs granted to our NEOs on May 10, 2018. These awards are scheduled to vest in equal installments on June 1, 2019, 2020, and 2021, subject to the NEO's continued service.
|
|
|
(c)
|
This column shows the grant date fair value of the awards granted to the NEOs on the date indicated computed in accordance with FASB ASC Topic 718. The assumptions utilized in the calculation of these amounts are set forth in footnotes 9 and 10 to our consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 27, 2019. The value ultimately realized by the executive upon the actual vesting of the awards may be more or less than the grant date fair value.
|
|
|
(d)
|
Mr. Ulm received an award of 90,000 RSUs when he joined the Company in December 2017. He did not receive an RSU award in 2018.
|
Stock-Based Incentive Compensation Plans
The 2011 Omnibus Incentive Plan (the "2011 Plan") was approved by shareholders on May 12, 2011 and amended on May 14, 2015. The 2018 Omnibus Incentive Plan (the "2018 Plan") was approved by shareholders on May 10, 2018. Awards available under each of the 2011 Plan and the 2018 Plan include grants of stock options, stock appreciation rights or units, restricted stock, RSUs, and performance shares or units. As of May 10, 2018, no more shares will be issued from the 2011 Plan and the remaining 1,322,742 shares authorized and available for issuance under the 2011 Plan will be transferred into the 2018 Plan. Shares, which would otherwise become available for issuance under the 2011 Plan as a result of vesting and/or forfeiture of any equity awards existing prior to the effective date of the 2018 Plan, will increase the authorized shares available to the 2018 Plan. As of March 15, 2019, 7,811,037 shares remain unissued in the 2018 Plan.
Outstanding Equity Awards at Fiscal Year-End
The following table contains information concerning all outstanding equity awards that were held as of December 31, 2018 for the NEOs:
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
NEO
|
Number of Shares or Units of Stock That Have Not Vested (#)
|
|
Market Value of Shares or Units of Stock That Have Not Vested
(a)
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
(a)
|
Joseph C. Gatto, Jr.
|
36,890
|
|
(b)
|
$239,416
|
—
|
|
|
$0
|
|
—
|
|
|
$0
|
6,510
|
|
(c)
|
$42,250
|
|
50,000
|
|
(d)
|
$324,500
|
—
|
|
|
$0
|
|
42,868
|
|
(e)
|
$278,213
|
—
|
|
|
$0
|
|
80,098
|
|
(f)
|
$519,836
|
—
|
|
|
$0
|
|
110,169
|
|
(g)
|
$714,997
|
—
|
|
|
$0
|
|
—
|
|
|
$0
|
32,152
|
|
(h)
|
$208,666
|
|
—
|
|
|
$0
|
32,152
|
|
(i)
|
$208,666
|
|
—
|
|
|
$0
|
82,627
|
|
(j)
|
$536,249
|
|
—
|
|
|
$0
|
82,627
|
|
(k)
|
$536,249
|
James P. Ulm, II
|
90,000
|
|
(l)
|
$584,100
|
—
|
|
|
$0
|
|
—
|
|
|
$0
|
37,500
|
|
(j)
|
$243,375
|
|
—
|
|
|
$0
|
37,500
|
|
(k)
|
$243,375
|
Michol L. Ecklund
|
37,500
|
|
(m)
|
$243,375
|
—
|
|
|
$0
|
|
19,773
|
|
(g)
|
$128,327
|
—
|
|
|
$0
|
|
—
|
|
|
$0
|
14,831
|
|
(j)
|
$96,253
|
|
—
|
|
|
$0
|
14,831
|
|
(k)
|
$96,253
|
Correne S. Loeffler
|
23,333
|
|
(n)
|
$151,431
|
—
|
|
|
$0
|
|
7,068
|
|
(e)
|
$45,871
|
—
|
|
|
$0
|
|
10,112
|
|
(g)
|
$65,627
|
—
|
|
|
$0
|
|
—
|
|
|
$0
|
3,030
|
|
(h)
|
$19,655
|
|
—
|
|
|
$0
|
7,585
|
|
(j)
|
$49,227
|
|
—
|
|
|
$0
|
7,585
|
|
(k)
|
$49,227
|
Mitzi P. Conn
|
10,145
|
|
(b)
|
$65,841
|
—
|
|
|
$0
|
|
—
|
|
|
$0
|
1,790
|
|
(c)
|
$11,617
|
|
10,000
|
|
(d)
|
$64,900
|
—
|
|
|
$0
|
|
10,881
|
|
(e)
|
$70,618
|
—
|
|
|
$0
|
|
9,349
|
|
(g)
|
$60,675
|
—
|
|
|
$0
|
|
—
|
|
|
$0
|
8,162
|
|
(h)
|
$52,971
|
|
—
|
|
|
$0
|
8,162
|
|
(i)
|
$52,971
|
|
—
|
|
|
$0
|
7,013
|
|
(j)
|
$45,514
|
|
—
|
|
|
$0
|
7,013
|
|
(k)
|
$45,514
|
Gary A. Newberry
|
36,890
|
|
(b)
|
$239,416
|
—
|
|
|
$0
|
|
—
|
|
|
$0
|
6,510
|
|
(c)
|
$42,250
|
|
50,000
|
|
(d)
|
$324,500
|
—
|
|
|
$0
|
|
42,868
|
|
(e)
|
$278,213
|
—
|
|
|
$0
|
|
59,321
|
|
(g)
|
$384,993
|
—
|
|
|
$0
|
|
—
|
|
|
$0
|
32,152
|
|
(h)
|
$208,666
|
|
—
|
|
|
$0
|
32,152
|
|
(i)
|
$208,666
|
|
—
|
|
|
$0
|
44,492
|
|
(j)
|
$288,753
|
|
—
|
|
|
$0
|
44,492
|
|
(k)
|
$288,753
|
|
138,632
|
|
(o)
|
$899,722
|
—
|
|
|
$0
|
|
|
(a)
|
Amounts calculated using the closing price of $6.49 per share of our common stock on the last trading day of 2018.
|
|
|
(b)
|
Stock settleable RSUs awarded on May 13, 2016 subject to cliff vesting on May 13, 2019.
|
|
|
(c)
|
Cash settleable RSUs awarded on May 13, 2016 subject to cliff vesting on May 13, 2019.
|
|
|
(d)
|
Stock settleable RSUs awarded August 24, 2016 subject to cliff vesting on August 24, 2019.
|
|
|
(e)
|
Stock settleable RSUs awarded on May 11, 2017 subject to cliff vesting on May 11, 2020.
|
|
|
(f)
|
Stock settleable RSUs awarded to Mr. Gatto upon his promotion to CEO on July 11, 2017 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on July 1, 2018. The second tranche will vest on July 1, 2019. The third and final tranche will vest on July 1, 2020.
|
|
|
(g)
|
Stock settleable RSUs awarded on May 10, 2018 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche will vest on June 1, 2019. The second tranche will vest on June 1, 2020. The third and final tranche will vest on June 1, 2021.
|
|
|
(h)
|
Stock settleable PSUs awarded on May 11, 2017 with vesting terms subject to performance criteria related to the TSR of the Company compared to a group of peer companies from May 2017 through December 31, 2019. The number of units subject to vest under this award can range from 0% to 200%.
|
|
|
(i)
|
Cash settleable PSUs awarded on May 11, 2017 with vesting terms subject to performance criteria related to the TSR of the Company compared to a group of peer companies from May 2017 through December 31, 2019. The number of units subject to vest under this award can range from 0% to 200%.
|
|
|
(j)
|
Stock settleable PSUs awarded on May 10, 2018 with vesting terms subject to performance criteria related to the TSR of the Company compared to a group of peer companies from May 2018 through December 31, 2020. The number of units subject to vest under this award can range from 0% to 200%.
|
|
|
(k)
|
Cash settleable RSUs awarded on May 10, 2018 with vesting terms subject to performance criteria related to the TSR of the Company compared to a group of peer companies from May 2018 through December 31, 2020. The number of units subject to vest under this award can range from 0% to 200%.
|
(l)
Stock settleable RSUs awarded to Mr. Ulm upon his hiring on December 11, 2017 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on January 1, 2019. The second tranche will vest on January 1, 2020. The third and final tranche will vest on January 1, 2021.
(m)
Stock settleable RSUs awarded to Ms. Ecklund upon her hiring on November 6, 2018 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on January 1, 2019. The second tranche will vest on January 1, 2020. The third and final tranche will vest on January 1, 2021.
|
|
(n)
|
Stock settleable RSUs awarded to Ms. Loeffler upon her hiring on April 24, 2017 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on March 1, 2018. The second tranche vested on March 1, 2019. The third and final tranche will vest on March 1, 2020.
|
|
|
(o)
|
Stock settleable RSUs awarded to Mr. Newberry on July 11, 2017 subject to three-year ratable vesting with one-half vesting on the second year subsequent to the award year. The first tranche will vest on July 1, 2019; and the second and final tranche will vest on July 1, 2020.
|
Stock Vested
The following table provides information about the value realized by the NEOs on vesting of RSUs and PSUs during 2018:
|
|
|
|
|
|
|
|
Stock Awards
(a)
|
NEO
|
Number of Shares
Acquired on Vesting (#)
|
|
Value Realized on Vesting $
(b)
|
|
Joseph C. Gatto, Jr.
|
46,221
|
|
(c)
|
$299,974
|
|
|
—
|
|
|
$299,974
|
(d)
|
|
24,848
|
|
(e)
|
$344,145
|
|
|
—
|
|
|
$61,127
|
(f)
|
|
40,050
|
|
(g)
|
$430,137
|
|
James P. Ulm, II
(h)
|
—
|
|
|
$0
|
|
Michol L. Ecklund
(h)
|
—
|
|
|
$0
|
|
Correne S. Loeffler
|
11,667
|
|
(i)
|
$125,304
|
|
Mitzi P. Conn
|
12,710
|
|
(c)
|
$82,488
|
|
|
—
|
|
|
$82,488
|
(d)
|
|
12,424
|
|
(e)
|
$172,072
|
|
|
—
|
|
|
$30,557
|
(f)
|
Gary A. Newberry
|
46,221
|
|
(c)
|
$299,974
|
|
|
—
|
|
|
$299,974
|
(d)
|
|
24,848
|
|
(e)
|
$344,145
|
|
|
—
|
|
|
$61,127
|
(f)
|
|
|
(a)
|
No options were awarded, outstanding, expired, or exercised by any NEO in 2018.
|
|
|
(b)
|
Except as otherwise indicated, represents the aggregate dollar amount realized on the date of vesting, based on the closing market price per share of Company common stock on the vesting date or last business day prior to the vesting date if such date fell on a weekend or holiday.
|
|
|
(c)
|
Represents PSUs awarded on May 13, 2016 that settled in stock on December 31, 2018.
|
|
|
(d)
|
Represents PSUs awarded on May 13, 2016 that settled in cash on December 31, 2018, which include amounts as follows: Mr. Gatto - 46,221, Ms. Conn - 12,710, and Mr. Newberry - 46,221.
|
|
|
(e)
|
Represents RSUs awarded on May 14, 2015 that settled in stock on the May 14, 2018 vesting date.
|
|
|
(f)
|
Represents RSUs awarded on May 14, 2015 that settled in cash on the May 14, 2018 vesting date, which include amounts as follows: Mr. Gatto - 4,385, Ms. Conn - 2,192, and Mr. Newberry - 4,385.
|
|
|
(g)
|
Represents RSUs awarded on July 11, 2017; the first tranche of which vested on July 11, 2018.
|
|
|
(h)
|
NEO had no stock vest during 2018.
|
|
|
(i)
|
Represents RSUs awarded on April 24, 2017; the first tranche of which vested on March 1, 2018.
|
Employment Agreements, Termination of Employment and Change in Control Arrangements
Employment Agreements
We do not have employment agreements with any of our executive officers.
Severance Compensation Agreements
We entered into amended Change in Control Severance Compensation Agreements (“SCA”) with each of our NEOs effective as of January 1, 2019. The SCA will terminate, except to the extent that any obligation of Callon thereunder remains unpaid as of such time, upon the earliest of (i) December 31, 2019, except that, on each anniversary date thereafter, the expiration date will automatically be extended for one additional year unless, as of such date and prior to such anniversary date, either party has given proper written notice that it does not wish to extend the SCA, but in no event will the expiration date be earlier than the second anniversary of the effective date of a change in control; (ii) the termination of the NEOs employment with Callon based on death, disability (as defined in the SCA), or cause (as defined in the SCA); (iii) the voluntary resignation of the NEOs for any reason other than a post-change in control resignation for good reason (as defined in the SCA); and (iv) any resignation of the NEO prior to a change in control.
Pursuant to the SCA, if the executive is terminated without cause by Callon or for good reason by him within two years following a change in control of Callon (or in certain cases, prior to a change in control), then the executive is entitled to a single lump-sum cash payment equal to an SCA multiple times the sum of (i) the annual base salary in effect immediately prior to the change in control or, if higher, in effect immediately prior to the separation from service, and (ii) the greater of the average bonus earned with respect to the three most recently completed full fiscal years or the target bonus for the fiscal year in which the change in control or termination occurs. For Mr. Gatto, the SCA multiple is three times. For the other NEOs, the SCA multiple is two times. The SCAs also provide that in the event an NEO is eligible for benefits due to a “double trigger” termination, any outstanding equity awards then held by the NEO shall vest in full with any performance-based awards earned at the level specified in the applicable award agreement or, if not specified, at the target level. In addition, we must maintain at our expense until twenty-four months after a separation from service all medical, dental, and health insurance coverage. A change in control as generally defined in the SCA occurs when (i) any person or group of persons acting in concert becomes the beneficial owner of more than 50% of our outstanding common stock; (ii) our shareholders cause a change in the majority of the members of the Board within a thirty-six month period; (iii) there is a change in control in ownership of at least 40% of Company assets; or (iv) a third party acquires more than 30% of the voting power of our common stock in a twelve month period.
The SCAs incorporate a provision to provide for the possible impact of the federal excise tax on excess parachute payments. If any SCA payment is subject to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the payment will be reduced so that no portion of the payment is subject to such excise tax if the net benefit payable would be at least as much as it would have been if no reduction was made. The so-called “golden parachute” tax rules subject “excess parachute payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient and non-deductibility of such payments by the paying corporation. While the excise tax is seemingly evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, against individuals who do not exercise stock options in favor of those who do and against those who elect to defer compensation in favor of those who do not. For these reasons, we believe that the “net-best” provision included in the SCA is appropriate.
Potential Payments upon Termination or Change in Control
The following table shows the estimated gross taxable compensation payable upon termination following a change in control or upon death, disability or retirement. No amounts would be payable upon termination for other causes. The information assumes, in each case, that the officer’s termination was effective as of December 31, 2018. In presenting this disclosure, we describe amounts earned through December 31, 2018 and, in those cases where the actual amounts to be paid out can only be determined at the time of such executive’s separation from us, the estimates are of the amounts which would be paid out to the executives upon their termination.
|
|
|
|
|
|
|
NEO / Reason for Termination
|
Base
Salary
(a)
|
Cash
Bonus
(a)
|
Accelerated
Stock Award
Vesting
(b)
|
Continued
Employee
Benefits
(c)
|
Total
|
Joseph C. Gatto, Jr.
- CIC
(d)
|
$2,100,000
|
$2,100,000
|
$4,031,547
|
$46,763
|
$8,278,310
|
Death, Disability or Retirement
(e)
|
$0
|
$0
|
$4,031,547
|
$0
|
$4,031,547
|
James P. Ulm, II
- CIC
(d)
|
$930,000
|
$837,000
|
$1,070,850
|
$46,763
|
$2,884,613
|
Death, Disability or Retirement
(e)
|
$0
|
$0
|
$1,070,850
|
$0
|
$1,070,850
|
Michol L. Ecklund
- CIC
(d)
|
$700,000
|
$490,000
|
$564,208
|
$46,763
|
$1,800,971
|
Death, Disability or Retirement
(e)
|
$0
|
$0
|
$564,208
|
$0
|
$564,208
|
Correne S. Loeffler
- CIC
(d)
|
$530,000
|
$371,000
|
$381,050
|
$46,414
|
$1,328,464
|
Death, Disability or Retirement
(e)
|
$0
|
$0
|
$381,050
|
$0
|
$381,050
|
Mitzi P. Conn
- CIC
(d)
|
$490,000
|
$439,000
|
$586,806
|
$46,214
|
$1,562,020
|
Death, Disability or Retirement
(e)
|
$0
|
$0
|
$586,806
|
$0
|
$586,806
|
Gary A. Newberry
(f)
- CIC
(d)
|
$950,000
|
$1,200,000
|
$3,586,432
|
$33,429
|
$5,769,861
|
Death, Disability or Retirement
(e)
|
$0
|
$0
|
$3,586,432
|
$0
|
$3,586,432
|
|
|
(a)
|
In accordance with Mr. Gatto’s SCA, the computation uses a three-year multiple with respect to the severance amount relating to salary and target bonus, while a two-year multiple is used for the other NEOs. See “Employment Agreements, Termination of Employment and Change in Control Arrangements.”
|
|
|
(b)
|
The amounts are calculated based on unvested stock awards at December 31, 2018 using the closing price of $6.49 per share of our common stock on the last trading day of 2018.
|
|
|
(c)
|
Benefits consist of twenty-four months of employer provided family medical and dental insurance and disability and life insurance for the NEOs in the table.
|
|
|
(d)
|
We entered into a Severance Compensation Agreement with each of the NEOs listed in the table above. See “Employment Agreements, Termination of Employment and Change in Control Arrangements.”
|
|
|
(e)
|
“Disability” is generally defined as the employee’s inability to carry out the normal and usual duties of his employment on a full-time basis for an entire period of six continuous months together with the reasonable likelihood, as determined by the Board after consultation of a qualified physician, he will be unable to carry out his normal and usual duties of employment. “Retirement” is generally defined as the employee’s attainment of age 55 with at least 10 years of service.
|
|
|
(f)
|
Gary A. Newberry retired from the Company effective January 31, 2019 and is no longer eligible to receive any payment upon termination following a change in control or upon death, disability or retirement.
|
Pension and Non-Qualified Deferred Compensation Plans.
We sponsor a 401(k) plan for all eligible employees, including the NEOs as described on page 42. We do not sponsor any qualified or non-qualified defined benefit plans, or any non-qualified defined contribution plan. The Board or Compensation Committee may elect to adopt qualified or non-qualified defined benefit plans or non-qualified defined contribution plans in the future if it determines that doing so is in the Company’s best interest.
CEO Pay Ratio
Pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are disclosing here that the ratio of our median employee’s compensation to the compensation of our Chief Executive Officer (CEO) is 40:1.
In order to find the median employee, we used the sum of the base salary and bonus, including any overtime or commission that was paid to the employee. Furthermore, we annualized the bonus, base salary, and any overtime for employees that were not employed the entire 2018 year, other than for temporary and seasonal employees. We identified the median employee from the employee population as of December 31, 2018.
In accordance with SEC rules, we then determined the annual total compensation of our median employee for 2018, which was $137,712. This amount represents the total compensation that would have been reported in the Summary Compensation Table in accordance with the requirements of Item 402(c)(x) of Regulation S-K for the median employee if the employee had been a Named Executive Officer for fiscal year 2018. For purposes of calculating the ratio, an additional value of $2,789 was included in the annual compensation for non-discriminatory benefits bringing the annual total compensation to $140,501.
We determined the amount of the CEO’s annual total compensation was $5,577,766 which represents the amount reported for the CEO in the “Total” column of our 2018 Summary Compensation Table. For purposes of the ratio, an additional value of $23,882 was included in the annual total compensation for non-discriminatory benefits to bring the value to $5,601,148.
Based on the foregoing, for 2018 the ratio of the median of the annual total compensation of all employees to the annual total compensation of our CEO is 40:1.
Callon’s CEO Pay Ratio increased from 2017 to 2018 due to several contributing factors. The 2018 Pay Ratio reflects increases in the salary and target long-term incentive value for the CEO that were approved by the Compensation Committee in 2018 in order to better align his compensation with the competitive market, reflect his tenure in the role, and reward performance. In addition, the employee selected as our median employee for the ratio comparison did not receive a long-term incentive award from the Company in 2018 because she commenced employment in the middle of the 2018 calendar year. For this reason, we have calculated an additional pay ratio that includes an estimated amount of long-term incentive value that the median employee would have been awarded for calendar year 2018 had she been employed on the long-term incentive award grant date. If the estimated long-term incentive amount had been included in the median employee’s total compensation, then the pay ratio would have been 32:1.
The pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records.
|
|
|
|
|
|
|
Proposal 3
Ratification of the Appointment of the Independent Registered Public Accounting Firm, Grant Thornton LLP, for 2019
|
|
The Board recommends that you vote “
FOR
” the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2019.
•
The Board and the Audit Committee believe the retention of Grant Thornton LLP is in the best interests of Callon and its shareholders based on the information presented below.
|
|
|
|
The Audit Committee has appointed Grant Thornton LLP, as the independent registered public accounting firm to audit our consolidated financial statements for the year ending December 31, 2019. We are asking shareholders to ratify this appointment. Grant Thornton LLP has served as the Company’s independent registered public accounting firm since being appointed effective March 3, 2016. A representative of Grant Thornton LLP will be present at the 2019 Annual Meeting and will have the opportunity to make a statement, if they desire, and to respond to appropriate questions from shareholders.
Fees
The following table sets forth the fees incurred by us for services performed by Grant Thornton LLP in the fiscal years 2017 and 2018:
|
|
|
|
Fee Category
|
2017
|
2018
|
Audit fees
(a)
|
$817,789
|
$959,652
|
Audit-related fees
(b)
|
$0
|
$0
|
Tax fees
(c)
|
$15,900
|
$21,647
|
All other fees
(d)
|
$0
|
$0
|
Total
|
$833,689
|
$993,499
|
|
|
(a)
|
Audit fees consist of the aggregate fees billed for professional services related to the audit and quarterly reviews of our financial statements and for services that are
normally
provided by the accountant in connection with statutory and regulatory filings or engagements.
|
|
|
(b)
|
Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements that are not reported above under “Audit” fees.
|
|
|
(c)
|
Tax fees consist of the aggregate fees billed for professional services rendered for tax compliance (including filing state and federal tax returns), tax advice and tax planning. Tax fees do not include fees for services rendered in connection with the audit.
|
|
|
(d)
|
Other fees consist of the aggregate fees billed for professional services other than the services repo
rted above.
|
Pre-approval policy
The Audit Committee pre-approves all audit and permissible non-audit services (including the fees and terms thereof) exceeding $25,000 to be performed on behalf of the Company by our independent registered public accounting firm, as required by applicable law or listing standards and subject to the terms of the audit and non-audit services pre-approval policy in accordance with the Audit Committee charter. The Committee may delegate authority to one or more of its members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that any decisions to grant pre-approvals are consistent with the terms of the delegation and the Audit Committee Charter and are presented to the full Committee at its next scheduled meeting.