UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Information Required In Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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☒ | Definitive Proxy Statement |
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ARTHUR J. GALLAGHER & CO.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Arthur J. Gallagher & Co.
2850 Golf Road
Rolling Meadows, Illinois 60008-4050
Notice of 2019 Annual Meeting of Stockholders
Dear Stockholder:
We are pleased to invite you to the 2019 Annual Meeting of Stockholders of Arthur J. Gallagher & Co., which will be held on May 14, 2019, at 9:00 AM CDT, at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050. At the meeting, stockholders will vote on each item described below and we will transact such other business that properly comes before the meeting.
Voting Items |
Board Recommendations | |
Elect each of the 9 nominees named in the accompanying Proxy Statement as directors to hold office until our 2020 Annual Meeting (Item 1) |
FOR each nominee | |
Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019 (Item 2) |
FOR | |
Approve, on an advisory basis, the compensation of our named executive officers (Item 3) |
FOR |
Stockholders of record at the close of business on March 20, 2019 are entitled to notice of and to vote at the Annual Meeting. The applicable voting standard and the treatment of abstentions and broker non-votes for each of these items are set forth on page 35 of the Proxy Statement.
Stockholders who wish to attend the Annual Meeting in person should bring a drivers license, passport or other form of government-issued identification to verify their identities. In addition, if you hold your shares through a broker, you will need to bring either (1) a letter from your broker stating that you held Gallagher shares as of the record date, or (2) a copy of the notice of Annual Meeting document you received in the mail.
We urge you to read the Proxy Statement for additional information concerning the matters to be considered at the Annual Meeting and then vote in accordance with the Boards recommendations. Your vote is very important to us.
By Order of the Board of Directors
WALTER D. BAY
SECRETARY
March 22, 2019
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders
to Be Held on May 14, 2019:
We are making this Notice of Annual Meeting, this Proxy Statement, our 2018 Annual Report, and the Notice of Internet Availability of Proxy Materials available on the Internet at www.materials.proxyvote.com/363576 and mailing copies of these proxy materials to certain stockholders on or about March 22, 2019.
Proxy Statement
CORPORATE GOVERNANCE | ||||
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Security Ownership by Certain Beneficial Owners and Management |
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AUDIT MATTERS | ||||
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EXECUTIVE COMPENSATION | ||||
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Item 3 Advisory Vote to Approve the Compensation of Our Named Executive Officers |
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING | 35 | |||
EXHIBITS | ||||
A-1 | ||||
B-1 |
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2019 PROXY STATEMENT
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i
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Item 1 Election of Directors
Evaluation Process for Director Candidates
The Nominating/Governance Committee considers director candidates suggested by stockholders, management or other members of the Board and may hire consultants or search firms to help identify and evaluate potential director candidates. For information regarding how stockholders can submit a director candidate for consideration by the Nominating/Governance Committee, see page 36.
The Nominating/Governance Committee evaluates director candidates by considering their judgment, qualifications, attributes, skills, integrity, diversity, international business or other experience relevant to our global activities, and other factors it deems appropriate. The Committee looks for candidates who are leaders in the organizations with which they are affiliated and have experience in positions with a high degree of responsibility. The Committee seeks candidates free from relationships or conflicts of interest that could interfere with the directors duties to Gallagher or our stockholders. The Committee also evaluates candidates independence and takes into account other applicable requirements for directors under Securities and Exchange Commission (SEC) rules and New York Stock Exchange (NYSE) listing standards.
Board Diversity
The Nominating/Governance Committee seeks Board members from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. The Committee implements this policy through discussions among its members and assesses its effectiveness annually as part of the Committees and the Boards self-evaluation process. The Committee has also used a search firm on occasion to help it identify highly qualified and diverse candidates.
Board Nominees and Vote Required
Upon the recommendation of the Nominating/Governance Committee, the Board has nominated our Chairman and CEO and each of the eight individuals listed below to hold office until the next annual meeting and the election and qualification of their successors or, if earlier, until their resignation, death or removal. Each of the nominees currently serves on the Board and has consented to serve for a new term if elected. However, if any nominee should become unable or unwilling to serve, the Board may nominate another person to stand for election or reduce the number of directors.
Each director nominee who receives more FOR votes than AGAINST votes at the Annual Meeting will be elected. Any incumbent director nominees who receive a greater number of votes AGAINST election than votes FOR election are required to tender their offer of resignation for consideration by the Nominating/Governance Committee in accordance with our Governance Guidelines.
In connection with the mandatory retirement age provision of our Governance Guidelines, the Board is not nominating Elbert O. Hand for re-election to the Board. We gratefully acknowledge Mr. Hands distinguished service as a member of the Board of Directors since 2002.
Independent Director Qualifications
The table below summarizes the key qualifications and areas of experience that led our Board to conclude that each independent director nominee is qualified to serve on our Board, but is not intended to be an exhaustive list of their qualifications or contributions to the Board.
CEO
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Finance /
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Legal
/ Regulatory
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Risk Governance
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Sales and
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International
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Insurance
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Sherry S. Barrat |
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X |
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X |
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X |
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X |
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X |
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William L. Bax |
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X |
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X |
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D. John Coldman |
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X |
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X |
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X |
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X |
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Frank E. English, Jr. |
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X |
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X |
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David S. Johnson |
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X |
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X |
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X |
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X |
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Kay W. McCurdy |
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X |
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X |
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X |
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Ralph J. Nicoletti |
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X |
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X |
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X |
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Norman L. Rosenthal |
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X |
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X |
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X |
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2019 PROXY STATEMENT
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1
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ITEM 1: ELECTION OF DIRECTORS
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THE DIRECTOR NOMINEES LISTED BELOW |
Sherry S. Barrat
Age: 69 Director Since: 2013
Independent
Committee Memberships: Compensation (Chair) Nominating/Governance
Public Company Boards: 2 |
Ms. Barrat retired in 2012 as Vice Chairman of Northern Trust Corporation, a global financial holding company headquartered in Chicago, Illinois. She assumed the role of Vice Chairman in March 2011. From 2006 to 2011, Ms. Barrat served as Global President of Northern Trusts personal financial services business, which provides asset management, fiduciary, estate and financial planning, and private banking services to individuals and families around the world. During her 22-year career at Northern Trust, Ms. Barrat served in various other leadership roles and as a member of the Northern Trust Management Committee. Since 1998, Ms. Barrat has served as a director of NextEra Energy, Inc., one of the largest publicly traded electric power companies in the United States, where she serves on the compensation and finance committees. Since 2013, Ms. Barrat has also served as an independent trustee or director of certain Prudential Insurance mutual funds, where she serves on the investment review, governance & nominating and compliance committees.
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Skills and Qualifications
Ms. Barrats qualifications to serve on our Board and chair our Compensation Committee include her executive management, operational and financial experience, in particular her deep understanding of the financial services industry and her experience leading a global client service and sales organization.
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William L. Bax
Age: 75 Director Since: 2006
Independent
Committee Memberships: Audit (Chair)
Public Company Boards: 1 |
Mr. Bax was Managing Partner of the Chicago office of PricewaterhouseCoopers (PwC), an international accounting, auditing and consulting firm, from 1997 until his retirement in 2003, and was a partner in the firm for 26 years. Mr. Bax previously served as a director of Sears, Roebuck & Co., a publicly traded retail company, from 2003 to 2005; Andrew Corporation, a publicly traded communications products company, from 2006 to 2007; and mutual fund companies Northern Funds/Northern Institutional Funds, from 2006 to 2018.
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Skills and Qualifications
Mr. Baxs qualifications to serve on our Board and chair our Audit Committee include his 26 years as a partner and six years as head of PwCs Chicago office, his tenure on the boards of two public companies and his experience advising public companies on accounting and disclosure issues.
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D. John Coldman, OBE
Age: 71 Director Since: 2014
Independent
Committee Memberships: Compensation
Public Company Boards: 1 |
Mr. Coldman began his career at WT Greig, a reinsurance broker. In 1988, he became Managing Director and in 1996 was appointed Chairman of The Benfield Group, the worlds leading independent reinsurance and risk intermediary, until its acquisition by Aon Corporation in 2008. From 2001 to 2006, Mr. Coldman served as Deputy Chairman and a Member of Council of Lloyds of London. He is also a past Chairman of Brit PLC, a publicly traded global specialty insurer and reinsurer, from 1996 to 2000, and Omega Insurance Holdings Limited, a publicly traded insurance and reinsurance group, from 2010 to 2012. Mr. Coldman served as the non-executive Chairman of Roodlane Medical Ltd., a privately held healthcare services provider, from 2007 to 2011. A U.K. citizen, Mr. Coldman was appointed an Officer of the Order of the British Empire (OBE) in the Queens Birthday Honours List 2017, for services to business, young people, and charity.
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Skills and Qualifications
Mr. Coldmans qualifications to serve on our Board include his international insurance industry knowledge, his experience within the Lloyds and London marketplaces, and his experience with public company matters and mergers and acquisitions.
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2019 PROXY STATEMENT
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ITEM 1: ELECTION OF DIRECTORS
Frank E. English, Jr.
Age: 73 Director Since: 2009
Independent
Committee Memberships: Audit
Public Company Boards: 3 |
From 1976 to 2009, Mr. English served in various senior roles at Morgan Stanley, a multinational investment bank and financial services company, finishing his tenure there as Managing Director and Vice Chairman of Investment Banking. Mr. English serves on the board of directors and the audit and compensation committees of Tower International, Inc., a publicly traded global automotive components manufacturer, where he has been a board member or board advisor since 2010. Since 2012, Mr. English has also served on the board of directors of Cboe Global Markets, a publicly traded holding company for various securities exchanges, including the largest options exchange in the United States, where he serves on the finance and strategy, nominating and governance, and compensation committees. From 2011 to 2017, Mr. English served as a Senior Advisor to W.W. Grainger, a publicly traded broad-based distributor of industrial maintenance, repair and operations supplies.
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Skills and Qualifications
Mr. Englishs qualifications to serve on our Board include his extensive investment banking expertise, particularly in the areas of capital planning, strategy development, financing and liquidity management.
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J. Patrick Gallagher, Jr.
Age: 67 Director Since: 1986
Chairman of the Board Since: 2006
Public Company Boards: 2 |
Mr. Gallagher has spent his entire career with Arthur J. Gallagher & Co. in a variety of management positions, starting as a Production Account Executive in 1974, then serving as Vice President of Operations from 1985 to 1990, as President and Chief Operating Officer from 1990 to 1995, and as President and Chief Executive Officer since 1995. In 2011, Mr. Gallagher joined the board of directors of InnerWorkings, Inc., a global, publicly traded provider of managed print, packaging and promotional solutions, and was appointed to its compensation and nominating/governance committees. He also serves on the Board of Trustees of the American Institute for Chartered Property Casualty Underwriters and on the Board of Founding Directors of the International Insurance Foundation.
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Skills and Qualifications
Mr. Gallagher is the only member of management serving on the Board. His 44 years of experience with our company and 33 years of service on the Board, his deep knowledge of our company and the insurance industry and his extensive leadership experience greatly enhance the Boards decision making and enable Mr. Gallagher to serve as a highly effective Chairman of the Board.
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David S. Johnson
Age: 62 Director Since: 2003
Independent Lead Director
Committee Memberships: Compensation Nominating/Governance
Public Company Boards: 1 |
Mr. Johnson has served as Chief Executive Officer of North America for Aryzta AG, a publicly traded global food business, since January 2018, where he also serves on the companys group executive committee. From 2009 to 2017, he served as President and Chief Executive Officer of the Americas for Barry Callebaut AG, the worlds largest manufacturer of cocoa and chocolate products, where he also served on the global executive committee. Mr. Johnson served as President and Chief Executive Officer, and as a member of the board, of Michael Foods, Inc., a food processor and distributor, from 2008 to 2009, and as Michael Foods President and Chief Operating Officer from 2007 to 2008. From 1986 to 2006, Mr. Johnson served in a variety of senior management roles at Kraft Foods Global, Inc., a global food and beverage company, most recently as President of Kraft Foods North America, and as a member of Kraft Foods Management Committee. Prior to that, he held senior positions in marketing, strategy, operations, procurement and general management at Kraft Foods.
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Skills and Qualifications
Mr. Johnsons qualifications to serve on our Board and as Lead Director include his experience as a senior executive of global businesses and his knowledge of corporate governance and executive compensation best practices. | ||
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2019 PROXY STATEMENT
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3
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ITEM 1: ELECTION OF DIRECTORS
Kay W. McCurdy
Age: 68 Director Since: 2005
Independent
Committee Memberships: Compensation Nominating/Governance (Chair)
Public Company Boards: 1 |
Ms. McCurdy practiced corporate and finance law from 1975 to 2019 at the law firm of Locke Lord LLP, where she was a partner from 1983 to 2012 and Of Counsel from 2012 to 2019. She served on the firms Executive Committee from 2004 to 2006. During her career as a corporate and finance attorney, Ms. McCurdy represented numerous companies on a wide range of matters, including financing transactions, mergers and acquisitions, securities offerings, executive compensation and corporate governance. Ms. McCurdy served as a director of Trek Bicycle Corporation, a leading bicycle manufacturer, from 1998 to 2007. In recognition of her ongoing commitment to director education and boardroom excellence, the National Association of Corporate Directors (NACD) has named Ms. McCurdy a NACD Governance Fellow every year since 2010. She is also a director of the Chicago chapter of NACD.
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Skills and Qualifications
Ms. McCurdys qualifications to serve on our Board and chair the Nominating/Governance Committee include her experience advising companies regarding legal, public disclosure, corporate governance, mergers and acquisitions and executive compensation issues.
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Ralph J. Nicoletti
Age: 61 Director Since: 2016
Independent
Committee Memberships: Audit
Public Company Boards: 1 |
Mr. Nicoletti has served as Senior Vice President and Chief Financial Officer of The AZEK Company LLC, a privately held building products company, since January 2019. Mr. Nicoletti served as Executive Vice President and Chief Financial Officer of Newell Brands, Inc., a publicly traded consumer goods company, from June 2016 to December 2018, and as Executive Vice President and Chief Financial Officer of Tiffany & Co., a publicly traded jewelry business, from April 2014 to May 2016. Prior to joining Tiffany, Mr. Nicoletti was Executive Vice President and Chief Financial Officer of Cigna Corporation, a publicly traded global health services and insurance company, from 2011 to 2013; and of Alberto Culver, Inc., a publicly traded manufacturer and distributor of beauty products, from 2007 to 2011. Prior to that, Mr. Nicoletti held a number of financial management positions at Kraft Foods, Inc., finishing his tenure there as Senior Vice President of Corporate Audit.
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Skills and Qualifications
Mr. Nicolettis qualifications to serve on our Board include his experience as a senior executive of global businesses, his deep financial management expertise and his experience managing privacy and cybersecurity issues.
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Norman L. Rosenthal,
Age: 67 Director Since: 2008
Independent
Committee Memberships: Audit
Public Company Boards: 1 |
Since 1996, Dr. Rosenthal has been President of Norman L. Rosenthal & Associates, Inc., a management consulting firm that specializes in the property and casualty insurance industry. He is also an affiliated partner of Lindsay Goldberg LLC, a private equity firm. Dr. Rosenthal served on the board and as a member of the compensation committee of National Interstate Corporation, a publicly traded insurance company specializing in commercial transportation exposures, from June 2015 until it was acquired by another insurance company in November 2016. He currently serves on the board of The Plymouth Rock Company, a privately held group of auto and homeowners insurance companies, as well as that of its subsidiary, Plymouth Rock Management Company of New Jersey. Prior to 1996, Dr. Rosenthal spent 15 years practicing in the property and casualty insurance industry at Morgan Stanley & Co., finishing his tenure there as Managing Director. Dr. Rosenthal holds a Ph.D. in Business and Applied Economics, with an insurance focus, from the Wharton School of the University of Pennsylvania. Dr. Rosenthal has been named a NACD Leadership Fellow every year since 2017.
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Skills and Qualifications
Dr. Rosenthals qualifications to serve on our Board include his extensive experience in the insurance and finance industries, his experience as an investment analyst and his knowledge of enterprise risk management practices.
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4
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2019 PROXY STATEMENT
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CORPORATE GOVERNANCE
Pat Gallagher currently serves as Chairman of the Board and CEO. With the exception of the Chairman, all Board members are independent and actively oversee the activities of the Chairman and other members of the senior management team. We believe that our Board leadership structure allows us to take advantage of Pat Gallaghers extensive experience and knowledge of our business, which enriches the Boards decision making. Pat Gallaghers role as Chairman and CEO also enhances communication and coordination between management and the Board on critical issues.
David Johnson was originally elected by the Board in 2016 to serve as our independent Lead Director for a two-year term and re-elected in 2018 for a second two-year term. Under our Governance Guidelines, the Lead Director may serve up to two consecutive two-year terms. The duties and responsibilities of the independent Lead Director are set forth below.
Independent Lead Director Duties & Responsibilities
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Act as a liaison between the Chairman and the independent directors
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Be available for consultation and communication with stockholders as appropriate
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Call and preside over executive sessions of the independent directors without the Chairman or other members of management present
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Consult with the Chairman and approve Board meeting agendas and schedules
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Consult with the Chairman and approve information provided to the Board
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Consult with committee chairs with respect to agendas and information needs relating to committee meetings
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Work closely with and act as an advisor to the Chairman; be available to discuss with other directors concerns about the company or the Board and relay those concerns, where appropriate, to the Chairman or other members of the Board; and be familiar with corporate governance best practices
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Provide leadership to the Board if circumstances arise in which the role of the Chairman may be, or may be perceived to be, in conflict
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Perform such other duties and responsibilities as the Board may determine
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The independent directors meet regularly in executive sessions. Executive sessions are held at the beginning and at the end of each regularly scheduled in-person Board meeting. Other executive sessions may be called by the Lead Director at his discretion or at the request of the Board. The committees of the Board also meet regularly in executive sessions. Executive sessions are chaired by our independent Lead Director. The Board believes that its leadership structure as described above provides an effective framework for addressing the risks facing our company.
The Board has conducted its annual review of the independence of each director nominee under NYSE standards and the independence standards set forth in Appendix A of our Governance Guidelines (available on our website located at www.ajg.com/ir, under the heading Corporate Governance). Based upon its review, the Board has concluded in its business judgment that, with the exception of Pat Gallagher, all of the director nominees (Sherry S. Barrat, William L. Bax, D. John Coldman, Frank E. English, Jr., David S. Johnson, Kay W. McCurdy, Ralph J. Nicoletti, and Normal L. Rosenthal) and Elbert O. Hand, who is not standing for re-election at the Annual Meeting, are independent.
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2019 PROXY STATEMENT
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5
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CORPORATE GOVERNANCE
The Board currently has Audit, Compensation and Nominating/Governance Committees, all of the members of which are independent. The tables below set forth the primary responsibilities, members and the number of meetings held in 2018 for each committee.
Audit Committee
Met 5 times in 2018
Committee Members: William L. Bax (Chair) Frank E. English, Jr. Ralph J. Nicoletti Norman L. Rosenthal |
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The Audit Committees responsibilities include general oversight of the integrity of our financial statements; enterprise risk assessment and management; finance activities; our compliance with legal and regulatory requirements; our independent registered public accounting firms qualifications and independence; and the performance of our internal audit function and independent registered public accounting firm.
The Audit Committee manages our relationship with our independent registered public accounting firm and is responsible for the appointment, retention, termination and compensation of the independent auditor.
Independence and Audit Committee Financial Experts
Each member of the Audit Committee meets the additional heightened independence and other requirements of the NYSE listing standards and SEC rules. In addition, the Board has determined that each of Mr. Bax and Mr. Nicoletti qualifies as an audit committee financial expert under SEC rules.
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Compensation Committee
Met 6 times in 2018
Committee Members: Sherry S. Barrat (Chair) D. John Coldman Elbert O. Hand (1) David S. Johnson Kay W. McCurdy |
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The Compensation Committees responsibilities include reviewing and approving compensation arrangements for our executive officers, including our CEO; administering our equity compensation and other benefit plans and reviewing our overall compensation structure to avoid incentives that promote excessive risk-taking by executive officers and other employees.
The Compensation Committee engaged a compensation consultant to assist it in carrying out its duties and responsibilities. The Committee has the sole authority to retain and terminate such compensation consultant and the sole authority to approve such consultants fees and other retention terms. For more information regarding the role of the Committees compensation consultant in setting compensation, see page 21.
Independence
Each member of the Compensation Committee meets the additional heightened independence and other requirements of the NYSE listing standards.
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Nominating/ Governance Committee
Met 6 times in 2018
Committee Members: Kay W. McCurdy (Chair) Sherry S. Barrat Elbert O. Hand (1) David S. Johnson
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The Nominating/Governance Committees responsibilities include identifying qualified Board and Board committee candidates; recommending changes to the Boards size and composition; determining outside director compensation; recommending director independence standards and governance guidelines; reviewing and approving related person transactions and reviewing legal and regulatory compliance risks relating to corporate governance.
The Committee also engages in succession planning for the Board and key leadership roles on the Board and its committees, taking into consideration skills and characteristics the Board may find valuable in light of the companys anticipated business needs.
Independence
Each member of the Nominating/Governance Committee is independent under NYSE standards.
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(1) | Mr. Hand is not standing for re-election at the Annual Meeting. |
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2019 PROXY STATEMENT
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CORPORATE GOVERNANCE
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2019 PROXY STATEMENT
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7
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CORPORATE GOVERNANCE
The Board sets the amount and form of director compensation based upon recommendations made by the Nominating/Governance Committee. Pat Gallagher receives no additional compensation for his service as a director. A substantial portion of each non-employee directors total annual compensation consists of equity grants, in the form of restricted stock units. Under our stock ownership guidelines, directors with at least five years of service are expected to own an amount of our common stock with a value equal to five times the cash portion of the annual director retainer. In 2018, the annual cash retainer was $100,000. All of our directors meet these guidelines.
On May 15, 2018, each non-employee director was granted 2,100 restricted stock units that vest on the first anniversary of the date of grant (or immediately upon a directors departure from the Board). Committee Chairs receive additional annual fees as follows: $25,000 for the Audit Committee, $20,000 for the Compensation Committee and $15,000 for the Nominating/Governance Committee. The Lead Director receives an additional annual fee of $30,000. Directors are reimbursed for travel and accommodation expenses incurred in connection with attending Board and committee meetings.
Directors may elect to defer all or a portion of their annual cash retainer or restricted stock units under our Deferral Plan for Nonemployee Directors. Deferred cash retainers and restricted stock units are converted to notional stock units, which are credited with dividend equivalents when dividends are paid on our common stock. Deferred restricted stock units are distributed in the form of common stock, and deferred cash retainers and accrued dividend equivalents are distributed in cash, at a date specified by each director or upon such directors departure from the Board.
Name
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Fees Earned or Paid in Cash ($)
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Stock Awards ($)(1)
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Total ($)
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Sherry S. Barrat
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120,000
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140,406
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260,406
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William L. Bax
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125,000
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140,406
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265,406
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D. John Coldman
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100,000
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140,406
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240,406
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Frank E. English, Jr.
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100,000
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140,406
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240,406
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Elbert O. Hand
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100,000
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140,406
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240,406
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David S. Johnson
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130,000
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140,406
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270,406
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Kay W. McCurdy
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115,000
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140,406
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255,406
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Ralph J. Nicoletti
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100,000
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140,406
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240,406
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Norman L. Rosenthal
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100,000
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140,406
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240,406
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(1) | This column represents the full grant date fair value of restricted stock units granted in 2018 in accordance with FASB ASC Topic 718, Compensation Stock Compensation, except that in accordance with SEC rules, any estimate for forfeitures is excluded from, and does not reduce, such amounts. For additional information on the valuation assumptions with respect to awards of restricted stock units, refer to Note 12 to our consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018. Each director had 2,100 unvested restricted stock units outstanding as of December 31, 2018. |
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2019 PROXY STATEMENT
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CORPORATE GOVERNANCE
Certain Relationships and Related Person Transactions
How We Review and Approve Related Person Transactions
We review all relationships and transactions exceeding $120,000 in which the company participates and in which any related person (our directors and executive officers or their immediate family members and any persons owning 5% or more of our common stock) had or will have a direct or indirect material interest. The companys legal staff is primarily responsible for reviewing such relationships and transactions based on the facts and circumstances, and for developing and implementing processes and controls for obtaining and evaluating information about related person transactions. As required by SEC rules, we disclose in this Proxy Statement all such transactions that are determined to be directly or indirectly material to a related person. In addition, the Nominating/Governance Committee reviews and approves, ratifies or disapproves any such related person transaction. In the course of reviewing and determining whether or not to approve or ratify a disclosable related person transaction, the Committee considers the following factors:
| Nature of the related persons interest in the transaction |
| Material transaction terms, including the amount involved |
| Whether the transaction is on terms no less favorable than could have been reached with an unrelated third party |
| For employment arrangements, whether compensation is commensurate with that of other employees with equivalent qualifications and responsibilities and holding similar positions |
| Importance and potential benefits of the transaction to the related person and to the company |
| Whether the transaction would impair a director or executive officers judgment to act in the companys best interest |
| Whether the transaction was undertaken in the ordinary course of business |
| Any other matters the Committee deems appropriate, including the conflicts of interest and corporate opportunity provisions of our Global Standards of Business Conduct. |
Related Person Transactions for 2018
In 2018, the following relatives of Pat Gallagher were employed with us: (i) his sister is head of a specialty sales unit within our brokerage segment and received compensation of $733,457; (ii) his brother-in-law is vice president of niche strategy within our brokerage segment and received compensation of $594,529; (iii) one of his sons is a regional leader within our brokerage segment, and received compensation of $1,047,239; (iv) another son is a branch manager within our brokerage segment and received compensation of $840,390; and (v) a third son is a leader within our brokerage segment in Australia and received compensation of $974,430 (including certain relocation-related payments). In addition, the partner of Joel Cavaness, one of our executive officers, is a client service leader within our brokerage segment and she received compensation of $391,716. The compensation (salary, bonus, and the grant value of equity and cash awards) of each related person described above was commensurate with that of other employees with equivalent qualifications and responsibilities and holding similar positions.
Tom Gallagher, one of our named executive officers, is a brother of our CEO. His compensation is disclosed in the 2018 Summary Compensation Table below.
|
2019 PROXY STATEMENT
|
9
|
CORPORATE GOVERNANCE
Security Ownership by Certain Beneficial Owners and Management
The table below presents information concerning beneficial ownership of our common stock by: (i) each person we know to be the beneficial owner of more than 5% of our outstanding shares of common stock (as of December 31, 2018); (ii) each of our named executive officers, directors and director nominees (as of March 20, 2019); and (iii) all of our executive officers and directors as a group (as of March 20, 2019). The percentage calculations in this table are based on a total of 185,224,733 shares of our common stock outstanding as of the close of business on March 20, 2019. Unless otherwise indicated below, to our knowledge, the individuals and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned by them, subject to community property laws where applicable. In addition, unless otherwise indicated, the address for all persons named below is c/o Arthur J. Gallagher & Co., 2850 Golf Road, Rolling Meadows, Illinois 60008-4050.
Common Stock Issuable Within 60 Days of March 20, 2019 |
||||||||||||||||||||
Name |
Shares of Common |
Stock Options | Restricted Stock Units (2) |
Total Beneficial Ownership |
Percent of Common Stock Outstanding |
|||||||||||||||
5% Stockholders |
| |||||||||||||||||||
The Vanguard Group (3) 100 Vanguard Blvd. Malvern, PA 19355 |
20,308,477 | N/A | N/A | 20,308,477 | 11.0% | |||||||||||||||
BlackRock, Inc. (4) 55 East 52nd Street New York, NY 10055 |
19,674,828 | N/A | N/A | 19,674,828 | 10.6% | |||||||||||||||
Named executive officers, directors and nominees |
| |||||||||||||||||||
Pat Gallagher |
868,461 | (5) | 161,368 | | 1,029,829 | * | ||||||||||||||
Doug Howell |
211,619 | (6) | 102,835 | | 314,454 | * | ||||||||||||||
Tom Gallagher |
421,682 | (7) | 78,668 | | 500,350 | * | ||||||||||||||
Scott Hudson |
26,072 | (8) | 73,702 | | 99,774 | * | ||||||||||||||
Walt Bay |
14,344 | 67,602 | | 81,946 | * | |||||||||||||||
Sherry S. Barrat |
15,006 | | 2,100 | 17,106 | * | |||||||||||||||
William L. Bax |
39,670 | | 2,100 | 41,770 | * | |||||||||||||||
D. John Coldman |
6,527 | | 2,100 | 8,627 | * | |||||||||||||||
Frank E. English, Jr. |
7,300 | | 2,100 | 9,400 | * | |||||||||||||||
Elbert O. Hand |
33,200 | | 2,100 | 35,300 | * | |||||||||||||||
David S. Johnson |
46,228 | | 2,100 | 48,328 | * | |||||||||||||||
Kay W. McCurdy |
32,632 | | 2,100 | 34,732 | * | |||||||||||||||
Ralph J. Nicoletti |
6,217 | | 2,100 | 8,317 | * | |||||||||||||||
Norman L. Rosenthal |
30,025 | (9) | | 2,100 | 32,125 | * | ||||||||||||||
All directors and executive officers as a group (18 people) |
1,881,747 | 591,344 | 18,900 | 2,491,991 | 1.3% |
* | Less than 1% |
(1) | Includes notional stock units held under our Supplemental Plan (see page 25) for executive officers. Under this plan, some of our executive officers have deferred restricted stock units upon vesting or elected to invest other deferred amounts into a Gallagher common stock fund. These deferred notional stock units are included because the plan permits participants to elect to move in and out of the Gallagher common stock fund and, as a result, participants have investment power with respect to the underlying shares. |
10
|
2019 PROXY STATEMENT
|
CORPORATE GOVERNANCE
(2) | All non-employee director unvested restricted stock units vest immediately upon a directors departure from the Board, and are included because a director could depart the Board at his or her discretion and acquire rights to the underlying stock within 60 days. |
(3) | Share total obtained from a Schedule 13G/A filed on February 11, 2019 by The Vanguard Group. Vanguard disclosed that it had sole voting power with respect to 216,212 of these shares, shared voting power with respect to 52,653 shares, sole investment power with respect to 20,046,228 shares, and shared investment power with respect to 262,249 shares. |
(4) | Share total obtained from a Schedule 13G/A filed on January 10, 2019 by BlackRock, Inc. BlackRock disclosed that it had sole voting power with respect to 17,940,899 of these shares and sole investment power with respect to the full number of shares disclosed. |
(5) | Includes 52,548 notional stock units (see footnote (1) above); 218,697 shares held in trust for the benefit of his children by his wife, Anne M. Gallagher, and another, as trustees, and over which he has shared voting and shared investment power; 246,538 shares held in a revocable trust of which his wife is the sole trustee and over which he has no voting or investment power and therefore disclaims beneficial ownership; 205,965 shares held by Elm Court LLC, a limited liability company of which the voting LLC membership interests are owned by Pat Gallagher and the non-voting LLC membership interests are owned by a grantor retained annuity trust of which Pat Gallagher is the trustee; and 66,703 shares held in an irrevocable trust of which he is the sole trustee. |
(6) | Includes 166,437 notional stock units (see footnote (1) above); 2,605 shares held by his wife, over which he has no voting or investment power and therefore disclaims beneficial ownership; and 11,317 shares held in a margin securities account at a brokerage firm, with no loans outstanding in the account. |
(7) | Includes 5,875 notional stock units (see footnote (1) above); 82,325 shares held in a grantor retained annuity trust of which he is the sole beneficiary; 55,280 shares held in trusts for the benefit of his children, of which his wife is the sole trustee, and over which he has no voting or investment power and disclaims beneficial ownership; 31,671 shares held by his wife, over which he has no voting or investment power; and 66,709 shares held in an irrevocable trust of which he is the sole trustee. |
(8) | Includes 1,090 notional stock units (see footnote (1) above). |
(9) | Includes 2,500 shares held in a joint brokerage account with Caryl G. Rosenthal and 2,000 shares held in a joint brokerage account with Marisa F. Rosenthal. These are both margin securities accounts with no loans outstanding. Dr. Rosenthal has shared voting and investment power with respect to these shares. |
Section 16(a) Beneficial Ownership Reporting Compliance
Our executive officers, directors and 10% stockholders are required under the Exchange Act to file reports of ownership and changes in ownership with the SEC and the NYSE. Copies of these reports must also be furnished to us. Based on a review of copies of Forms 3, 4 and 5 furnished to us or filed with the SEC, or written representations that no additional reports were required, we believe that, during the last fiscal year, our executive officers, directors and 10% stockholders timely filed all reports required by Section 16(a) of the Exchange Act.
|
2019 PROXY STATEMENT
|
11
|
CORPORATE GOVERNANCE
Equity Compensation Plan Information
The following table provides information as of December 31, 2018, regarding the number of shares of our common stock that may be issued under our equity compensation plans.
(a) | (b) | (c) | |||||||||||||
Plan Category |
Number of securities to be issued upon exercise of warrants and rights |
Weighted-average exercise price of warrants and rights |
Number of securities remaining available for future issuance | ||||||||||||
Equity compensation plans approved by security holders |
|
10,654,878 |
(1) |
|
50.16 |
(2) |
|
21,503,351 |
(3) | ||||||
Equity compensation plans not approved by security holders |
|
8,000 |
(4) |
|
|
|
|
||||||||
Total |
|
10,662,878 |
|
50.16 |
(2) |
|
21,503,351 |
(1) | This amount includes the following: |
| 8,782,635 shares that may be issued in connection with outstanding stock options; |
| 235,100 shares that may be issued in connection with earned performance share units, and unearned performance share units valued at target levels; and |
| 1,637,143 unvested restricted stock units. |
(2) | Indicates the weighted average exercise price of the outstanding stock options included in column (a). |
(3) | This amount includes the following: |
| 14,717,233 shares available under the 2017 Long-Term Incentive Plan; and |
| 6,786,118 shares available under our Employee Stock Purchase Plan. |
(4) | This amount represents deferred restricted stock units under the Restricted Stock Plan, an equity compensation plans not approved by stockholders under which we have outstanding awards. All of our directors, officers and employees were eligible to receive awards under the plan, which provided for the grant of contingent rights to receive shares of our common stock. Awards under the plan were granted at the discretion of the Compensation Committee. Each award granted under the plan represents the right of the holder of the award to receive shares of our common stock, cash or a combination of shares and cash, subject to the holders continued employment with us for a period of time after the grant date of the award. The Compensation Committee determined each recipient of an award under the plan, the number of shares of common stock subject to such an award and the period of continued employment required for the vesting of such award. The last year we made awards under this plan was 2009. |
12
|
2019 PROXY STATEMENT
|
Item 2 Ratification of Appointment of Independent Auditor
The Audit Committee has considered the qualifications of Ernst & Young LLP and has appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019. As a matter of good governance, the Board is submitting the appointment of Ernst & Young LLP to our stockholders for ratification. If the appointment of Ernst & Young LLP is not ratified, the Audit Committee will consider the outcome of this vote in its future deliberations regarding the selection of our independent registered public accounting firm.
Principal Accountant Fees and Services
The following is a summary of Ernst & Young LLPs fees for professional services rendered to us for the fiscal years ended December 31, 2018 and 2017:
2018 |
2017 | |||||||
Audit Fees(1) |
$ |
4,653,000 |
|
$ |
5,070,000 |
| ||
Audit-Related Fees(2) |
|
853,000 |
|
|
1,005,000 |
| ||
Tax Compliance Fees(3) |
|
938,000 |
|
|
1,259,000 |
| ||
Tax Advisory Fees(4) |
|
3,554,000 |
|
|
3,902,000 |
| ||
All Other Fees(5) |
|
34,000 |
|
|
3,000 |
| ||
Totals |
$ |
10,032,000 |
|
$ |
11,239,000 |
|
(1) | Audit fees include fees associated with the annual audit of our company and our subsidiaries and the effectiveness of internal control over financial reporting, the review of our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, and statutory audits required internationally. |
(2) | Audit-related fees principally include due diligence in connection with acquisitions, issuance of service auditor reports (SOC 1 and SOC 2) related to operations at one of our subsidiaries and advisory work related to our compliance with foreign statutory requirements. |
(3) | Tax compliance fees include fees associated with the preparation of our annual Federal and state tax returns. |
(4) | Tax advisory fees include tax advice and tax planning related to Federal, state and international tax matters. |
(5) | All other fees principally include fees for access to an online accounting and tax information database. |
Audit fees were lower in 2018 due in part to reductions in audit fees and scope of services. Tax compliance and tax advisory fees were lower in 2018 due to a reduction in scope of services.
Audit Committee Pre-Approval Policies and Procedures
All audit services, audit-related services, tax services and other services for fiscal years 2018 and 2017 were pre-approved by the Audit Committee. It is the policy of the Audit Committee to pre-approve the engagement of Ernst & Young LLP before we engage such firm to render audit or other permitted non-audit services. The Audit Committee has adopted procedures for pre-approving all audit and permitted non-audit services provided by Ernst & Young LLP. The Audit Committee annually pre-approves a list of specific services and categories of services, subject to a specified cost level. Part of this approval process includes making a determination as to whether permitted non-audit services are consistent with the SECs rules on auditor independence. The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee for the types of services that Ernst & Young LLP has historically been retained to perform related to integrated audit and other recurring services, subject to reporting any such approvals at the next Audit Committee meeting.
A representative of Ernst & Young LLP is expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement if the representative so desires.
|
THE BOARD RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2019 |
|
2019 PROXY STATEMENT
|
13
|
The Audit Committee represents and assists the Board in fulfilling its responsibilities for general oversight of the integrity of the companys financial statements, risk assessment and risk management, and compliance with legal and regulatory requirements. The Audit Committee manages the companys relationship with and is responsible for the appointment, retention, termination and compensation of Ernst & Young LLP. Ernst & Young LLP has served as the companys auditor since 1973. The Audit Committee reviews Ernst & Young LLPs independence, capabilities, expertise, performance and fees in deciding whether to retain its services.
The companys management is responsible for the preparation, presentation and integrity of its consolidated financial statements, accounting and financial reporting principles, and internal controls designed to assure compliance with accounting standards and applicable laws and regulations. Ernst & Young LLP is responsible for auditing the companys consolidated financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles and for auditing the effectiveness of the companys internal controls over financial reporting. The Audit Committee monitors the financial reporting process and reports its findings to the Board.
The Audit Committee carried out its duties and responsibilities, including the following specific actions:
| Reviewed and discussed with management and Ernst & Young LLP the companys audited consolidated financial statements as of and for the fiscal year ended December 31, 2018 and its internal control over financial reporting as of December 31, 2018; |
| Reviewed and discussed with Ernst & Young LLP all matters required to be discussed by the standards of the Public Company Accounting Oversight Board (PCAOB); and |
| Obtained the written disclosures and letter from Ernst & Young LLP regarding its communications with the Audit Committee concerning Ernst & Young LLPs independence as required by the PCAOB, including the requirements under PCAOB Rule 3526, and has discussed with Ernst & Young LLP its independence. |
Based on these reviews and discussions with management and Ernst & Young LLP, the Audit Committee recommended to the Board that the companys audited consolidated financial statements be included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018, for filing with the SEC. The Audit Committee believes that the retention of Ernst & Young LLP to serve as the companys independent registered public accounting firm is in the best interests of the company.
AUDIT COMMITTEE
William L. Bax (Chair)
Frank E. English, Jr.
Ralph J. Nicoletti
Norman L. Rosenthal
14
|
2019 PROXY STATEMENT
|
Compensation Discussion and Analysis
This Compensation Discussion and Analysis discusses the compensation of the following named executive officers: | ||
Pat Gallagher |
Chairman, President and Chief Executive Officer | |
Doug Howell |
Chief Financial Officer | |
Tom Gallagher |
President Global P/C Brokerage | |
Scott Hudson |
President Risk Management | |
Walt Bay
|
General Counsel and Secretary
| |
Non-GAAP financial measures. See Exhibit A for additional information regarding the non-GAAP financial measures referred to in this Proxy Statement (adjusted revenue, adjusted EBITDAC, and adjusted EBITDAC per share, as defined for our annual cash incentive and performance share unit programs, and adjusted EBITDAC margin and organic revenue growth), including required reconciliations to the most directly comparable GAAP financial measures.
|
Overview of Our Executive Compensation Program
The Compensation Committee believes that our compensation program for named executive officers is balanced and reasonable and helps us retain and motivate highly talented business leaders through a range of economic cycles. We reward performance by emphasizing a balance of short- and long-term compensation vehicles. Annual cash incentives are awarded based on achievement of financial performance measures and the Committees assessment of individual performance. Further details on the principles and objectives of our compensation program are set forth below.
Principle |
Features of Compensation Program Aligned to Principle | |
Pay-for-Performance |
Our program emphasizes at-risk incentive award opportunities, which are tied to specified financial objectives.
Our annual incentive program is based primarily on the achievement of key company performance objectives set by the Compensation Committee.
Our long-term incentive program awards are tied to a combination of stock price performance and achievement of performance objectives established by the Compensation Committee. | |
Attract and Retain |
Compensation elements and award opportunities enable us to compete effectively for executive talent.
The Compensation Committee engages a compensation consultant to conduct a market assessment to ensure that our program is highly competitive.
High performers are awarded above-target pay when company performance goals are exceeded. | |
Stockholder Alignment |
We align the long-term financial interests of our named executive officers and stockholders through (i) performance share units, stock options and restricted stock units with long vesting periods and (ii) our Deferred Equity Participation Plan, which encourages retention and alignment with long-term stockholder interests by requiring our named executive officers to remain employed with us through at least age 62 in order to vest in their awards.
Collectively, our senior executives own significant amounts of Gallagher stock and are subject to rigorous stock ownership guidelines (six times salary for CEO, four times for CFO and three times for other named executive officers). All of our named executive officers meet these guidelines. | |
Committee Discretion |
While annual incentive awards are determined primarily based on achievement of company performance objectives, the Compensation Committee exercises discretion when necessary to adjust awards based on factors such as individual or division performance, changes in accounting standards, economic or business conditions, adherence to company values or similar matters. |
|
2019 PROXY STATEMENT
|
15
|
COMPENSATION DISCUSSION AND ANALYSIS
Key Pay and Governance Practices
The Compensation Committee continually evaluates emerging best practices related to executive compensation and governance and considers modifications to our executive compensation program that support our business strategies, provide an appropriate balance of risk and reward for our named executive officers, and align their compensation with long-term stockholder interests. The following charts summarize certain of our key pay and governance practices.
Stockholder Views
When making determinations regarding corporate governance and executive compensation, our Board of Directors pays close attention to the views of our stockholders, including the 97.4% approval rate received for our say on pay proposal in 2018. In light of this strong level of support, the Compensation Committee did not make any changes to our executive compensation program as a result of the 2018 say on pay proposal.
In addition, members of our management team engaged with our largest stockholders to discuss corporate governance and executive compensation matters during the year. In 2017 the Committee implemented a three-year performance period for performance share units (PSUs) based on a new performance measure, average growth in adjusted EBITDAC per share. Based in part on stockholder feedback, the Committee continues to believe that PSUs structured this way, which constitute 75% of our CEOs and the largest portion of our other named executive officers annual equity award value, appropriately align the interests of our executives with those of our stockholders over the long term.
16
|
2019 PROXY STATEMENT
|
COMPENSATION DISCUSSION AND ANALYSIS
Components of Compensation for Named Executive Officers
Compensation Element
|
Objective
|
Key Features
| ||
Base Salary |
Recognize the experience and expertise of our named executive officers and for fulfilling the regular duties and responsibilities of their positions
|
Base salary may be increased from time to time based on job performance, promotion into a new role, expansion of duties, or market conditions | ||
Annual Cash Incentives |
Reward strong operational and financial performance that further short-term strategic objectives |
Maximum annual cash incentive opportunities are tied to significant growth in adjusted revenue and adjusted EBITDAC. Final awards are subject to the Committees discretion and are determined by the Committee based on various factors, including the companys organic revenue growth, divisional financial performance and individual achievement
See page 18 for more information
| ||
Long-Term Incentives
Performance share units (PSUs), stock options and restricted stock units |
Tie a significant portion of compensation to our long-term performance, promote retention of named executive officers and align the financial interests of named executive officers with those of stockholders |
PSUs, stock options and restricted stock units each tie named executive officers long-term wealth to the performance of our stock while multi-year vesting requirements reinforce sustainable value creation and promote retention of key executives
Long-term incentive opportunities are greater for named executive officers with a greater direct impact on long-term company performance
See pages 18 to 20 for more information
| ||
Deferred Equity Participation Plan (DEPP) |
Promote retention of named executive officers and align their financial interests with those of stockholders |
Vesting of awards is delayed until named executive officers reach age 62, and for one-year increments after such age
Each named executive officer has made an irrevocable election to invest their awards in a fund representing our common stock
See page 25 for more information
|
|
2019 PROXY STATEMENT
|
17
|
COMPENSATION DISCUSSION AND ANALYSIS
Annual Cash Incentives
In 2018, the Compensation Committee approved maximum annual cash incentive opportunities to be determined as follows: (i) target award opportunities of 150% of base salary for our CEO and 100% of base salary for our other named executive officers, multiplied by (ii) a percentage determined by the combination of adjusted revenue growth and adjusted EBITDAC growth in the year of performance.
Adjusted Revenue Growth*
| ||||||||||||
0% to 2.49%
|
2.5% to 4.99%
|
5% to 7.49%
|
7.5% to 9.99%
|
> 10%
| ||||||||
Adjusted EBITDAC Growth* |
0% to 4.99%
|
100%
|
100%
|
100%
|
100%
|
100%
| ||||||
5% to 9.99%
|
100%
|
100%
|
125%
|
125%
|
150%
| |||||||
10% to 13.99%
|
100%
|
125%
|
150%
|
150%
|
175%
| |||||||
14-19.99%
|
100%
|
125%
|
150%
|
175%
|
200%
| |||||||
>20% |
100%
|
150%
|
175%
|
200%
|
200% |
* | We define adjusted revenue the same here as we do in our other filings (i.e., revenue for the brokerage segment and revenue before reimbursements for the risk management segment excluding gains on sales of books of business and adjusted to remove the effect of foreign currency translation). However, we define adjusted EBITDAC for our annual cash incentives and performance share units as follows: EBITDAC for the brokerage and risk management segments excluding (i) gains on sales of books of business, (ii) lease abandonment and workforce termination charges, and (iii) the effect of foreign currency translation. Unlike adjusted EBITDAC as presented in our most recent earnings release, in this context the measure does not exclude acquisition integration costs and other acquisition-related adjustments. The Committee believes that including the impact of acquisition-related expenses increases management accountability around the execution of our acquisition strategy. If adjusted revenue was less than $3.5 billion or adjusted EBITDAC was less than $300 million no annual cash incentive would be paid. |
In 2018, we achieved adjusted revenue growth of 10.4% and adjusted EBITDAC growth of 13.2%. Based on this performance, as highlighted in the table above, each named executive officer qualified for an award opportunity of 175% of his target award. Final awards for each named executive officer, discussed under 2018 Compensation Actions, were determined by the Committee based on the companys organic revenue growth, divisional financial performance and individual achievement, among other factors.
Long-Term Incentives
In 2018, the Compensation Committee determined a target long-term incentive award value (as a percentage of base salary) for each named executive officer. The Committee based this target value upon a number of factors including retention considerations, internal pay equity, our historical practices and external market data (see discussion of pay comparison groups on page 22). For our CEO and named executive officers who lead an operating division (Tom Gallagher and Scott Hudson), the target award value was allocated between PSUs and stock options. For Doug Howell and Walt Bay, who lead our financial and legal operations, respectively, the Committee allocated the target award value among PSUs, stock options and restricted stock units. PSUs make up the largest portion of each named executive officers award due to the Committees commitment to drive business performance and align executive interests with stockholder interests. Set forth below is the target award value and allocation between award types for each named executive officer.
Named Executive Officer |
Target Percent of Salary |
Target Grant Amount |
Performance Share Units |
Stock Options |
Restricted Stock Units
| |||||||||
Pat Gallagher
|
200%
|
$
|
2,500,000
|
|
75%
|
25%
|
|
|
| |||||
Doug Howell
|
125%
|
$
|
1,125,000
|
|
60%
|
20%
|
|
20
|
%
| |||||
Tom Gallagher
|
125%
|
$
|
1,125,000
|
|
60%
|
40%
|
|
|
| |||||
Scott Hudson
|
125%
|
$
|
875,000
|
|
60%
|
40%
|
|
|
| |||||
Walt Bay
|
125%
|
$
|
843,750
|
|
40%
|
30%
|
|
30
|
%
|
Performance Share Units (PSUs). PSUs are granted on a provisional basis and are earned based on our average annual growth in adjusted EBITDAC per share (see the definition of adjusted EBITDAC under Annual Cash Incentives) over a three-year period. None of the award is earned with lower than 4% growth; 4-9% growth results in a number of earned PSUs interpolated on a straight-line basis between 50% and 100%; 9-14% growth results in a number of earned PSUs interpolated on a straight-line basis between 100% and 200%; and growth above 14% results in named executive officers earning 200% of their original award amounts. Earned PSUs cliff vest on the third anniversary of the grant date and settle in shares. For 2018, our one-year growth in adjusted EBITDAC per share was 11.5%. PSUs granted in 2018 and earned on the basis of average 2018-2020 performance will cliff vest on March 15, 2021 and PSUs granted in 2017 and earned on the basis of average 2017-2019 performance will cliff vest on March 16, 2020. As disclosed in our 2016 Proxy Statement, 95.7% of the PSUs provisionally awarded in 2015 were earned based on our 2015 performance. Those PSUs vested and paid out on March 11, 2018. See 2018 Option Exercises and Stock Vested for more information.
Stock Options and Restricted Stock Units. Stock options vest one-third on each of the third, fourth and fifth anniversaries of the grant date and restricted stock units cliff vest on the fifth anniversary of the grant date. See Outstanding Equity Awards at 2018 Year-End and 2018 Option Exercises and Stock Vested for information regarding vesting and exercise activity in 2018 for these awards.
18
|
2019 PROXY STATEMENT
|
COMPENSATION DISCUSSION AND ANALYSIS
2018 Compensation Actions
Pat Gallagher Chairman and CEO
|
||
Performance
|
Compensation | |
The Compensation Committee believes that Pat Gallagher performed extremely well in 2018, leading the company to 10.4% adjusted revenue growth, 13.2% adjusted EBITDAC growth and 11.5% adjusted EBITDAC per share growth in our combined brokerage and risk management segments (for definitions of these measures see Annual Cash Incentives above). Gallaghers total return to stockholders in 2018 was 19.2%. This performance compares favorably to the S&P 500 and S&P P&C Insurance indices, which declined 4.4% and 4.7%, respectively.
In addition, the Committee recognized the following aspects of Mr. Gallaghers performance:
Organic growth. The company achieved 5.9% organic revenue growth during the year, 5.6% in the brokerage segment and 7.1% in the risk management segment.
Mergers and acquisitions. The company completed 48 acquisitions representing $340 million in acquired annualized revenue.
Quality and productivity. The company increased its adjusted EBITDAC margin 40 basis points to 26.0%.
Capital management. The company returned $301.8 million to stockholders as dividends, maintained significant liquidity and remained well within its debt covenants. |
Based on Pat Gallaghers and the companys performance, the Compensation Committee made the following compensation decisions for 2018:
Base salary remained the same, at $1,250,000.
Annual cash incentive $3,281,250, 175% of his target award.
PSU award 26,900 PSUs with a grant date value of $1,902,906.
Stock option award 41,400 stock options with an exercise price of $70.74 and a grant date value of $383,789.
DEPP award $1,000,000.
Over the past three years, our total return to stockholders (including dividends) was 95.4%, while Pat Gallaghers compensation increased by 47.5%. As discussed under Comparative Market Assessment, Pat Gallaghers total compensation is below the median for similarly situated CEOs in our peer group. In light of these considerations, the Compensation Committee increased Mr. Gallaghers target long-term incentive award for 2019 (consisting of PSUs and stock options) from 200% to 225% of base salary. | |
Doug Howell Chief Financial Officer
|
||
Performance
|
Compensation | |
The Committee evaluated Doug Howells performance in light of the companys overall performance as described above for Pat Gallagher. In addition, the Committee considered the following items:
his contributions as a member of the senior management team to the companys strong overall financial performance;
his leadership of expense saving initiatives critical to increasing our adjusted EBITDAC margin;
a $500 million debt placement;
implementation of new revenue recognition accounting standards;
successful execution and financing of our acquisition program using primarily cash and debt; and
contribution of $118.6 million to net earnings by our clean energy investments. |
Based on Doug Howells and the companys performance, the Compensation Committee made the following compensation decisions for 2018:
Base salary increased from $850,000 to $900,000.
Annual cash incentive $1,575,000, 175% of his target award.
PSU award 9,700 PSUs with a grant date value of $686,178.
Stock option award 14,900 stock options with an exercise price of $70.74 and a grant date value of $138,127.
Restricted stock unit award 3,250 restricted stock units with a grant date value of $229,905.
DEPP award $500,000. | |
|
2019 PROXY STATEMENT
|
19
|
COMPENSATION DISCUSSION AND ANALYSIS
Tom Gallagher President, Global P/C Brokerage
|
||
Performance
|
Compensation | |
In evaluating Tom Gallaghers performance in 2018, the Committee considered the following items:
his contributions as a member of the senior management team to the companys strong overall financial performance;
the strong financial performance of our global P/C brokerage business, including 9.8% adjusted revenue growth, 16.1% adjusted EBITDAC growth and 8.0% organic revenue growth;
completion by our global P/C brokerage business of 30 acquisitions representing $161.2 million in acquired annualized revenue; and
a successful transition of leadership of our U.K. brokerage operation from Grahame Chilton to Simon Matson. |
Based on Tom Gallaghers and the companys performance, the Compensation Committee made the following compensation decisions for 2018:
Base salary increased from $800,000 to $900,000 largely based on an increase in responsibility following his assumption of the role of President, Global P/C Brokerage.
Annual cash incentive $1,575,000, 175% of his target award.
PSU award 9,700 PSUs with a grant date value of $686,178.
Stock option award 29,800 stock options with an exercise price of $70.74 and a grant date value of $276,254.
DEPP award $450,000. | |
Scott Hudson President, Risk Management
|
||
Performance
|
Compensation | |
In evaluating Scott Hudsons performance in 2018, the Committee considered the following items:
his contributions as a member of the senior management team to the companys strong overall financial performance;
the strong financial performance of our risk management segment, including 8.7% adjusted revenue growth, 10.0% adjusted EBITDAC growth and 7.1% organic revenue growth;
significant progress by the risk management segment in expanding adoption of our service centers in India and Las Vegas; and
successful operational initiatives including continued growth in insurance carrier claim-handling clients and the acquisition of several key specialized partners.
|
Based on Scott Hudsons and the companys performance, the Compensation Committee made the following compensation decisions for 2018:
Base salary increased from $650,000 to $700,000.
Annual cash incentive $1,225,000, 175% of his target award.
PSU award 7,550 PSUs with a grant date value of $534,087.
Stock option award 23,200 stock options with an exercise price of $70.74 and a grant date value of $215,070.
DEPP award $400,000. | |
Walt Bay General Counsel and Secretary
|
||
Performance
|
Compensation | |
In evaluating Walt Bays performance in 2018, the Committee considered the following items:
his contributions as a member of the senior management team to the companys strong overall financial performance;
strong leadership of the companys legal and compliance departments;
successful management of the companys legal and reputational risks, including litigation, mergers and acquisitions and regulatory compliance issues; and
his role as a strategic advisor to our Board, CEO and executive management team on key legal and business matters. |
Based on Walt Bays and the companys performance, the Compensation Committee made the following compensation decisions for 2018:
Base salary increased from $625,000 to $675,000.
Annual cash incentive $1,181,250, 175% of his target award.
PSU award 4,850 PSUs with a grant date value of $343,089.
Stock option award 16,800 stock options with an exercise price of $70.74 and a grant date value of $155,740.
Restricted stock unit award 4,000 restricted stock units with a grant date value of $282,960.
DEPP award $350,000. | |
20
|
2019 PROXY STATEMENT
|
COMPENSATION DISCUSSION AND ANALYSIS
|
2019 PROXY STATEMENT
|
21
|
COMPENSATION DISCUSSION AND ANALYSIS
* | Acquired by AXA in September 2018. |
22
|
2019 PROXY STATEMENT
|
The Compensation Committee oversees the companys compensation program for named executive officers on behalf of the Board. In fulfilling its oversight responsibilities, the Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis set forth above.
Based on the review and discussion referred to above, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the companys 2019 Proxy Statement and incorporated by reference in its 2018 Annual Report on Form 10-K, which it files with the SEC.
COMPENSATION COMMITTEE
Sherry S. Barrat (Chair)
D. John Coldman
Elbert O. Hand
David S. Johnson
Kay W. McCurdy
|
2019 PROXY STATEMENT
|
23
|
2018 Summary Compensation Table
Name and Principal Position |
Year | Salary ($) |
Stock Awards ($) (1) |
Option Awards ($) (2) |
Non-Equity Incentive Plan Compensation ($) (3) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (4) |
All Other Compensation ($) (5)(6) |
Total ($) |
||||||||||||||||||||||||
Pat Gallagher Chairman, President and
|
|
2018 |
|
|
1,250,000 |
|
|
1,902,906 |
|
|
383,778 |
|
|
3,281,250 |
|
|
5,001 |
|
|
1,240,019 |
|
|
8,062,954 |
| ||||||||
|
2017 |
|
|
1,250,000 |
|
|
1,856,479 |
|
|
665,786 |
|
|
2,812,500 |
|
|
87,165 |
|
|
1,214,561 |
|
|
7,886,491 |
| |||||||||
|
2016 |
|
|
1,000,000 |
|
|
823,934 |
|
|
531,505 |
|
|
2,250,000 |
|
|
37,215 |
|
|
1,096,513 |
|
|
5,739,167 |
| |||||||||
Doug Howell Chief Financial Officer |
|
2018 |
|
|
900,000 |
|
|
916,083 |
|
|
138,123 |
|
|
1,575,000 |
|
|
|
|
|
656,068 |
|
|
4,185,274 |
| ||||||||
|
2017 |
|
|
850,000 |
|
|
841,528 |
|
|
226,116 |
|
|
1,275,000 |
|
|
2,630 |
|
|
580,302 |
|
|
3,775,576 |
| |||||||||
|
2016 |
|
|
850,000 |
|
|
701,546 |
|
|
225,615 |
|
|
1,275,000 |
|
|
1,638 |
|
|
572,447 |
|
|
3,626,246 |
| |||||||||
Tom Gallagher President Global P/C Brokerage |
|
2018 |
|
|
900,000 |
|
|
686,178 |
|
|
276,246 |
|
|
1,575,000 |
|
|
|
|
|
1,073,473 |
|
|
4,510,897 |
| ||||||||
|
2017 |
|
|
800,000 |
|
|
594,187 |
|
|
425,966 |
|
|
1,200,000 |
|
|
69,973 |
|
|
1,042,191 |
|
|
4,132,317 |
| |||||||||
|
2016 |
|
|
750,000 |
|
|
310,341 |
|
|
299,130 |
|
|
1,125,000 |
|
|
28,886 |
|
|
2,115,624 |
|
|
4,628,981 |
| |||||||||
Scott Hudson President Risk Management |
|
2018 |
|
|
700,000 |
|
|
534,087 |
|
|
215,064 |
|
|
1,225,000 |
|
|
|
|
|
506,754 |
|
|
3,180,905 |
| ||||||||
Walt Bay General Counsel and Secretary |
|
2018 |
|
|
675,000 |
|
|
626,049 |
|
|
155,736 |
|
|
1,181,250 |
|
|
|
|
|
467,033 |
|
|
3,105,068 |
| ||||||||
(1) | This column includes the full grant date fair value of PSUs and restricted stock units granted during each fiscal year. The amounts reported in this column have been calculated in accordance with FASB ASC Topic 718, Compensation Stock Compensation. The amounts reported in this column for PSUs granted during each fiscal year represent the value of each award at the grant date based upon the probable outcome of the performance conditions under the program, determined in accordance with FASB ASC Topic 718. In accordance with SEC rules, any estimate for forfeitures is excluded from, and does not reduce, such amounts. Maximum payouts for the PSU awards as of the date of grant were as follows: Pat Gallagher $3,805,812; Doug Howell $1,372,356; Tom Gallagher $1,372,356; Scott Hudson $1,068,174; and Walt Bay $686,178. For a discussion of PSUs, see page 18. For additional information on the valuation assumptions with respect to stock grants, refer to Note 12 to our consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018. |
(2) | This column represents the full grant date fair value of stock option awards granted during each fiscal year. The amounts reported in this column have been calculated in accordance with FASB ASC Topic 718. In accordance with SEC rules, any estimate for forfeiture is excluded from, and does not reduce, such amounts. For additional information on the valuation assumptions with respect to option grants, refer to Note 10 to our consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018. |
(3) | This column represents annual performance-based cash incentive awards related to services rendered in 2016, 2017 and 2018. Awards are reported for the year in which they are earned, regardless of the year in which they are paid. These awards were paid fully in cash in April of 2017 and March of 2018 and 2019, respectively. |
(4) | The amounts shown in this column represent the aggregate change in actuarial present value of each named executive officers benefits under our pension plan, except where such change is a negative value. When that is the case, SEC rules require that a zero be included in this table. In 2018, such figures were as follows: Doug Howell $(922) and Tom Gallagher $(27,308). Scott Hudson and Walt Bay do not have any accrued benefits under our pension plan. |
(5) | The 2017 amount for Tom Gallagher has been revised to include non-U.S. tax reimbursements of $536,259. |
24
|
2019 PROXY STATEMENT
|
EXECUTIVE COMPENSATION TABLES
(6) | For 2018, includes the following: |
Named Executive Officer |
DEPP Awards* ($) |
Supplemental Plan Match** ($) |
401(k) Match*** ($) |
Corporate Auto & Insurance ($) |
Financial Advisory Services ($) |
Non U.S. Tax Reimbursement ($) |
Club Memberships Not Exclusively For Business Use, Cell Phone Allowance, Non- Employee Travel ($) |
|||||||||||||||||||||
Pat Gallagher
|
|
1,000,000
|
|
|
189,375
|
|
|
13,750
|
|
|
8,649
|
|
|
|
|
|
|
|
|
28,245
|
| |||||||
Doug Howell
|
|
500,000
|
|
|
95,000
|
|
|
13,750
|
|
|
8,649
|
|
|
16,155
|
|
|
|
|
|
22,514
|
| |||||||
Tom Gallagher
|
|
450,000
|
|
|
75,000
|
|
|
13,750
|
|
|
5,049
|
|
|
|
|
|
524,840
|
|
|
4,834
|
| |||||||
Scott Hudson
|
|
400,000
|
|
|
70,000
|
|
|
13,750
|
|
|
6,849
|
|
|
16,155
|
|
|
|
|
|
|
| |||||||
Walt Bay
|
|
350,000
|
|
|
66,875
|
|
|
13,750
|
|
|
8,649
|
|
|
16,155
|
|
|
|
|
|
11,604
|
|
*Deferred Equity Participation Plan (DEPP)
Deferred cash awards under the DEPP are nonqualified deferred compensation awards under Section 409A of the Internal Revenue Code. Each named executive officer has made an irrevocable election to have such awards deemed invested in a fund representing shares of our common stock. Awards under the DEPP do not vest until participants reach age 62 (or the one-year anniversary of the date of grant for participants over the age of 61, which applies to Pat Gallagher). Accordingly, amounts in the plan are subject to forfeiture in the event of a voluntary termination of employment prior to age 62 (or the minimum one-year vesting period). Awards deemed invested in our common stock provide an incentive for our named executive officers to manage our company for earnings growth and total shareholder return. In addition, the deferred realization of these awards encourages retention of our named executive officers until a normal retirement age, and for one-year increments after such age.
**Supplemental Savings and Thrift Plan (Supplemental Plan) Match
The Supplemental Plan allows certain highly compensated employees (those with compensation greater than an amount set annually by the IRS) to defer up to 80% of their base salary and annual cash incentive payment. We match any deferrals of salary and annual cash incentive payments on a dollar-for-dollar basis up to the lesser of (i) the amount deferred or (ii) 5% of the employees regular earnings minus the maximum contribution that we could have matched under the 401(k) Plan. All such cash deferrals and match amounts may be deemed invested, at the employees election, in a number of investment options that include various mutual funds, an annuity product and a fund representing our common stock. Such employees may also defer restricted stock units and PSUs, but these deferrals are not subject to company matching. Amounts held in the Supplemental Plan accounts are payable as of the employees termination of employment, or at such other time as the employee elects in advance of the deferral, subject to certain exceptions set forth in IRS regulations.
***401(k) Match
Under our 401(k) Savings and Thrift Plan (401(k) Plan), a tax qualified retirement savings plan, participating employees, including our named executive officers, may contribute up to 75% of their earnings on a before-tax or after-tax basis into their 401(k) Plan accounts, subject to limitations imposed by the Internal Revenue Service (IRS). Under the 401(k) Plan, we match an amount equal to one dollar for every dollar an employee contributes on the first 5% of his or her regular earnings. The 401(k) Plan has other standard terms and conditions.
|
2019 PROXY STATEMENT
|
25
|
EXECUTIVE COMPENSATION TABLES
2018 Grants of Plan-Based Awards
Name |
Plan |
Grant Date |
Estimated Future Payouts Under Non-Equity |
Estimated Future Payouts Under Equity |
All Other Stock Awards: Number of Shares of Stock or Units (#)
|
All Other Option Awards: Number of Securities Underlying Options (#)
|
Exercise or Base Price of Option Awards ($/sh)
|
Grant Date Fair Value of Stock and Option Awards ($)
|
||||||||||||||||||||||||||||||||||||||
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||||||||||||||
Pat Gallagher |
|
LTIP |
(1) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,400 |
|
|
70.74 |
|
|
383,789 |
| ||||||||||||
|
LTIP |
(3) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
13,450 |
|
|
26,900 |
|
|
53,800 |
|
|
|
|
|
|
|
|
|
|
|
1,902,906 |
| |||||||||||||
|
ANNUAL |
(4) |
|
N/A |
|
N/A |
|
1,875,000 |
|
|
3,750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
| |||||||||||||
Doug Howell |
|
LTIP |
(1) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,900 |
|
|
70.74 |
|
|
138,127 |
| ||||||||||||
|
LTIP |
(2) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,250 |
|
|
|
|
|
|
|
|
229,905 |
| |||||||||||||
|
LTIP |
(3) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
4,850 |
|
|
9,700 |
|
|
19,400 |
|
|
|
|
|
|
|
|
|
|
|
686,178 |
| |||||||||||||
|
ANNUAL |
(4) |
|
N/A |
|
N/A |
|
900,000 |
|
|
1,800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
| |||||||||||||
Tom Gallagher |
|
LTIP |
(1) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,800 |
|
|
70.74 |
|
|
276,254 |
| ||||||||||||
|
LTIP |
(3) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
4,850 |
|
|
9,700 |
|
|
19,400 |
|
|
|
|
|
|
|
|
|
|
|
686,178 |
| |||||||||||||
|
ANNUAL |
(4) |
|
N/A |
|
N/A |
|
900,000 |
|
|
1,800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
| |||||||||||||
Scott Hudson |
|
LTIP |
(1) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,200 |
|
|
70.74 |
|
|
215,070 |
| ||||||||||||
|
LTIP |
(3) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
3,775 |
|
|
7,550 |
|
|
15,100 |
|
|
|
|
|
|
|
|
|
|
|
534,087 |
| |||||||||||||
|
ANNUAL |
(4) |
|
N/A |
|
N/A |
|
700,000 |
|
|
1,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
| |||||||||||||
Walt Bay |
|
LTIP |
(1) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,800 |
|
|
70.74 |
|
|
155,740 |
| ||||||||||||
|
LTIP |
(2) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
282,960 |
| |||||||||||||
|
LTIP |
(3) |
|
3/15/18 |
|
|
|
|
|
|
|
|
|
2,425 |
|
|
4,850 |
|
|
9,700 |
|
|
|
|
|
|
|
|
|
|
|
343,089 |
| |||||||||||||
|
ANNUAL |
(4) |
|
N/A |
|
N/A |
|
675,000 |
|
|
1,350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
(1) | Stock options under our 2017 Long-Term Incentive Plan, vesting one-third on each of the third, fourth and fifth anniversaries of the grant date. |
(2) | Restricted stock units under our 2017 Long-Term Incentive Plan, vesting on the fifth anniversary of the grant date. |
(3) | The range of possible awards each named executive officer is eligible to receive on the third anniversary of the grate date related to performance share units under our 2017 Long-Term Incentive Plan. See page 18. |
(4) | The amounts in this line represent the range of possible annual cash incentive award the named executive officer was eligible to receive in March 2019, related to 2018 performance under our annual cash incentive program. The amounts were subject to performance criteria and subject to the Compensation Committees downward discretion. The amounts actually awarded to each named executive officer are reported in the Non-Equity Incentive Plan Compensation column of the 2018 Summary Compensation Table and footnote (3) thereto. |
26
|
2019 PROXY STATEMENT
|
EXECUTIVE COMPENSATION TABLES
Outstanding Equity Awards at 2018 Fiscal Year-End
Name |
Option Awards (1)
|
Stock Awards
|
||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#)
Exercisable |
Number of Securities Underlying Unexercised Options (#)
Unexercisable |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or That Have Not |
Market Value That Have Not |
Equity or Other
|
Equity
|
|||||||||||||||||||||||||
Pat Gallagher |
34,600 | 0 | 35.71 | 3/16/19 | | | | | ||||||||||||||||||||||||
35,700 | 0 | 39.17 | 3/13/20 | | | | | |||||||||||||||||||||||||
47,134 | 23,566 | 46.87 | 3/12/21 | | | | | |||||||||||||||||||||||||
17,001 | 33,999 | 46.17 | 3/11/22 | | | | | |||||||||||||||||||||||||
0 | 62,900 | 43.71 | 3/17/23 | | | | | |||||||||||||||||||||||||
0 | 58,300 | 56.86 | 3/16/24 | | | | | |||||||||||||||||||||||||
0 | 41,400 | 70.74 | 3/15/25 | | | | | |||||||||||||||||||||||||
|
18,850
|
|
|
1,389,245
|
|
|
59,550
|
|
|
8,777,670
|
| |||||||||||||||||||||
Doug Howell |
13,600 | 0 | 35.71 | 3/16/19 | | | | | ||||||||||||||||||||||||
20,000 | 0 | 39.17 | 3/13/20 | | | | | |||||||||||||||||||||||||
40,801 | 20,399 | 46.87 | 3/12/21 | | | | | |||||||||||||||||||||||||
6,367 | 12,733 | 46.17 | 3/11/22 | | | | | |||||||||||||||||||||||||
0 | 26,700 | 43.71 | 3/17/23 | | | | | |||||||||||||||||||||||||
0 | 19,800 | 56.86 | 3/16/24 | | | | | |||||||||||||||||||||||||
0 | 14,900 | 70.74 | 3/15/25 | | | | | |||||||||||||||||||||||||
|
26,950
|
|
|
1,986,215
|
|
|
20,800
|
|
|
3,065,920
|
| |||||||||||||||||||||
Tom Gallagher |
21,300 | 0 | 39.17 | 3/13/20 | | | | | ||||||||||||||||||||||||
18,467 | 9,233 | 46.87 | 3/12/21 | | | | | |||||||||||||||||||||||||
8,934 | 17,866 | 46.17 | 3/11/22 | | | | | |||||||||||||||||||||||||
0 | 35,400 | 43.71 | 3/17/23 | | | | | |||||||||||||||||||||||||
0 | 37,300 | 56.86 | 3/16/24 | | | | | |||||||||||||||||||||||||
0 | 29,800 | 70.74 | 3/15/25 | | | | | |||||||||||||||||||||||||
|
7,100
|
|
|
523,270
|
|
|
20,150
|
|
|
2,970,110
|
| |||||||||||||||||||||
Scott Hudson |
10,200 | 0 | 35.71 | 3/16/19 | | | | | ||||||||||||||||||||||||
15,100 | 0 | 39.17 | 3/13/20 | | | | | |||||||||||||||||||||||||
8,867 | 4,433 | 46.87 | 3/12/21 | | | | | |||||||||||||||||||||||||
17,535 | 35,065 | 46.17 | 3/11/22 | | | | | |||||||||||||||||||||||||
0 | 30,700 | 43.71 | 3/17/23 | | | | | |||||||||||||||||||||||||
0 | 30,300 | 56.86 | 3/16/24 | | | | | |||||||||||||||||||||||||
0 | 23,200 | 70.74 | 3/15/25 | | | | | |||||||||||||||||||||||||
|
9,200
|
|
|
678,040
|
|
|
16,050
|
|
|
2,365,770
|
|
|
2019 PROXY STATEMENT
|
27
|
EXECUTIVE COMPENSATION TABLES
Name |
Option Awards (1)
|
Stock Awards
|
||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#)
Exercisable |
Number of Securities Underlying Unexercised Options (#)
Unexercisable |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or That Have Not |
Market Value That Have Not |
Equity or Other
|
Equity
|
|||||||||||||||||||||||||
Walt Bay |
13,800 | 0 | 39.17 | 3/13/20 | | | | | ||||||||||||||||||||||||
35,534 | 17,766 | 46.87 | 3/12/21 | | | | | |||||||||||||||||||||||||
4,201 | 8,399 | 46.17 | 3/11/22 | | | | | |||||||||||||||||||||||||
0 | 17,700 | 43.71 | 3/17/23 | | | | | |||||||||||||||||||||||||
0 | 21,800 | 56.86 | 3/16/24 | | | | | |||||||||||||||||||||||||
0 | 16,800 | 70.74 | 3/15/25 | | | | | |||||||||||||||||||||||||
|
20,500
|
|
|
1,510,850
|
|
|
10,300
|
|
|
1,518,220
|
|
(1) | Stock options vest in accordance with the following vesting schedules: |
Expiration Date
|
One-third vests on each of:
| |
3/16/19 |
March 16, 2015, March 16, 2016 and March 16, 2017 | |
3/13/20 |
March 13, 2016, March 13, 2017 and March 13, 2018 | |
3/12/21 |
March 12, 2017, March 12, 2018 and March 12, 2019 | |
3/11/22 |
March 11, 2018, March 11, 2019 and March 11, 2020 | |
3/17/23 |
March 17, 2019, March 17, 2020 and March 17, 2021 | |
3/16/24 |
March 16, 2020, March 16, 2021 and March 16, 2022 | |
3/15/25 |
March 15, 2021, March 15, 2022 and March 15, 2023 |
(2) | The following table provides information with respect to the vesting of each named executive officers unvested restricted stock units and earned performance share units as of December 31, 2018: |
Vesting Date |
Type of award | Pat Gallagher |
Doug Howell |
Tom Gallagher |
Scott Hudson |
Walt Bay | ||||||
3/11/20 |
Restricted Stock Units* | | 3,950 | | 3,050 | 3,050 | ||||||
3/17/21 |
Restricted Stock Units* | | 5,350 | | | 5,350 | ||||||
3/16/22 |
Restricted Stock Units* | | 3,700 | | | 4,550 | ||||||
3/15/23 |
Restricted Stock Units* | | 3,250 | | | 4,000 | ||||||
3/17/19 |
Performance Share Units** | 18,850 | 10,700 | 7,100 | 6,150 | 3,550 | ||||||
Total |
18,850 | 26,950 | 7,100 | 9,200 | 20,500 |
* | Granted in 2015, 2016, 2017 and 2018 (vesting five years from the date of grant). |
** | Granted and earned based on our performance in 2016. |
28
|
2019 PROXY STATEMENT
|
EXECUTIVE COMPENSATION TABLES
(3) | The amounts in this column are based on a closing stock price of $73.70 for our common stock on December 31, 2018. |
(4) | The following table provides information with respect to the vesting of each named executive officers unearned unvested performance share units as of December 31, 2018: |
Vesting Date |
Type of award | Pat Gallagher |
Doug Howell |
Tom Gallagher |
Scott Hudson |
Walt Bay |
||||||||||||||||
3/16/20
|
Performance Share Units*
|
|
32,650
|
|
|
11,100
|
|
|
10,450
|
|
|
8,500
|
|
|
5,450
|
| ||||||
3/15/21
|
Performance Share Units**
|
|
26,900
|
|
|
9,700
|
|
|
9,700
|
|
|
7,550
|
|
|
4,850
|
| ||||||
Total
|
|
59,550
|
|
|
20,800
|
|
|
20,150
|
|
|
16,050
|
|
|
10,300
|
|
* | Granted in 2017, to be earned on the basis of 2017-2019 performance. See page 18 for more information. |
** | Granted in 2018, to be earned on the basis of 2018-2020 performance. See page 18 for more information. |
(5) | The amounts in this column are based on a closing stock price of $73.70 for our common stock on December 31, 2018 and a 200% payout. See page 18 for more information. |
2018 Option Exercises and Stock Vested
Option Awards | Stock Awards | |||||||||||||||||||
Name |
Number
of (#) |
Value ($) |
Number
of (#) (1)(2) |
Value ($) (1)(2) | ||||||||||||||||
Pat Gallagher |
43,362 | 1,804,522 | 15,064 | 1,094,098 | ||||||||||||||||
Doug Howell |
16,261 | 656,655 | 11,606 | 839,218 | ||||||||||||||||
Tom Gallagher |
26,700 | 1,018,629 | 5,260 | 382,034 | ||||||||||||||||
Scott Hudson |
| | 6,367 | 459,261 | ||||||||||||||||
Walt Bay |
10,600 | 395,889 | 6,367 | 459,261 | ||||||||||||||||
(1) | These columns reflect the vesting of restricted stock units and performance share units, as applicable. Restricted stock units awarded on March 12, 2014 vested on March 12, 2018, with value realized of $71.71 per share plus accrued cash dividend equivalents. Performance share units awarded on March 11, 2015 (and 95.7% earned on the basis of 2015 performance) vested on March 11, 2018, with value realized of $72.63 per share plus accrued cash dividend equivalents. |
(2) | Pursuant to the terms of the Supplemental Plan (see page 25), Doug Howell deferred receipt of 4,050 shares related to the March 12, 2018 vesting of restricted stock units he was awarded on March 12, 2014. The shares were valued at $290,426 at the time of vesting. He elected a lump-sum distribution in July 2019. |
2018 Pension Benefits
Name |
Plan Name |
Number Credited |
Present Value of Accumulated Benefit ($) | ||||||||||||
Pat Gallagher
|
Arthur J. Gallagher & Co. Employees Pension Plan
|
|
25
|
|
|
780,053
|
| ||||||||
Doug Howell
|
Arthur J. Gallagher & Co. Employees Pension Plan
|
|
1
|
|
|
23,922
|
| ||||||||
Tom Gallagher
|
Arthur J. Gallagher & Co. Employees Pension Plan
|
|
25
|
|
|
472,916
|
| ||||||||
Scott Hudson
|
Arthur J. Gallagher & Co. Employees Pension Plan
|
|
|
|
|
|
| ||||||||
Walt Bay
|
Arthur J. Gallagher & Co. Employees Pension Plan
|
|
|
|
|
|
|
(1) | The last year of credited service was 2005. Total years of actual service were as follows at December 31, 2018: Pat Gallagher - 44; Doug Howell - 15; Tom Gallagher - 38; Scott Hudson - 8; and Walt Bay - 11. |
We maintain the Arthur J. Gallagher & Co. Employees Pension Plan (the Pension Plan) which is qualified under the Internal Revenue Code and which historically covered substantially all domestic employees. In 2005, we amended the Pension Plan to freeze the accrual of future benefits for all domestic employees effective July 1, 2005. Benefits under the Pension Plan are based upon the employees
|
2019 PROXY STATEMENT
|
29
|
EXECUTIVE COMPENSATION TABLES
highest average annual earnings for a five calendar-year period with us and are payable after retirement in the form of an annuity or a lump sum. The maximum amount of annual earnings that may be considered in calculating benefits under the Pension Plan is $210,000 (the maximum amount of annual earnings allowable by law in 2005, the last year that benefits accrued under the Pension Plan).
Benefits under the Pension Plan are calculated as an annuity equal to 1% of the participants highest annual average earnings multiplied by years of service, and commencing upon the participants retirement on or after age 65. The maximum benefit under the pension plan upon retirement would be $53,318 per year, payable at age 65 in accordance with IRS regulations. Participants also may elect to commence their pensions anytime on or after attaining age 55 if they retire prior to age 65, with an actuarial reduction to reflect the earlier commencement date, ranging from 54% at age 55 to no reduction at age 65. All of our named executive officers with accumulated benefits under the plan are eligible to take this early retirement option. For additional information on the valuation assumptions with respect to pensions, refer to Note 13 to our consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018.
2018 Nonqualified Deferred Compensation
Name |
Plan Name | Executive Contributions in Last Fiscal Year ($) (1) |
Registrant Contributions in Last Fiscal Year ($) (2) |
Aggregate Earnings in Last Fiscal Year ($) (3) |
Aggregate Withdrawals/ Distributions in Last Fiscal Year ($) (4) |
Aggregate End |
||||||||||||||||
Pat Gallagher |
DEPP
|
|
|
|
|
1,000,000
|
|
|
1,171,874
|
|
|
57,672
|
|
|
7,927,215
|
| ||||||
Supplemental Plan
|
|
406,250
|
|
|
189,375
|
|
|
381,489
|
|
|
|
|
|
12,712,938
|
| |||||||
Doug Howell |
DEPP
|
|
|
|
|
500,000
|
|
|
1,797,521
|
|
|
|
|
|
11,532,674
|
| ||||||
Supplemental Plan
|
|
631,613
|
|
|
95,000
|
|
|
1,673,126
|
|