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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. ___)

 

 

Check the appropriate box:

 

 

 

ABM Industries Incorporated

 

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ONE TEAM, ONE MISSION:

TO MAKE A DIFFERENCE, EVERY PERSON,
EVERY DAY

 

 

 

 

 

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ITEMS OF BUSINESS

 

 

 

 

 

 

RECORD DATE

 

Shareholders of record at the close of business on January 16, 2018 are entitled to notice of, and to vote at the Annual Meeting.

 

IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS

 

On or about February 7, 2018, we began mailing this Notice and Proxy Statement dated February 7, 2018, together with a proxy card, to shareholders. The Proxy Statement, Annual Report on Form 10-K for the fiscal year ended October 31, 2017, and the means to vote by Internet are available at www.proxyvote.com.

 

By Order of the Board of Directors,

Andrea R. Newborn

Executive Vice President, General Counsel

and Corporate Secretary

 

 

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TABLE OF CONTENTS

 

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ABM Industries Incorporated 2018 Proxy Statement     1

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2017 PERFORMANCE AT A GLANCE

 

OUR 2020 VISION: Transforming Our Company

 

 

Our 2020 Vision Continues

 

In 2017, we continued our 2020 Vision transformation. Notably, we:

 

 

GCA Acquisition

 

On September 1, 2017, we completed the acquisition of GCA Services Group (“GCA”), a leading provider of facility services in the education and commercial industries, specializing in facilities maintenance, janitorial services, grounds management, vehicle services and outsourced workforce solutions. The GCA acquisition strategically increases our capabilities in our education and industrial businesses and strengthens our leadership position in integrated facilities services.

 

Shareholder Value Delivered

 

Over the last five years, ABM’s cumulative total shareholder return exceeded both the S&P 500 Index and the S&P SmallCap 600 Index. The following graph compares the cumulative total shareholder return on ABM common stock for the last five full fiscal years with the cumulative total returns on the S&P 500 Index and the S&P SmallCap 600 Index, assuming that $100 was invested in ABM common stock and in each of the other indices on October 31, 2012, and that all dividends were reinvested. The comparisons in the graph are not intended to forecast the future performance of ABM’s common stock.

 

Comparison of Five-Year Cumulative Total Return*

*This performance graph shall not be deemed to be “soliciting material” or “filed” with the Securities and Exchange Commission, or subject to Regulation 14A or 14C, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.

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CORPORATE GOVERNANCE AND BOARD HIGHLIGHTS

 

Our Board of Directors (the “Board”) is committed to corporate governance practices that drive long-term shareholder value. All of our directors other than our CEO are independent, all committee members are independent and the positions of Chairman of the Board and CEO are separate. At each of our Board meetings, the independent members of the Board meet in executive session as do the members of our Audit, Compensation and Governance Committees during committee meetings. We are also committed to Board refreshment and diversity, with 60% of our Board members having served on the Board for four or fewer years, and 60% of our Board is diverse. All of our Audit Committee members have financial expertise and our Compensation Committee uses an independent compensation consultant. Summary information about our Board is provided below. See Part 1-Governance for more information.

 

The following charts reflect the tenure, age and relevant experience of our Board.

 

 

Legend:

AC – Audit Committee

CC – Compensation Committee

GC – Governance Committee

SER – Strategy and Enterprise Risk Committee

* Indicates Committee Chair

 

 

Experience and Expertise

 

 

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As reflected in the charts below, 90% of our Board is independent, 60% of our Board is diverse and a majority of our directors have served on the Board four years or less.

 

 

 

 

 

 

 

 

EXECUTIVE COMPENSATION HIGHLIGHTS

 

Our Compensation Practices

 

 

 

Our Executive Compensation Programs 

In fiscal year 2017, our compensation programs continued to reflect the compensation philosophy established by our Compensation Committee – one that is intended to align our executives’ compensation with our strategic goals, and motivate and retain executives who are critical to our future success and long-term performance. Key features of our compensation philosophy include:

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Elements of Total Direct Compensation:

 

 

At-Risk Compensation

 

A significant portion of our executives’ compensation is at risk. At-risk compensation includes: annual cash incentive compensation (“bonus”) which is tied to annual financial and individual performance measures; performance-based equity awards which are paid only if performance metrics established at the beginning of the three-year performance period are met; and time-based equity awards which vest over a four-year period (collectively, performance and time-based long-term incentive awards are referred to as “LTIs”). As reflected in the following charts, over 80% of our CEO’s compensation is at risk. Approximately 70% of our other named executive officers’ (“NEOs”) compensation is at risk. Mr. McClure’s compensation was excluded from the information presented with respect to Other NEO Compensation because, due to his retirement on November 1, 2017, he did not receive the regular grant of equity awards in September 2017.

 

 

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PROPOSAL 1—ELECTION OF DIRECTORS

 

Proposal Summary

 

We are asking our shareholders to elect four nominees to serve on the Board for a three-year term. Information about the Board and each director nominee is included in this section.  

 

Board Recommendation

 

The Board recommends that you vote “FOR” each director nominee.  After consideration of each nominee’s qualifications, skills and experience, as well as his or her prior contributions to our Board, the Board believes that each nominee should continue to serve on the Board.  

 

Voting  

 

Unless contrary instructions are received, the shares represented by a properly executed proxy will be voted “FOR” each of the director nominees presented below. If, at the time of the meeting, one or more of the director nominees has become unavailable to serve, the shares represented by proxies will be voted for the remaining nominees and for any substitute director nominee or nominees designated by the Board unless the size of the Board is reduced. The Board knows of no reason why any of the director nominees will be unavailable or unable to serve.  

 

Director nominees are elected by a majority of the votes cast. This means that the number of shares voted “for” a director’s election must exceed 50% of the number of votes cast for that director’s election. Votes cast include votes “for,” votes “against” and votes to withhold authority with respect to that director’s election, but excludes any abstentions or broker non-votes. Any nominee who does not receive a majority of votes cast “for” his or her election will be required to tender his or her resignation promptly following the failure to receive the required vote. The Governance Committee will then be required to make a recommendation to the Board as to whether the Board should accept the resignation, and the Board will be required to decide whether to accept the resignation.

 

 

Nominees for Election to Serve as Directors for a Term Expiring in 2021

 

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Directors Whose Terms Expire in 2020

 

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Directors Whose Terms Expire in 2019

 

 

 

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The Board of Directors

Our Board of Directors is divided into three classes serving staggered three-year terms. Directors whose terms expire in 2018 are Linda Chavez, J. Philip Ferguson, Art A. Garcia, and Scott Salmirs.

 

Age Director Since independent Audit Compensation Governance strategy and Enterprise Risk Business Leadership Industry Experience Public Company Board Financial/investment Risk Oversight Global

 

*As Chairman of the Board, Mr. Kesavan attends all committee meetings and is a member of the Governance Committee.

 

 

Corporate Governance

Our Board has adopted Corporate Governance Principles that reflect our commitment to good corporate governance and the role of governance in building long-term shareholder value. Our Corporate Governance Principles, which include our independence standards, can be found on our website at http://investor.abm.com/corporate-governance.cfm. Other information relating to our corporate governance is also available on our website at the same address, including our Bylaws, Code of Business Conduct, and the Charters of our Audit Committee, Compensation Committee, Governance Committee, and Strategy and Enterprise Risk Committee. These documents are also available in printed hard-copy format upon written request to the Corporate Secretary at the Company’s corporate headquarters.

Identifying and Evaluating Nominees for Directors

Our Board is responsible for selecting nominees for election as directors. The Board delegates the screening process to the Governance Committee with the expectation that other members of the Board will participate in this process, as appropriate. The Governance Committee periodically reviews the skills and types of experience that it believes should be represented on the Board in light of the Company’s current business needs and strategy. The Governance Committee then uses this information to consider whether all of the identified skills and experience are represented on the Board. Based upon its review, the Committee may recommend to the Board that the expertise of the current

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members should be supplemented. The Committee takes these factors into account when looking for candidates for the Board. Candidates recommended by the Governance Committee are subject to approval by the full Board. Our Governance Committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board are anticipated because of retirement or otherwise. In the event that any vacancy is anticipated, or otherwise arises, the Governance Committee considers various potential candidates for director.

Our Governance Committee recommends to the Board the criteria for director candidates, and the Board establishes the criteria. The Governance Committee is also responsible for reviewing with the Board the requisite skills and characteristics of new Board candidates and current Board members in the context of the current composition of the Board.

In analyzing director nominations and director vacancies, our Governance Committee seeks to recommend candidates for director positions who will create a collective membership on the Board with varied experience and perspectives. The Governance Committee believes that this will contribute to a Board that reflects diversity, including, but not limited to, gender, ethnicity, background and experience. We do not have a policy that requires specified types of diverse backgrounds. The Governance Committee strives to recommend candidates who demonstrate leadership and significant experience in a specific area or endeavor, understand the role of a public company director and can provide insights and practical wisdom based on their experience and expertise.

The Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director, such as search firms and the relationships of current directors. Candidates may also come to the attention of the Governance Committee through shareholders or other persons. These candidates are evaluated at regular or special meetings of the Governance Committee and may be considered at any point during the year.

Our directors are expected to prepare for, attend and participate in Board meetings and meetings of the Committees of the Board on which they serve. They are also expected to meet as frequently and spend as much time as necessary to properly discharge their responsibilities and duties as directors and to arrange their schedules so that other existing and planned future commitments do not materially interfere with their service as a director. Ordinarily, directors who are full-time employees of ABM or who serve as chief executive officers or in equivalent positions at other companies may not serve on the boards of more than two other publicly traded companies. Other directors may not serve on the boards of more than four other publicly traded companies. Service on other boards and other commitments are considered by the Governance Committee and the Board when reviewing Board candidates.

 

Board Leadership Structure

The Company currently has separate persons serving as its Chairman and its Chief Executive Officer, in recognition of the differences between the two roles. The Chief Executive Officer (Mr. Salmirs) has general and active management over the business and affairs of the Company, subject to the control of the Board. Our Chairman (Mr. Kesavan) is charged with presiding over all meetings of the Board and our shareholders, as well as providing advice and counsel to the Chief Executive Officer, coordinating the preparation of agendas, keeping directors informed of matters impacting the Company, and maintaining contact with the Company’s General Counsel. The Board believes that at this time, the separation of these roles is the most appropriate and effective leadership structure for the Company and its shareholders. Sudhakar Kesavan currently serves as Chairman of the Board.

 

Director Independence

Our Corporate Governance Principles provide that a majority of our directors will be independent; our Audit Committee, Compensation Committee, Governance Committee, and Strategy and Enterprise Risk Committee consist solely of independent directors. Each year, our Governance Committee reviews the independence of each of our directors under the NYSE listing standards and considers any current or previous employment relationships as well as any transactions or relationships between our Company and our directors or any members of their immediate families (or any entity of which a director or an immediate family member is an executive officer, general partner or significant equity holder). The purpose of this review is to determine whether any relationships or transactions exist that preclude a director from being deemed independent under the NYSE listing standards or are otherwise inconsistent with a determination that the director is independent.

Our Governance Committee has affirmatively determined and recommended to our Board, and the Board has agreed, that all of our directors, other than our Chief Executive Officer, should be designated as independent.

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The Board’s Oversight of Risk Management

 

Company management is responsible for day-to-day risk management activities. The Board, acting directly and through its committees, is responsible for the oversight of the Company’s risk management. Our management has implemented an enterprise risk management (ERM) process designed to work across the Company to identify, assess, govern and manage risks and the Company’s response to those risks. Our Audit Committee periodically reviews our accounting, reporting and financial practices, including financial controls, and our compliance with certain legal and regulatory requirements. Our Compensation Committee oversees compensation-related risk management, as discussed in “Compensation Discussion and Analysis” later in this Proxy Statement.  Our Governance Committee oversees risks associated with board structure and other corporate governance policies and practices.  In fiscal year 2017, the Board established a Strategy and Enterprise Risk Committee to assist the Board in its oversight of Company strategy and enterprise risks.  

 

Each committee reports regularly to the full Board on its activities. In addition, the Board participates in regular discussions in executive session and with the Company’s senior management on many key subjects, including strategy, industry group performance, operations, information systems, finance, and legal.

Mandatory Retirement

The Board has adopted a mandatory retirement policy for non-employee directors. Under this policy, a director who attains the age of 73 during his or her current term must resign from the Board effective upon the conclusion of the annual shareholders meeting next following his or her 73rd birthday.

Committees

The Board has four standing committees: the Audit Committee, the Compensation Committee, the Governance Committee and the Strategy and Enterprise Risk Committee. During 2017, the Board reviewed its committee structure and, after considering the roles and responsibilities of each committee and their areas of responsibility, created a new committee, the Strategy and Enterprise Risk Committee, and disbanded the Corporate Citizenship and Communications Committee, allocating its responsibilities to the other standing committees of the Board. Each committee is composed solely of independent directors, meets periodically throughout the year, reports its actions and recommendations to the Board, receives reports from senior management, annually evaluates its performance and has the authority to retain outside advisors. Annually, or more frequently, as needed, our Governance Committee reviews committee assignments and makes recommendations to the Board with respect to committee membership, taking into consideration directors’ qualifications and the desire to refresh committee membership. The primary responsibilities of each committee, as well as membership of each committee, as of the date of this Proxy Statement, are summarized below. For more detail, see the committee charters on our website at www.abm.com.

 

 

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Board and Committee Attendance in Fiscal Year 2017 

During fiscal year 2017, the Board held 12 meetings. Together, the directors attended 99% of the combined total meetings of the full Board and the committees on which they served in fiscal year 2017, and no director attended less than 90% of the combined total meetings of the full Board and the committees on which he or she served in fiscal year 2017. Our Board meets in executive session during each regularly scheduled Board meeting and may meet in executive session during specially called meetings.

Our directors attend our annual meetings of shareholders, absent a conflict or other extenuating circumstance. In fiscal year 2017, all of our directors attended the annual meeting of shareholders.  

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee during fiscal year 2017 or as of the date of this Proxy Statement is or has been an officer or employee of the Company, and no executive officer of the Company served on the compensation committee or board of any company that employed any member of the Company’s Compensation Committee or Board of Directors.

 

 

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DIRECTOR COMPENSATION FOR FISCAL YEAR 2017

 

ABM compensates non-employee directors through a combination of annual cash retainers, fees relating to chairing or serving on a committee, and equity grants. The Governance Committee reviews the compensation of non-employee directors periodically and recommends changes to the Board whenever it deems appropriate. Semler Brossy Consulting Group, LLC (“Semler Brossy”), the Compensation Committee’s independent consultant, periodically provides information regarding non-employee director compensation to the Governance Committee. In fiscal year 2017, Semler Brossy reviewed the existing non-employee director compensation program. Based on this review, the Board approved an increase, effective November 1, 2017, in the annual cash retainer for all directors, other than the Chairman of the Board, from $70,000 to $80,000 and an increase, effective November 1, 2017, in the annual cash retainer for members of the Governance Committee and Strategy and Enterprise Risk Committee from $7,500 to $10,000. Additionally, the Governance Committee approved an increase, effective November 1, 2017, in the annual equity retainer for all directors, other than the Chairman of the Board, from $110,000 to $125,000 and approved a change in the vesting schedule for director equity grants from a three-year vesting schedule to a one-year vesting schedule. Directors who retire pursuant to our Director Retirement Policy will receive an additional cash payment in lieu of the annual equity grant equal to the prorated value of the equity grant to the date of retirement. The following table describes the components of the non-employee director compensation program in effect during 2017 compared to the changes made for 2018.

 

 

2017 Non-Employee Director Compensation

 

 

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The Governance Committee may recommend to the Board that directors who invest significant time above and beyond the normal requirements of service on the Board, or a committee thereof, receive $2,000 per day for such service. The Board may also determine that it is appropriate to compensate Board members (other than the Chairman of the Board) who are not serving on a particular committee of the Board for attendance at such committee’s meetings if the Board member’s attendance has been requested by the Chair of that committee. In such cases, the Board member may receive $2,000 for each such meeting attended. The Chairman of the Board is not eligible to receive such payments. ABM also reimburses its directors for out-of-pocket expenses incurred in attending Board and Committee meetings. Equity awards to non-employee directors are granted under our shareholder-approved 2006 Equity Incentive Plan.

 

2017 Non-Employee Director Compensation Table

 

 

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Non-Employee Director Deferred Compensation Plan

 

Non-employee directors are eligible to participate in the ABM Deferred Compensation Plan for Non-Employee Directors (“Director Deferred Compensation Plan”). Plan participants may elect to defer receipt of all or any portion of their annual cash retainers until they cease to be members of the Board, or to specified withdrawal dates (at least three years after their election), in accordance with the terms of the Director Deferred Compensation Plan. The amounts held in each director’s account are credited with interest quarterly at a rate based on the prime interest rate published in the Wall Street Journal on the last business day coinciding with or next preceding the valuation date. In addition, the plan permits directors to defer the settlement of Director RSUs to a date later than the vesting date.

 

Other Arrangements

 

ABM has entered into indemnification agreements with its directors. Among other things, these agreements require ABM to indemnify its directors to the fullest extent provided by Delaware law against certain liabilities that may arise in connection with their service as directors. ABM permits non-employee directors who were members of the Board on or before October 31, 2012 to participate in ABM’s health benefit plans. Directors who elect to participate pay the entire direct costs of participation in such plans. This benefit is not available to directors who join the Board after October 31, 2012. No directors are currently participating in ABM’s health benefit plans.

 

Director Stock Ownership Policy

 

Our Director Stock Ownership Policy requires directors to hold common stock (including unvested or deferred RSUs) having a value equivalent to five times his or her annual cash retainer within five years of becoming a director. Under this policy, directors who are not at their targeted stock ownership level within the five-year period must hold at least 50% of any net shares realized until they reach their target. “Net shares realized” means unrestricted shares acquired by a director under the 2006 Equity Incentive Plan or acquired pursuant to the exercise of an option, net of any shares sold to pay the exercise price. All directors are either at or above the targeted stock ownership levels or are still within the initial five-year period.

 

 

 

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PROPOSAL 2—ADVISORY VOTE TO APPROVE

EXECUTIVE COMPENSATION

 

Proposal Summary

 

We are asking our shareholders to approve, on an advisory basis, the Company’s executive compensation policies and practices as described in the Compensation Discussion and Analysis, accompanying tables and related narrative contained in this Proxy Statement.

 

Board Recommendation

 

The Board recommends that you vote “FOR” the following resolution:

 

RESOLVED—that the shareholders approve, on an advisory basis, the compensation of the Company’s executives named in the Summary Compensation Table, as disclosed in the Company’s 2018 Proxy Statement pursuant to the executive compensation disclosure rules of the Securities and Exchange Commission, which disclosure includes the Compensation Discussion and Analysis, the compensation tables and other executive compensation disclosures.

 

Voting

 

Unless contrary instructions are received, the shares represented by a properly executed proxy will be voted “FOR” the preceding resolution. Your vote is advisory and so it will not be binding on the Board. However, the Board will review the voting results and take them into consideration when making future decisions regarding executive compensation. The affirmative vote of the holders of a majority of the Common Stock represented in person or by proxy and entitled to vote on the proposal will be considered as an approval of the proposal.  

 

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis describes our executive compensation program for our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the three other most highly compensated executive officers who are named in the summary compensation table (collectively, our “NEOs”). Our Compensation Committee (referred to as the “Committee” in this section of the Proxy Statement) oversees all aspects of our NEO compensation. Our NEOs for fiscal year 2017 are:

 

 

Mr. McClure retired from the Company on November 1, 2017. Mr. Giacobbe succeeded Mr. McClure as Chief Operating Officer on November 1, 2017.

OUR COMPENSATION PHILOSOPHY AND PRACTICES

Compensation Philosophy

Our objective is to design an executive compensation program that encourages all of our leaders to produce strong financial results and create sustainable long-term value for our shareholders. To achieve this, we:

Best Practices

Following are some of the best practices we employ in our compensation program.

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2017 “Say-on-Pay” Vote Considerations

In March 2017, our say-on-pay proposal was approved by approximately 94% of votes cast by our shareholders and approximately 78% of shareholders voted to continue to hold a say-on-pay vote annually. The Committee and management are committed to strengthening our pay-for-performance correlation, as well as the overall design of our executive compensation program. The Committee and management will continue to use the annual say-on-pay vote as a guidepost for shareholder perspective.

Role of the Compensation Committee

The Committee is responsible for the design of the Company’s executive compensation program, and for reviewing the overall effectiveness of our executive compensation program to ensure the design achieves our objectives. The Committee:

Based on the Committee’s assessment of the CEO’s performance achievement against his performance objectives, the Committee recommends CEO compensation to the members of our Board who are both independent and “outside” directors under Section 162(m) of the Internal Revenue Code. This recommendation includes base pay levels, cash incentive compensation and equity awards. All elements of CEO pay are approved by such directors.

Role of Compensation Consultants

The Committee continued to engage Semler Brossy in fiscal year 2017 to serve as its independent compensation consultant. The Committee takes into consideration the advice of Semler Brossy to inform its decision-making process and has sole authority for retaining and terminating its consultant, as well as approving the terms of engagement, including fees. Semler Brossy works for the Committee and, with the approval of the Committee, has also provided services to the Governance Committee in connection with director compensation matters. Semler Brossy provides no services to the Company. The Committee has determined Semler Brossy to be independent from the Company. The Company’s management retains Willis Towers Watson as its primary compensation consultant to advise on program design, apprise management of evolving practices and trends, and perform other consulting services as needed. The Committee also considered the independence of Willis Towers Watson under applicable rules of the New York Stock Exchange. From time to time, the Committee may engage other consultants and advisors in connection with various compensation and benefits matters.

Use of Market Data and Our Compensation Comparator Group

The Committee uses compensation at our comparator group as one of its tools in connection with its assessment of our executive compensation programs and levels of compensation. Working with Semler Brossy, the Committee regularly reviews the various criteria by which it selects the Company’s Compensation Comparator Group (“CCG”). Companies in our CCG are generally selected with reference to the following criteria:

 

The Committee’s decisions relating to NEO pay are informed by its review of the compensation practices reported in the proxy statements filed by the companies in the CCG. The Committee believes that the proxy data reviewed provides a reasonable indicator of total compensation paid by companies that recruit executives with skill sets similar

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to those which we seek in our executives. Compensation for our executives is typically managed within the ranges of compensation paid by companies in the CCG and general industry. While the Committee normally references the CCG median (50th percentile) for each compensation element, the Committee uses its judgment to determine pay levels necessary to pay for performance and attract and retain executive talent and places significant weight on individual job performance, experience, compensation history, future potential, internal comparisons, affordability, retention risk, and in the case of executives other than the CEO, the CEO’s recommendations.

 

 

 

In October 2016, the Committee reviewed the CCG and added United Rentals, Inc. and TrueBlue, Inc. to the CCG for fiscal year 2017, as they share business attributes with ABM. Correction Corporation of America and Rent-A-Center were eliminated from the Company’s 2017 CCG due to significant changes at these companies. The Committee has removed Brinker International, Inc. and Rollins Inc. from the Company’s 2018 CCG as these companies’ business and financial profiles no longer align with those of ABM. Stericycle, Inc. has been added to the Company’s 2018 CCG.

Pay-for-Performance Alignment

The following graph illustrates three-year realizable compensation of our NEOs compared to the compensation of NEOs in our CCG. Each point on the graph represents three-year realizable compensation of the NEOs in this group relative to his or her company’s three-year Total Shareholder Return (“TSR”) performance over the 2014–2016 period. ABM’s position in this graph shows that the Company’s pay for performance is aligned with that of our CCG.

 

 

TSR reflects share price appreciation, adjusted for dividends and stock splits.

 

Realizable compensation consists of: (1) actual base salary paid over the three-year period; (2) actual short-term incentive payouts over the three-year period; and (3) the 12/31/2016 market value of equity grants as listed below:

 

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Elements of Compensation

The material components of our executive compensation program and their purposes and characteristics are summarized below.

 

 

Using the elements of compensation described above, we structure our program in a way that places a significant portion of our executives’ compensation at risk. At-risk compensation includes: annual cash incentive compensation (“bonus”) which is tied to annual financial and individual performance measures; performance-based equity awards (“PSUs”) which are paid only if performance metrics established at the beginning of the three-year performance period are met; and time-based equity awards (“RSUs”) which vest over a four-year period. As reflected in the charts below, over 80% of our CEO’s compensation is at risk. Approximately 70% of our other named executive officers’ compensation is at risk. Mr. McClure’s compensation was excluded from the information presented relating to Other NEO Compensation because, due to his retirement on November 1, 2017, he did not receive the regular grant of equity awards in September 2017.

 

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HOW WE COMPENSATED OUR NEOS IN 2017

 

Summary Overview

 

The information below provides a summary overview of our NEOs’ 2017 compensation. Components of this compensation summary overview are discussed in detail beginning on page 28.

 

Scott Salmirs, President and CEO

 

 

 

D. Anthony Scaglione, Executive Vice President and CFO

 

 

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James P. McClure, Executive Vice President and COO (retired on November 1, 2017)

 

 

 

 

Scott J. Giacobbe, Executive Vice President and COO (effective November 1, 2017)

 

 

 

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Rene Jacobsen, Executive Vice President and President – Business & Industry

 

 

 

2017 Base Salary

The Compensation Committee reviews total compensation, including base salaries, for executives in the first quarter of each fiscal year, and as needed, in connection with recruitment, promotions or other changes in responsibilities. Base salary amounts affect potential annual cash performance incentive payments and equity award grant amounts, since these other compensation elements are based on a percentage of base salary. The following table shows, for each NEO, such officer’s 2016 base salary and 2017 base salary. Annual changes in base salary typically become effective on January 1.

 

 

Mr. Salmirs’ salary increase of approximately 12.5% and Mr. Jacobsen’s salary increase of approximately 11% reflected performance and market-based considerations. On November 1, 2017, Mr. Giacobbe received an increase in base salary to $550,000 in connection with his promotion to Chief Operating Officer. He will next be eligible for an annual increase in base salary in January 2019.

 

2017 Annual Cash Incentive Compensation

 

Each year, the Committee reviews Company strategy and develops an annual cash incentive program (“CIP”) that is designed to incentivize behavior that will drive financial and individual performance objectives and achievement aligned with the Company’s strategic objectives. This process generally begins in the fourth quarter of the preceding fiscal year and culminates in the first quarter of the fiscal year, when relevant financial objectives and targets are

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established by the Committee. As part of this process, the Committee reviews the Company’s strategic priorities and operating budget and market data in December of each year, and these factors inform the Committee’s decisions with respect to annual incentive opportunities.

 

The Committee approves financial objectives which are included in the CIP. It also approves the individual performance objectives for our CEO in consultation with our Board. The CEO approves the individual performance objectives of the other NEOs although the Committee has the discretion to change these individual performance objectives. Although the Committee bases annual cash incentive payments on the achievement of the specified performance objectives, it retains discretion in determining the actual payouts to the NEOs.  

 

CIP Performance Objective Weighting and Bonus Target

 

Each of our NEOs was eligible to earn an annual cash incentive award under the CIP in fiscal year 2017. Each NEO’s potential award was expressed as a percentage of his base salary, including threshold, target and maximum percentages. After the end of the fiscal year, the Committee determined the amount of each NEO’s actual annual incentive award (other than the CEO) based upon the achievement of a combination of corporate and individual goals as set out in the table below. The independent members of the Board determine CEO compensation, after taking into consideration the recommendations of the Committee.

 

The relative weights for each performance component of the CIP and the target bonus potential for each NEO, are set forth in the following table. Payout can range from zero to 167.5% of target.

 

 

 

2017 Financial and Safety Objectives under Our CIP

 

In fiscal year 2017, financial metrics under our CIP included a combination of adjusted EBITDA margin compared to budget and income from continuing operations compared to budget, to provide balanced measurement across both factors (collectively, “Financial Objectives”). In addition, Mr. Jacobsen’s Financial Objectives also included objectives relating to Commercial Operations and Business & Industry Group. All NEOs had safety objectives relating to promoting a safe working environment (“Safety Objectives”).

 

The Financial Objectives were established by the Committee in the first quarter of 2017, prior to the time that the Company had entered into discussions to acquire GCA Services Group. Accordingly, the Committee adjusted financial results so as to exclude the effects of this acquisition, which closed on September 1, 2017, which was near the end of our performance period. Financial and Safety targets, were not adjusted. The following table shows the Financial Objectives and Safety Objectives, achievement levels and payout for Messrs. Salmirs, Scaglione, McClure and Giacobbe.

 

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2017 Financial and Safety Objectives Achievement for Messrs. Salmirs, Scaglione, McClure and Giacobbe

 

 

 

Because Mr. Jacobsen led our Business & Industry Group, his Financial Objectives included a mix of Corporate, Combined Commercial Operations and Business & Industry Group objectives. These objectives and results are reflected in the table below. Results exclude the impact of the acquisition of GCA Services Group.

 

2017 Financial and Safety Objectives Achievement for Mr. Jacobsen

 

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Personal Objectives under Our CIP

 

In the beginning of each year, the Committee establishes the personal objectives (“Personal Objectives”) of the CEO. The CEO reviews and approves the Personal Objectives of the other NEOs. The Committee also establishes the relative weighting of the Financial Objectives, Safety Objectives and Personal Objectives for all NEOs at the beginning of the year. At the end of each year, the Committee conducts an extensive review of our CEO’s performance in executive session, with the assistance of Semler Brossy. Our CEO provides the Committee with an assessment of performance for each of the other NEOs. Each assessment takes into account a number of quantitative and qualitative factors, such as the attainment of key strategic goals and performance objectives that were set in the beginning of the fiscal year. After assessing the CEO’s performance, the Committee recommends the CEO’s compensation to the independent members of the Board, who then determine the CEO’s compensation. The Committee also reviews the CEO’s assessment of the other NEOs and establishes the compensation of the other NEOs.

 

As described above, at the beginning of the fiscal year, the Committee determined that 30% of the CIP bonus opportunity for our NEOs would be based on the achievement of Personal Objectives. Other senior-level employees also participate in the CIP, and for these individuals, bonus amounts related to the achievement of Personal Objectives are determined by the individual’s manager taking into account guidelines established by the CEO and the CFO. In fiscal year 2017, all participants in the CIP had Personal Objectives related to the Company’s 2020 Vision. While progress had been achieved in the implementation of the Company’s 2020 Vision, certain aspects of this strategic transformation relating to the ABM Way had not gained the traction or produced the results expected at the outset of 2017. Accordingly, for individuals whose compensation is not determined by the Committee, management reduced the weighting associated with Personal Objectives from 30% to 15%. The CEO and CFO discussed the reasons for this reduction in weighting value with the Committee and recommended that the weighting for the NEOs’ Personal Objectives be similarly reduced.

 

In determining the weighting for the portion of the CIP bonus based on Personal Objectives for the NEOs, the Committee considered the recommendations of the CEO and CFO. The Committee determined that such a reduction was also appropriate for the NEOs, in light of the fact that the NEOs play a critical role in the timing and achievement of goals relating to the Company’s 2020 Vision transformation. Accordingly, the Committee reduced the weighting relating to the achievement of Personal Objectives for the NEOs from 30% to 15%.

 

The Committee’s assessments relating to the achievement of the Personal Objectives of the NEOs and bonus determinations are described on the following page.

 

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2017 CIP Payments for Our NEOs

 

The table below presents the fiscal year 2017 performance under our CIP for our NEOs’ Financial Objectives, Safety Objectives and Personal Objectives, and their resulting payout (both the total award dollar amount and as a percentage of target opportunity).

 

 

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Equity Incentive Compensation

 

The Committee believes that a long-term incentive program motivates and rewards our executive officers for their contributions to our Company’s performance and serves to align long-term compensation with the performance of Company stock. Our practice is to grant long-term incentives annually in the form of equity awards that are allocated among time-based RSUs, which typically vest over a four-year period, and PSUs, which we sometimes refer to as “performance shares” and which typically vest after a three-year performance period. Performance share grants are currently awarded under two performance share programs: one based on Company financial mertrics and one based on comparative total shareholder return metrics. We refer to equity grants under the former as “PSP” awards and the latter as “TSR” awards.

 

The Committee considers market data and the mix of compensation at risk when establishing the long-term incentive opportunity for each NEO. Generally, the Committee approves an equity award of a specific dollar value for each recipient based on a multiple of the recipient’s base salary. The dollar value of the award is determined after taking into consideration various factors, including a market analysis prepared by Semler Brossy and the overall mix of performance-based compensation. The Committee believes that a meaningful portion of equity compensation should be performance-based. The Committee may also grant one-time equity awards when circumstances indicate that such an award is appropriate.

 

In fiscal year 2017, our NEOs received grants of equity awards in the form of PSUs and RSUs, as shown in the table below. Messrs. Giacobbe and Jacobsen also received off-cycle RSU awards to reflect changes in their areas of responsibility during the year. In addition, each NEO also holds unvested equity awards granted in prior years, which vest over a period of three or four years from the date of grant (in some circumstances, subject to performance vesting conditions).

 

 

 

In connection with the initiation of the Company’s 2020 Vision, the Committee reviewed the Company’s performance share programs. At that time, there were two types of performance share programs: one based on “value creation” (“Value Creation PSP”) and one based on total shareholder return (“TSR PSP”). Achievement under the Value Creation PSP was measured by three one-year periods using a formula comprised of operating cash flow and adjusted EBITDA, as described below, and one three-year period in which performance was measured by compounded three-year adjusted EBITDA growth, calculated at the end of the three-year performance period. The TSR PSP measured Company TSR against the TSR of the S&P SmallCap 600 Index over a three-year period.

 

In 2016, the Committee decided to move away from the design of the Value Creation PSP and, commencing with the 2016 fiscal year, adopted a new performance share program with a simpler design covering one three-year performance period. The performance metrics applicable to executive officers under this new PSP are comprised of organic revenue growth, EBITDA and return on invested capital (“ROIC”). The Committee believes the simpler design affords greater visibility into, and alignment with, key drivers of success under our 2020 Vision. The Committee determined to retain the TSR PSP as it aligns our executives’ interests directly with interests of our shareholders.  

 

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Results of 2015–2017 Value Creation Performance Share Program

 

The following table summarizes the results under our 2015–2017 Value Creation PSP, which covered a performance period from November 1, 2014 to October 31, 2017. As discussed above, the Company no longer uses this design for its performance share program. Adjusted EBITDA is income from continuing operations before interest, taxes, depreciation and amortization and reflects adjustments related to acquisitions and discontinued operations, as well as items impacting comparability. Operating cash flow is also adjusted to reflect the impact of acquisitions and discontinued operations and other items. Categories of adjustments are approved by the Committee when the PSP is established. Final performance was 73.0% of target.

 

 

 

 

 

Results of 2015–2017 TSR PSP

 

Under the 2015–2017 TSR PSP, the measurement period was a three-year period commencing on November 1, 2014 and ending on October 31, 2017, with TSR being measured by reference to the S&P SmallCap 600 Index. Achievement under the 2015–2017 TSR PSP is measured by the Company’s TSR percentile ranking, compared to the S&P SmallCap 600 Index, for the three-year period ending October 31, 2017. The following table shows ABM’s TSR compared to the S&P SmallCap 600 Index for this period.

 

 

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Award funding for the TSR PSP is set forth below.

 

 

The Company ranked in the second quartile for TSR of S&P SmallCap 600 Index companies, resulting in a payout under the 2015–2017 TSR PSP of 143.2% of target.

 

 

Other Compensation and Governance-Related Matters

 

Employment and Change-in-Control Agreements

 

During 2017, the Compensation Committee reviewed the form of employment agreements for the CEO and other executive officers in light of the expiration of employment agreements with Messrs. Salmirs, Scaglione and McClure on October 31, 2017. As had historically been the case, these employment agreements were generally for two-year terms. After considering the current needs of the Company and benchmarking compensation practices, the Committee determined that it was appropriate to move away from executive employment agreements having a fixed term and instead adopted a form of agreement reflecting an “at-will” employment relationship, while at the same time affording some income security by specifying certain severance payments upon involuntary or constructive termination. All of our NEOs (other than Mr. McClure who retired) have entered into the new form of employment agreement.

 

Under the terms of these new employment agreements, an executive who is terminated without cause by the Company, or who resigns for “good reason” (such as a material reduction in the executive’s compensation or material change in the executive’s position), will be entitled to receive a multiple (2.5 for Mr. Salmirs and 2.0 for the other NEOs) of the sum of his base salary and target bonus, as well as a prorated portion of his annual bonus for the year of termination and 18 months of health insurance reimbursements. In addition, in revising the executive employment agreements, the Committee also considered the demographic profile of our NEOs, the desire to retain our executive team through and beyond the execution of our 2020 Vision, and current market practices. Under the new agreements, an NEO who voluntarily leaves the Company before age 60 will forfeit all unvested equity awards made after January 1, 2018. An NEO who voluntarily leaves the Company at age 60 or older with 10 years of service will continue to vest in equity awards granted after January 1, 2018, in accordance with the terms of those awards. These employment agreements also provide that following termination of employment for any reason, the officer will refrain from competing with, or soliciting the employees or customers of, the Company for one year following the termination of employment.

 

In order to assure continuity of ABM’s senior management in the event of a potential change-in-control of the Company, ABM provides our NEOs with “double-trigger” severance benefits should their employment with ABM be terminated following a change in control. During 2017, the Committee reviewed the Company’s change-in-control agreements. As a result of this review, new change-in-control agreements were entered into with the NEOs. The current agreements, which went into effect after the end of the 2017 fiscal year, provide double-trigger severance benefits if the officer is terminated without cause, or resigns for “good reason,” within two years following a change-in-control. These benefits consist of a lump-sum payment equal to a multiple (3.0 for Mr. Salmirs and 2.5 for each of the other NEOs) of the sum of his base salary and target bonus; a lump-sum payment equal to the present value of health and welfare benefits for 18 months; and accelerated vesting of equity awards. There are no excise tax gross-ups under the change-in-control agreements. Instead, any such payments and benefits are subject to reduction in order to avoid the application of the excise tax on “excess parachute payments” under the Internal Revenue Code, but generally only if the reduction would increase the net after-tax amount received by the officer.

 

For a summary of the executives’ employment and change-in-control agreements in effect during fiscal year 2017, see “Potential Benefits on Termination.”

 

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Stock Ownership Guidelines and Anti-Hedging and Pledging Policy

 

The Company has stock ownership guidelines for certain officers, including our NEOs. Executives are expected to achieve their targets within five years of becoming subject to the stock ownership policy. Stock ownership guidelines are based on a multiple of base salary. Individuals who have not met their stock ownership level at the end of the applicable five-year period are expected to retain 50% of their after-tax net shares paid under any Company long-term incentive plan or program, such as shares paid out under the performance share program and vested restricted stock units, until their ownership guidelines are satisfied. The Committee periodically reviews the stock ownership guidelines and may make adjustments to these guidelines to the extent it believes such adjustments are appropriate. Progress toward targeted ownership levels may be taken into consideration in future grants to executives. Unvested RSUs are taken into consideration when determining if ownership guidelines have been achieved; unearned performance shares are not included nor are stock options, whether vested or unvested. Current stock ownership guidelines are as follows:

 

 

 

All of our NEOs are either at or above our stock ownership guidelines or are well positioned to achieve compliance within the required time period.

 

Additionally, the Company has a policy prohibiting all employees, including the NEOs and members of our Board, from engaging in any hedging transactions involving our stock. We also prohibit pledging, or using as collateral, Company stock to secure personal loans or other obligations.  

 

Window Trading and Rule 10b5-1 Trading Plans

 

Under the Company’s insider trading policy, officers may only purchase or sell ABM securities during “open window” periods, which begin on the third business day following the date of each quarterly earnings announcement and end at the close of trading on the 15^th day of the third month of the fiscal quarter. The only exception to this is for officers who have entered into a trading plan pursuant to SEC Rule 10b5-1.

 

NEOs are permitted to establish trading plans under SEC Rule 10b5-1 during open trading windows. These plans enable an executive to diversify his or her holdings of Company stock during periods in which the executive would otherwise be unable to buy or sell such stock because he or she possessed material, nonpublic information about the Company. Any trading plan must be submitted in writing to the Company’s designated officer for review and approval prior to its effective date.

 

Annual Compensation-Related Risk Evaluation

 

We annually review risks associated with our executive compensation program, as well as our other broad-based employee incentive programs, with respect to enterprise risk factors, with the assistance of management’s compensation consultant, Willis Towers Watson, which prepares a risk analysis. The Committee and its independent compensation consultant, Semler Brossy, review this analysis. In connection with its 2017 review, the Committee noted the various ways in which risk is managed or mitigated. Practices and policies mitigating risks included the balance of corporate, business unit and individual weightings in incentive compensation programs, the mix between long-term and short-term incentives, use of stock ownership requirements, the Company’s policy prohibiting hedging, and the Company’s recoupment or “clawback” policy. Based on this review, the Committee agreed with the findings in the analysis that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

Compensation Recoupment (Clawback) Policy

 

The Board has adopted a policy relating to the recoupment of cash and equity compensation. The policy provides that, if the Company’s financial statements are the subject of a restatement due to misconduct, fraud or malfeasance, then, to the extent permitted by applicable law, the independent members of the Board, or a committee consisting of

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independent members of the Board may, in their discretion, recover cash compensation paid to an executive officer of the Company or rescind or make other adjustments to an equity award made to an executive officer of the Company, including recovering cash proceeds relating to the sale or other disposition of an equity award, to the extent that the payment or award was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement. Where applicable, the Company may seek to recover any amount determined to have been inappropriately received by the individual executive officer. In addition, it is the Board’s policy that if the independent members of the Board, or a committee consisting of independent members of the Board, determine that an employee who received a cash incentive payment or an equity award engaged in conduct constituting “cause” (such as serious misconduct, dishonesty, disloyalty, conviction of a felony or misdemeanor involving moral turpitude, or failure to substantially perform employment-related duties or responsibilities), the Board or such Committee may take such action it deems necessary to address such conduct, including recovery of cash incentive payments, rescission of equity grants made to the employee in the 36-month period prior to the date on which the Board or such Committee makes such determination and recovery of proceeds relating to the sale or other disposition of an equity award during such 36-month period.

Benefits and Perquisites

 

The NEOs are eligible for customary employee benefits, which include participation in ABM’s 401(k) Plan, as well as group life, health and accidental death and disability insurance programs and executive health examinations. These and certain other perquisites are set forth in the Summary Compensation Table.

 

Mr. McClure qualified for benefits under the Supplemental Executive Retirement Plan (SERP), an unfunded retirement plan that was previously closed to new participants. Mr. McClure also participated in the Service Award Benefit Plan (SAB), which provides participants, upon termination of employment, with a minimum of seven days of pay for each year of employment between November 1989 and January 2002. Both the SERP and the SAB were closed to new participants prior to the employment of our other NEOs.

 

The NEOs are eligible to participate in ABM’s Employee Deferred Compensation Plan, which is an unfunded deferred compensation plan available to highly compensated employees. The Employee Deferred Compensation Plan benefits are shown in the “Nonqualified Deferred Compensation in Fiscal Year 2017” table, followed by a description of the plan. The Committee regularly reviews the benefits provided under this and other plans, and as a result of such a review, in January 2011, the Company entered into a trust agreement that will fund amounts due under the Employee Deferred Compensation Plan in the event of a change in control of ABM.

 

Accounting and Tax Considerations

 

The Committee takes into consideration the accounting, tax and related financial implications to the Company and executives when designing compensation and benefit programs. From an accounting perspective, in general, base salary, annual cash incentive payments, and the costs related to benefits and perquisites are recognized as compensation expense at the time they are earned or provided, and equity-based compensation expense is recognized over the vesting period of the grant. Subject to the exceptions and limits described below, the Company deducts for federal income tax purposes, payments of compensation and other benefits to executives. The Company does not deduct nonqualified deferred compensation until the year that the deferred compensation is paid to the executive.

 

Section 162(m) of the Internal Revenue Code generally does not allow a tax deduction to public companies for compensation paid to certain executive officers in one year over $1 million per executive. Prior to the 2017 tax reform, compensation based solely on the attainment of one or more preestablished objective performance goals (subject to meeting certain other requirements) was exempt from this limit. Our shareholder-approved equity incentive and executive officer incentive plans were designed to permit the Committee to grant certain types of performance-based compensation intended to qualify for this exception from the Section 162(m) limit. However, the exemption for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, subject to transition relief for certain arrangements in place as of November 2, 2017. For ABM, this means that the new Section 162(m) rules will apply starting with the tax year beginning November 1, 2018.

 

Given the uncertain scope of the transition relief and the absence of any rulemaking at this time, the full impact of the new Section 162(m) on the Company and its executive compensation practices is not yet known. The Committee will continue to monitor developments in this regard. The Committee continues to have the flexibility to pay nondeductible compensation if it believes that it is in the best interests of the Company.

 

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COMPENSATION COMMITTEE REPORT

 

The Committee has reviewed the Compensation Discussion and Analysis and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in ABM’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017 and 2018 Proxy Statement.

 

Compensation Committee:

 

Thomas M. Gartland, Chair

Linda Chavez

Lauralee E. Martin

Filippo Passerini

 

 

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Additional Information About Executive Compensation

The following tables and accompanying narrative provide detailed information regarding the compensation of the NEOs.