In 2022, we made steady progress toward our Nu Vision 2025 strategy to become the world’s leading integrated beauty and wellness company, powered by our dynamic affiliate opportunity
platform. We finished the year at $2.23 billion of revenue and earnings per share (“EPS”) of $2.07. We experienced a decline in our business in 2022 primarily due to strict COVID-related factors in Mainland China, as well as global inflation,
which impacted consumer sentiment, and foreign-currency headwinds.
Despite these headwinds, we made meaningful progress on several of the key strategic imperatives (listed below) that are foundational to our Nu Vision 2025 transformation. This helped us
deliver annual revenue growth of 4% in the United States and 2% in Southeast Asia Pacific. Although reported revenue in our Japan and Hong Kong/Taiwan segments was down due to foreign-currency headwinds, these segments grew in constant currency.
We are pursuing the following strategic imperatives as part of our Nu Vision 2025 strategy to help us capitalize on landscape shifts that are transforming the beauty and wellness
industries around personalization, social commerce and the gig economy:
We remain confident in our Nu Vision 2025 strategy to help drive long-term growth, and our pay-for-performance compensation program motivates our management to achieve these strategic
imperatives.
During 2021 and previous years, the long-term incentive component of the NEOs’ compensation program generally consisted of 60% performance-based stock options (“PSOs”) and 40% time-based
restricted stock units (“RSUs”). For the 2022 annual equity awards, which the Committee approved in February 2022, the Committee replaced the PSOs with performance-based restricted stock units (“PRSUs”) with the same 60% weighting. The PRSUs are
measured against adjusted EPS goals, similar to the approach used for the PSOs historically.
The program, which is administered by our Compensation and Human Capital Committee (the “Committee”), is intended to align actual compensation payments to actual performance and to adjust
upward during periods of strong performance and downward when performance is short of expectations.
Our NEOs’ 2022 target compensation was divided into variable compensation (cash incentive bonus and equity awards) and fixed compensation (salary) as follows.
The following table describes the metrics upon which NEOs earn each component of variable compensation.
We believe that the 2022 outcomes under our incentive compensation programs are reflective of the pay-for-performance nature of these programs. We faced unanticipated macro-environmental
disruptions during 2022 that impacted our business globally, including continued strict COVID-related factors in Mainland China, global inflation, which impacted consumer sentiment, and unfavorable foreign-currency fluctuations. As a result, our
2022 financial results fell below the minimum of the goals established at the beginning of the year for our 2022 cash incentive bonuses. For the long-term incentive component of the compensation program, our 2022 PRSUs and 2021 PSOs were not
earned. In contrast, the 2020 PSO awards were earned at slightly above target level.
In the middle of 2022, seeing that the Company was not on track meet the 2022 pre-established goals due to unanticipated macro-environmental disruptions, the Committee and management
established a second-half incentive bonus program for the broader, non-executive employee population that objectively and quantitatively measured progress against four strategic priorities underlying Nu Vision 2025. The strategic priorities
included sales of our connected ageLOC LumiSpa iO device, a successful introduction of our “One Price” affiliate incentive structure, further adoption of our Vera and Stela apps (as measured by total downloads) and execution of a restructuring
plan. Following completion of the year and a holistic assessment of performance in these areas and the company’s overall performance in the difficult operating environment, the Committee determined to award a discretionary bonus to our NEOs of
approximately 20% of their target bonuses for the progress made on these priorities. For additional information about this bonus, see “Cash Incentive Bonus,” below.
At our 2022 annual meeting of stockholders, 99% of the votes cast were in favor of our executive compensation program. When designing our 2023 executive compensation program, the
Committee considered, among other things, the 2022 voting results, which were viewed as supportive of our pay philosophy and incentive framework.
Continuing Adherence to Compensation Governance Best Practices
We have a framework of strong corporate governance related to compensation, illustrated as follows:
What We Do
|
What We Don’t Do
|
✔ Link pay outcomes directly to company and share price performance in support of
a pay for performance philosophy
✔ Utilize multiple, complementary incentive measures in the annual and long-term
incentive plans that align with key drivers of stockholder value creation
✔ Utilize double-trigger change in control benefits
✔ Employ a comprehensive clawback policy
✔ Require robust equity retention for directors and executives
✔ Assess compensation risk annually
✔ Engage an independent compensation consultant
|
û No evergreen employment agreements
û No hedging or pledging of Nu Skin shares
û No excessive perquisites
û No excise tax gross-ups for NEOs
û No payment of current dividends on unvested equity
û No repricing of stock options without stockholder approval
|
Stockholder Outreach
We conduct stockholder outreach efforts periodically. We value the input of our stockholders, and the outreach process is an opportunity to:
|
− |
Solicit our stockholders’ feedback and better understand their perspectives on executive compensation so that the Committee can take those philosophies into account as it evaluates possible program
changes;
|
|
− |
Answer any questions that stockholders may have with respect to our existing programs and practices or past decisions; and
|
|
− |
Establish a platform for ongoing dialogue with our stockholders.
|
Compensation Design Changes in 2023
Nu Vision 2025, which we introduced in January 2022, consists of a multiyear strategic transformation to becoming the world’s leading integrated beauty and wellness company that is
powered by our dynamic affiliate opportunity platform. With that focus in mind, the Committee re-designed the cash incentive bonus plan for the NEOs in 2023 to include four strategic goals that will measure progress against Nu Vision 2025. The
incentive bonus program for the broader employee population in the second half of 2022, which is discussed above, laid the foundation for this design. The strategic goals will have a total weighting of 25% in the 2023 NEO program. The financial
component will constitute the remaining 75% weighting and will continue to be split evenly between adjusted revenue and adjusted operating income.
For the long-term incentive component, to help ensure retention during our period of strategic transformation, the weighting for time-based RSU awards was increased to 50% and the PRSU weighting was changed
from 60% to 50%.
2023 CFO Transition
As disclosed in a Form 8-K filed on March 30, 2023, Mr. Lawrence resigned as Executive Vice President and Chief Financial Officer effective as of March 31, 2023. The Company has appointed
James D. Thomas, the Company’s Senior Vice President and Chief Accounting Officer, as Interim Chief Financial Officer to serve until the Company completes a search and appoints a permanent Chief Financial Officer. Mr. Lawrence is currently
continuing to serve as a senior advisor through April 2023 to support a smooth transition. For additional information, see “Executive Compensation Tables and Accompanying Narrative”—“Potential Payments Upon Termination or Change in Control,”
below.
Compensation Overview
Objectives
The primary objectives of our compensation program are to:
|
− |
Successfully recruit, motivate and retain experienced and talented executives;
|
|
− |
Provide competitive compensation arrangements that are tied to corporate and individual performance in the short- and long-term;
|
|
− |
Align the financial interests of our executives with those of our stockholders; and
|
|
− |
Drive superior stockholder value over the long-term.
|
The Committee, in consultation with management and the Committee’s independent advisors, oversees the executive compensation and benefits program for the company’s NEOs. The compensation
program is comprised of a combination of base salary, an annual cash incentive and equity incentives, each intended to support the above-noted objectives.
Component of Compensation Program
|
Objective
|
Base Salary
(Fixed Pay)
|
− Pay for role
− Aids in recruitment and retention
|
|
|
Cash Incentive Plan
(Variable Pay: Short-Term Incentive)
|
− Pay for performance
− Aligns with annual operating achievement
− Aids in recruitment and retention
|
|
|
Equity Incentive Plan
(Variable Pay: Long-Term Incentive)
|
− Pay for performance
− Aligns with stock price performance and multi-year operating achievement
− Aids in recruitment and retention
|
We also provide retirement benefits in the form of a 401(k) plan and a deferred compensation plan, as well as limited perquisites and other personal benefits to executives that represent
a small portion of their overall compensation.
Components of Compensation
For 2022, our NEOs’ target compensation consisted of base salary; annual cash incentive bonus; equity awards; and retirement, perquisites and other benefits. Each of these components is
discussed in detail below.
Base Salary
Base salaries are provided to reflect each NEO’s responsibilities, function, performance and competencies. In establishing and approving base salaries, the Committee considers various
factors including:
|
− |
Current market practices and salary levels;
|
|
− |
Each executive officer’s responsibilities, experience in their position and capabilities;
|
|
− |
Individual performance and company performance;
|
|
− |
The relative role and contribution of each NEO in the company;
|
|
− |
Competitive offers made to executive officers and the level of salary that may be required to recruit or retain executive officers; and
|
|
− |
The recommendations of the CEO.
|
Base salaries for executive officers are typically reviewed annually in the first quarter of each year. The Committee does not assign specific weights to the factors identified above but
generally endeavors to establish base salaries that are competitive in relation to the peer group median in order to attract and retain qualified and effective executive officers.
In the first quarter of 2022, the Committee reviewed the base salaries of each of our executive officers in connection with the established annual review process and determined to
increase certain of the salaries. The NEOs’ salaries in effect during 2022 were as follows:
Name
|
|
Salary as of
12/31/2021
($)
|
|
Q1 2022
Adjustment
($)
|
|
Salary as of
12/31/2022
($)
|
Ryan S. Napierski
|
|
900,000
|
|
50,000
|
|
950,000
|
Mark H. Lawrence
|
|
575,000
|
|
20,000
|
|
595,000
|
Connie Tang
|
|
590,000
|
|
30,000
|
|
620,000
|
Joseph Y. Chang
|
|
685,000
|
|
—
|
|
685,000
|
Chayce D. Clark
|
|
400,000
|
|
50,000
|
|
450,000
|
Cash Incentive Bonus
Metrics. Our Executive Cash Incentive Plan for 2022 was based on achievement of goals related to adjusted
revenue and adjusted operating income. These two metrics were equally weighted because management is responsible for both growing the business and increasing profitability, including control of expenses.
Metric
|
Weighting
|
Purpose
|
How Calculated
|
Adjusted revenue
|
50%
|
Incentivizes business growth
|
Both metrics are calculated on a constant-currency basis from the prior-year period and are adjusted to eliminate extraneous items such as the impact of accounting changes, losses or gains on
settlements of litigation that began prior to 2022 and other unusual impacts at the Committee’s discretion.
|
Adjusted operating income
|
50%
|
Incentivizes profitability and control of expenses
|
Cash incentive bonuses under our Executive Cash Incentive Plan are based on annual performance results and are paid annually after the end of each year.
Target Bonus. Cash incentive bonuses are computed based on the degree to which pre-determined goal
performance levels are met or exceeded. If goal performance levels are met for a particular incentive period, a participant will earn a bonus equal to a pre-established percentage of year-end base salary, the “target bonus.” We set the target
bonus as a percentage of base salary based on an executive officer’s position and responsibility and on market practices. The following table provides the target bonus percentages (as a percentage of salary) for each of our NEOs in 2022.
Named
Executive Officer
|
|
2022 Target
Bonus %
|
Ryan S. Napierski
|
|
110%
|
Mark H. Lawrence
|
|
75%
|
Connie Tang
|
|
75%
|
Joseph Y. Chang
|
|
75%
|
Chayce D. Clark
|
|
75%
|
Calculation of Bonus: Achievement of Performance Goals and Adjustment for Individual Performance. The
precise percentage of target bonus that a participant will earn is based on the degree to which pre-determined performance levels are met or exceeded.
|
− |
If actual results for a particular incentive period equal:
|
|
o |
Goal performance levels – The bonus amount will be the participant’s target bonus amount for the incentive period.
|
|
o |
Minimum performance levels – The bonus amount will be 25% of the participant’s target bonus amount for the incentive period.
|
|
o |
Stretch performance levels – The bonus amount will be 200% of the participant’s target bonus amount for the incentive period.
|
|
− |
Payouts are interpolated linearly if actual results fall between the minimum and goal measurement points or between the goal and stretch measurement points.
|
|
− |
If the minimum adjusted operating income performance level is not met, no bonus is paid regardless of the adjusted revenue performance for that period.
|
|
− |
If the minimum adjusted operating income performance level is met but the minimum adjusted revenue performance level is not, 12.5% of the target bonus for the incentive period is earned.
|
Notwithstanding the above methodology, the Committee may adjust an executive’s bonus based on factors it considers relevant, including individual performance and certain
compliance-related objectives.
Establishment of 2022 Performance Goals. In establishing the performance levels, the Committee considered
various factors, including industry, market and peer estimated growth rates; our recent performance and current business plans; general business and economic conditions; business risks; uncertainties due to COVID-19; and our company’s strategic
objectives, which for 2022 focused on our personalized beauty and wellness, social commerce and digital transformation initiatives.
After considering the above factors, the Committee set the 2022 performance goals that are outlined in the table below.
2022 Goals, Performance and Payout. The following table sets forth the 2022 performance goals, the actual
performance, the percentage of the goal performance levels achieved and the percentage of the target bonus that was paid under the pre-established terms of the 2022 program.
(dollar amounts in thousands)
|
|
|
|
Metric
|
2021
Result
(1)
|
2022 Targets
|
2022
Result
(2)
|
% of Goal Level Achieved
|
% of
Target Bonus
Paid
|
Minimum
|
Goal
|
Stretch
|
Adjusted revenue (50% weighting)
|
2,695,669
|
2,642,000
|
2,803,000
|
2,966,000
|
2,375,726
|
84.8%
|
0.0%
|
Adjusted operating income (50% weighting)
|
292,518
|
289,000
|
323,000
|
355,000
|
204,115
|
63.2%
|
0.0%
|
Aggregate payout percentage, reflecting the weightings noted above:
|
|
|
0.0%
|
|
(1) |
Our 2021 revenue does not reflect any adjustments. As compared to our 2021 reported operating income, our 2021 adjusted operating income reflects adjustments for charges associated
with winding down our Grow Tech segment in the fourth quarter of 2021.
|
|
(2) |
As compared to our 2022 reported revenue and operating income, our 2022 adjusted revenue and operating income reflect adjustments for foreign-currency fluctuations and, in the case of
adjusted operating income, restructuring and impairment charges.
|
Our 2022 financial results fell below the minimum performance goals established at the beginning of the year due to several macro-environmental challenges impacting the business,
including ongoing COVID-related factors and global inflation.
As discussed above, in the middle of 2022, seeing that the Company was not on track meet the 2022 pre-established goals due to unanticipated macro-environmental disruptions, the Committee
and management established a second-half incentive bonus program for the broader, non-executive employee population that objectively and quantitatively measured progress against four strategic priorities underlying Nu Vision 2025. The strategic
priorities included sales of our connected ageLOC LumiSpa iO device, a successful introduction of our “One Price” affiliate incentive structure, further adoption of our Vera and Stela apps (as measured by total downloads) and execution of a
restructuring plan. This bonus program did not apply to our NEOs. However, following completion of the year, the Committee considered the progress made in these areas, including downloads of our apps, and also conducted a holistic assessment of
the company’s overall performance against the macro-environmental challenges facing the business during 2022. Based on these considerations, the Committee determined to award a discretionary bonus to our NEOs of approximately 20% of their target
bonuses.
To incentivize continued progress with the strategic priorities under our Nu Vision 2025 transformation, the Committee determined to incorporate some of these same concepts into the
Executive Cash Incentive Plan for 2023, as discussed in “Compensation Design Changes in 2023,” above.
Equity Awards
Aligning the interests of our executive officers with those of our stockholders is an important objective of our compensation program. To accomplish this objective, we tie a significant
portion of our executive officers’ total compensation to our long-term stock performance through the grant of equity awards and to our equity retention guidelines, which require our executive officers to retain a specified amount of their equity.
We also believe that equity compensation helps motivate executive officers to drive earnings growth because they will be rewarded with increased equity value, and assists in the retention of executive officers who may have significant value tied
up in unvested equity awards.
Calibration of Equity Awards. We periodically review and adjust the level of our equity awards. We do not
use a fixed formula or criteria in determining whether to adjust the level of equity awards, but subjectively evaluate a variety of factors, such as:
− Practices of peer companies
− Degree of responsibility for overall corporate performance
− Overall compensation levels
− Changes in position and/or responsibilities
− Individual performance
− Company performance
− Total stockholder return
|
− Degree of performance risk in the equity grant program
− Potential dilution of our overall equity grants
− Accumulated realized and unrealized value of past equity awards
− Associated expenses of equity awards
− The recommendations of the CEO
− Data and context provided by our compensation consultant
|
Historically, we have referenced peer company compensation data for context on pay levels and performance requirements compared to our peers. We generally have not given significant
consideration to the value of existing equity award holdings because we want to ensure that our equity compensation is competitive for the position on an annualized basis and we want to provide an incentive from the date of grant. However, we
periodically review and consider the in-the-money value of existing award holdings of our executive officers in connection with our review of equity compensation practices to determine if wealth creation is aligning with performance and the
amount of unvested equity in place for retention.
Use of Performance-Based Equity Awards. Performance-based restricted stock units were introduced as a new
vehicle for our long-term incentive compensation in 2022. Prior to 2022, the performance-based component of executive compensation was delivered in the form of performance-based stock options. This change in equity design reflected two key
considerations:
|
− |
Replacing PSOs with PRSUs creates more stability in the pay program, as resulting values are less impacted by volatile swings in the stock price. The Committee felt that the increased stability was
important during this period of transformation.
|
|
− |
A mix of PRSUs and RSUs is better aligned with the incentive design of our peer companies.
|
Approximately 60% of the equity awards granted in our annual program in 2022 were performance based, and they are earned for achieving multi-year performance goals.
To align management with our stockholders’ interests, the performance goals are tied to adjusted EPS, measured as diluted EPS excluding extraneous items such as the impact of accounting
changes, losses or gains on settlements of litigation that began prior to 2022 and other items that are unusual, non-recurring or outside of management’s control. The adjusted EPS metric also provides a balance to the top-line and
operating-income metrics in the cash incentive bonus program.
Consistent with our historical practice, NEOs earn 100% of their target award if performance is at goal level, and they earn 25% of their target award if performance is at the minimum
level. The terms of the performance-based equity awards give NEOs the opportunity to earn up to 150% of their target award if performance meets certain pre-defined “stretch” levels, and up to 200% if performance meets certain pre-defined “super
stretch” levels. This closely aligns the maximum payout opportunity with competitive practice and further strengthens our alignment with stockholders.
Our performance-based equity awards are typically divided into three equal tranches. The three tranches are contingent on performance over the year of the grant and the two following
years, respectively. Although the grants measure three one-year periods, the goals for all three years are established up front at the time of grant to ensure a longer-term orientation without the “reset” of goals each year.
As reflected in the following table, the equity awards granted in February 2022 to the NEOs were heavily weighted with performance-based awards, tracking the 60% weighting that the
Committee adopted based on stockholder feedback.
TARGET EQUITY AWARDS – FEBRUARY 2022
|
Named
Executive Officer
|
Perf.-Based
RSUs
|
Time-Based
RSUs
|
Percentage
Perf.-Based
|
Ryan S. Napierski
|
47,419
|
31,613
|
60%
|
Mark H. Lawrence
|
17,071
|
11,381
|
60%
|
Connie Tang
|
13,720
|
9,147
|
60%
|
Joseph Y. Chang
|
10,116
|
6,744
|
60%
|
Chayce D. Clark
|
12,645
|
8,430
|
60%
|
Off-Cycle Awards. The Committee granted the following additional awards during 2022:
|
− |
Ms. Tang received an award of 5,264 RSUs in April 2022 upon the one-year anniversary of her hire date. This award was included in her offer letter and was made entirely in RSUs to attract Ms. Tang
into the organization and to increase her ownership in our company.
|
|
− |
Mr. Clark received an award of 61,836 RSUs in December 2022. This award was provided in recognition of his extraordinary performance in addressing legal and operational matters and to increase his
unvested equity holdings.
|
Performance-Based Awards Granted in 2020–2022 – Goals and Vesting. Our performance-based equity awards in
the past several years have generally been structured with three tranches, with vesting contingent on the achievement of adjusted EPS goals in the year of grant and in each of the two following years. The goals for all three of these one-year
periods are set at the time of grant.
Performance-based equity awards granted in 2020, 2021 and 2022 included tranches that were contingent on 2022 results. Two of these three tranches ultimately paid out at 0%, and the third
was earned slightly above target:
Performance-Based Award
|
Percent of Target Earned
|
2022 Cash Incentive Bonus(1)
|
0%
|
2022 PRSU Awards – Tranche 1 of 3 (measuring 2022 results)(2)
|
0%
|
2021 PSO Awards – Tranche 2 of 3 (measuring 2022 results)(2)
|
0%
|
2020 PSO Awards – Tranche 3 of 3 (measuring 2022 results)(2)
|
107%
|
|
(1) |
Contingent on 2022 adjusted revenue and adjusted operating income.
|
|
(2) |
Represents the tranches of the respective three-year awards that were contingent on 2022 adjusted EPS, with the targets determined at the time of grant.
|
As illustrated in the table below, for performance-based equity awards granted in 2020–2022, the target goals for the year of grant have generally required improvement over the previous
year’s actual adjusted EPS, with the exception of the 2020 awards, which were granted in an atmosphere of uncertainty and anticipated negative impacts from the then-emerging COVID-19 pandemic. The goals for the second and third years in the
three-year periods have required improvement in adjusted EPS results over the respective prior years.
|
Minimum
Goal ($)
|
Target
Goal ($)
|
Maximum
Goal ($)
|
Actual ($)
|
% Vested
|
|
2020 Award
|
|
➢ 2019 Adjusted EPS: 3.10(1)
|
|
2020 Adjusted EPS Tranche
|
2.00
|
2.50
|
3.60
|
3.63(1)
|
200%
|
2021 Adjusted EPS Tranche
|
2.10
|
2.62
|
3.78
|
4.14(2)
|
200%
|
2022 Adjusted EPS Tranche
|
2.21
|
2.75
|
3.97
|
2.90(3)
|
107%
|
|
|
|
|
|
|
2021 Award
|
|
➢ 2020 Adjusted EPS: 3.63(1)
|
|
2021 Adjusted EPS Tranche
|
3.46
|
4.10
|
4.58
|
4.14(2)
|
108%
|
2022 Adjusted EPS Tranche
|
3.72
|
4.43
|
4.95
|
2.90(3)
|
0%
|
2023 Adjusted EPS Tranche
|
4.01
|
4.78
|
5.34
|
TBD
|
TBD
|
|
|
|
|
|
|
2022 Award
|
|
➢ 2021 Adjusted EPS: 4.14(2)
|
|
2022 Adjusted EPS Tranche
|
4.00
|
4.46
|
4.86
|
2.90(3)
|
0%
|
2023 Adjusted EPS Tranche
|
4.16
|
4.73
|
5.20
|
TBD
|
TBD
|
2024 Adjusted EPS Tranche
|
4.41
|
5.01
|
5.52
|
TBD
|
TBD
|
|
(1) |
No adjustments were made to our 2019 reported EPS of $3.10 or our 2020 reported EPS of $3.63.
|
|
(2) |
As compared to our 2021 reported EPS of $2.86, our 2021 adjusted EPS reflects an adjustment of $1.28 from charges associated with winding down our Grow Tech segment in the fourth
quarter of 2021. This adjustment was permitted by the terms of the awards granted in 2019–2021.
|
|
(3) |
As compared to our 2022 reported EPS of $2.07, our 2022 adjusted EPS reflects adjustments totaling $0.83 from restructuring and impairment charges (including an unrealized investment
loss related to a controlled-environment agriculture company we invested in as part of our previous Grow Tech segment), partially offset by the benefits of a favorable tax method change. These adjustments were permitted by the terms of
the awards granted in 2020–2022.
|
Annual Time-Based Equity Awards. Each NEO received a time-based RSU grant as part of our normal annual
equity award cycle in February 2022. These RSUs vest one-fourth each year, beginning on February 15 of the year following the grant. They are designed to align management with stockholders’ interests and promote multi-year retention.
Retirement and Other Post-Termination Benefits
Our executive officers do not participate in any pension or defined benefit plan. We believe it is important for retention purposes to provide executive officers with a meaningful
opportunity to accumulate savings for their retirement. To accomplish this objective, we maintain both a tax-qualified 401(k) plan and a nonqualified deferred compensation plan. We make a limited matching contribution for our employees, including
NEOs, under the 401(k) plan. We also make contributions to the deferred compensation plan accounts of each NEO who has such an account. Effective in 2021, our deferred compensation plan was modified to provide a matching contribution by the
company for individual contributions up to a maximum of 5% of base salary. In addition, we generally make a discretionary contribution, which was reduced from the historical amount of 10% of salary to approximately 5% of salary due to the 5%
matching contribution.
As more fully described and quantified below in “Executive Compensation Tables and Accompanying Narrative”—“Narrative to Summary Compensation Table and Grants of Plan Based Awards Table”
and in the table titled “Potential Payments Upon Termination or Change in Control,” we have an employment agreement with Mr. Chang that provides for certain termination benefits. The Committee has also adopted an Executive Severance Policy that
applies to all of our NEOs.
We do not provide excise tax gross-up protection to any of our NEOs. Any cash severance payment under these arrangements or accelerated vesting of equity in connection with a change in
control requires a qualifying termination of employment. We believe these double-trigger post-termination benefits provide reasonable protections to employees who may be terminated following a change in control. They also assist us in retaining
their services in the event of a potential change in control. We believe such arrangements are in the best interests of our company and our stockholders if they are reasonable in amount and scope, because they can help to retain key employees
during a change in control process.
Perquisites and Other Benefits
We provide our executive officers and other key employees with other limited benefits and perquisites. These consist of, among other things, payments for term life insurance, use of
company-owned properties, sporting event tickets, company products and sales force event-related spouse travel. We generally do not reimburse executive officers for the income taxes associated with these perquisites except for limited
business-related perquisites such as spouse travel to sales force events where the spouse is expected to attend and help entertain and participate in events with our sales force and their spouses. We have elected to pay the income taxes for these
business-related perquisites because we believe they are business expenses. These benefits generally represent a very small portion of an executive officer’s overall compensation and provide a benefit to us and our stockholders.
Mr. Napierski additionally received tax payments associated with income received as a result of his former expatriate assignment. These payments were pursuant to our expatriate tax
equalization policy. The amount of these benefits is included in footnote 5 to the Summary Compensation Table.
Process for Determining Compensation
Role of Compensation and Human Capital Committee and Chief Executive Officer
The Committee is responsible for establishing and administering our executive compensation program. The Committee participates in the performance evaluation process of the Chairman and of
the CEO, which process is led by the Nominating and Corporate Governance Committee. The Committee is then responsible for setting their compensation. The CEO, with oversight by the Nominating and Corporate Governance Committee, is responsible for
evaluating the performance of the other executive officers and then making recommendations to the Committee with regard to the compensation packages for these officers. The Committee reviews any such recommendations and has the authority to
approve, revise or reject such recommendations.
Role of Compensation Consultant
The Committee has retained the services of Semler Brossy Consulting Group LLC (“Semler Brossy”) as its independent compensation consultant to assist in the review of our executive
compensation program, to provide compensation data and alternatives to the Committee, and to provide advice to the Committee as requested, including limited advice regarding employee equity grants and the compensation programs of our subsidiary
companies when requested by the Committee. The Committee utilizes the compensation data and alternatives provided by the compensation consultant to analyze compensation decisions in light of current market rates and practices. During 2022, Semler
Brossy did not perform any work for us outside of the services performed for the Committee and for the Nominating and Corporate Governance Committee with respect to director compensation.
The Committee annually reviews the independence of its compensation consultant in light of SEC rules and NYSE Listed Company Rules regarding compensation consultant independence and has
concluded that Semler Brossy is independent from the company and has no conflicts of interest related to its engagement by the Committee.
In addition, during 2022, management retained the services of Meridian Compensation Partners to advise management in formulating recommendations for the Committee’s consideration on
compensation matters related to attracting and retaining employees, including executive officers, to enable the company’s Nu Vision 2025 strategy.
Use of Competitive Data
The Committee uses peer group information in making compensation decisions. The Committee compares compensation proposals to the compensation practices of a peer group of publicly-traded
companies that compete with us broadly in the consumer products industry—with a preference for those with a direct selling business model—and are similar in size to us.
The Committee reviews and updates the peer group from time to time to ensure it is utilizing an appropriate group in terms of size and relevance. Following such a review, in 2021 the
Committee determined to update the peer group by removing International Flavors & Fragrances Inc. (“IFF”) from the peer group and adding Coty Inc. due to transactions involving these companies that affected their comparability to our company
in terms of market capitalization (IFF) and revenue (Coty).
The newly constituted peer group was used in making compensation decisions for 2022, and it consists of the following companies:
− Church & Dwight Co., Inc.
|
− Primerica, Inc.
|
− Coty Inc.
|
− Revlon, Inc.
|
− Edgewell Personal Care Company
|
− Sally Beauty Holdings, Inc.
|
− The Hain Celestial Group, Inc.
|
− Sensient Technologies Corporation
|
− Helen of Troy Limited
|
− Spectrum Brands Holdings, Inc.
|
− Herbalife Nutrition Ltd.
|
− Tupperware Brands Corporation
|
− Prestige Consumer Healthcare Inc.
|
− USANA Health Sciences, Inc.
|
In August 2022, the Committee removed Primerica, Inc. and Revlon, Inc. from the peer group and added Cricut, Inc., Overstock.com, Inc. and Sonos, Inc. These changes were to align with our
focus on connected devices and also with our location, market capitalization and revenue. The newly constituted peer group was used in making compensation decisions for 2023.
Mix of Compensation
When the Committee reviews an executive officer’s compensation, it does not use a specific formula or allocation target to establish the level or mix of total compensation. Rather, it
exercises judgment in determining a compensation package that is appropriate to accomplish our compensation objectives under the circumstances applicable to the executive officer. The Committee also reviews the relative mix of compensation
provided by other companies in our peer group for context and tries to ensure each component is competitive. Historically, we have tied a substantial amount of compensation to corporate performance under our cash incentive plan and equity
incentive plan.
The Committee also reviews each executive officer’s total compensation as a market check against the total compensation of executive officers in our peer group. This total compensation
review focuses on base salary, cash bonuses, and valuation of equity grants using grant date valuations. The Committee periodically reviews perquisites and retirement benefits to confirm that they remain relatively consistent with the value of
perquisites and retirement benefits provided by our peer companies.
Risks Arising From Compensation Policies and Practices
In establishing and reviewing the components of compensation, the Committee considers potential risks associated with such components. In addition, our management conducted a review of
our compensation policies and practices for employees and concluded that risks arising from such compensation policies and practices, as they relate to risk management practices and risk-taking incentives, are not reasonably likely to have a
material adverse effect on us.
In reaching this conclusion, our management considered the following factors:
|
− |
Our compensation programs are market driven and balance short-term incentives with significant long-term equity incentives. Performance-contingent equity awards provide additional long-term incentives
to our key employees and executive officers. In addition, our equity retention guidelines help to ensure that a portion of our executives’ equity incentives remains tied to our long-term performance.
|
|
− |
Our global cash incentive compensation is based on revenue and profitability, which are core measures of performance. In addition, substantially all of our revenue is received through cash or credit
card payments, as opposed to other credit arrangements, which minimizes risk associated with our revenue-based incentives. Additionally, the Board of Directors and management regularly review the business plans and strategic initiatives,
including related risks, proposed to achieve such performance metrics.
|
|
− |
A substantial portion of compensation is provided in the form of long-term equity incentives with multi-year vesting.
|
|
− |
We do not allow engagement in speculative trading or hedging. Our policies prohibit all of our directors and employees, including executive officers, from holding our stock in an account in which any
securities of any company are held on margin and from engaging in speculative transactions in our stock, including short sales, options or hedging transactions. Our directors and employees, including executive officers, also are
prohibited from pledging their securities in our company.
|
Other Compensation-Related Governance
Clawback Policy
Pursuant to our Third Amended and Restated 2010 Omnibus Incentive Plan (the “Plan”), any and all awards granted under the Plan will be canceled if the participant violates a
non-competition, non-solicitation or non-disclosure covenant or agreement or otherwise engages in activity or material misconduct that is in conflict with or adverse to our interests, including conduct contributing to any financial restatements
or financial irregularities, as determined by the Committee. In addition, all compensation awarded under our current and prior plans will be subject to recovery or other penalties pursuant to (i) any future clawback policy of the company, as may
be adopted or amended from time to time; (ii) any clawback provision set forth in an award agreement; and (iii) any applicable law, rule or regulation or applicable stock exchange rule, including, without limitation, Section 304 of the
Sarbanes-Oxley Act of 2002, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), Section 10D of the Securities Exchange Act of 1934 and any applicable stock exchange listing rule adopted pursuant
thereto. Further, if we are required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws, the Committee may terminate any awards granted under our current and prior
plans and/or require any participant to reimburse us for the amount of any payment or benefit received with respect to such awards to the extent they would not have been earned or accrued after giving effect to the restatement.
Consistent with the Plan, our equity incentive awards and our cash incentive awards contain cancellation, clawback and recoupment provisions that allow the Committee to recover an
executive’s gains from such awards if the executive materially breaches certain obligations or covenants, including non-competition, non-solicitation and non-disclosure covenants, or willfully engages in or is convicted of certain illegal
activity, fraud or other misconduct. In such event, we may terminate the outstanding awards of such executive and recover any gains from the awards during the twelve months preceding the act or anytime thereafter. Our cash incentive awards and
performance-based equity awards additionally include similar cancellation, clawback and recoupment provisions that apply in the case of a financial restatement to the extent the award would not have been earned or accrued after giving effect to
the restatement.
The NYSE is currently in the rulemaking process to adopt clawback requirements for listed companies, as mandated by a SEC rule that was adopted during 2022 and pursuant to the Dodd-Frank
Act. We plan to evaluate our clawback policy in light of the NYSE’s rules when adopted and amend it if appropriate.
Equity Retention Guidelines
Our equity retention guidelines are designed to motivate our executive officers and directors to consider the long-term consequences of business strategies and to provide a level of
long-term performance risk with respect to our compensation programs. These guidelines generally require executive officers and directors to retain 50% of the net shares (after payment of the exercise price and related taxes) with respect to any
equity award unless the individual holds a number of shares having a value equal to a multiple of his or her base salary (for executives) or annual cash retainer (for non-management directors), as follows:
|
Position
|
Multiple of Base Salary
or Annual Retainer
|
|
CEO
|
6.0
|
|
Other Executive Officers
|
2.5
|
|
Non-Management Directors
|
5.0
|
The ownership levels are phased in over five years from January 1 of the year following the date of appointment or election to the applicable position as an executive officer or director.
In determining whether an executive officer or director satisfies the designated ownership levels, we count shares owned outright or beneficially by the individual or an immediate family member residing in the same household, as well as a portion
of the individual’s unvested time-based restricted stock units. We do not count vested or unvested options.
As of March 31, 2023, all of our NEOs and directors were retaining equity awards consistent with the guidelines, and all of our NEOs and directors who had served in their positions for
the five-year phase-in period owned the amount of stock designated for their job positions.
Indemnification and Advancement of Expenses
We have entered into indemnification agreements with each of our directors and executive officers, pursuant to which these individuals will be indemnified for certain liabilities and will
be advanced certain expenses that have been incurred as a result of actions to which they were, are, or are threatened to be made a party, or actions otherwise involving them, in connection with their service to the company. The indemnification
agreements also include related provisions outlining the procedures for obtaining such benefits, and they generally require us to obtain and maintain director and officer liability insurance.