UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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333 West 11th Street
Kansas City, MO 64105
DST SYSTEMS, INC.
NOTICE AND PROXY STATEMENT
for
Annual Meeting of Stockholders
Tuesday, May 12, 2009
YOUR VOTE IS IMPORTANT
You have received information on casting your vote. We began delivering annual meeting materials, or Notice of Internet Availability of Proxy Materials, on or about March 23, 2009.
DST Systems, Inc.
333 West 11th Street
Kansas City, Missouri 64105
Proxy Statement
and
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
We invite you to attend our annual meeting of stockholders.
Place: | Our principal executive offices: 333 West 11th Street, 3rd floor Kansas City, Missouri |
|
Time: |
10:30 a.m., Central Daylight Time |
|
Date: |
Tuesday, May 12, 2009 |
Stockholders will consider and vote upon the following matters:
The record date for determining which stockholders may vote at this meeting or any adjournment is March 13, 2009. We will provide the recordholder list during the annual meeting if any stockholder wishes to examine it for any purpose pertaining to the meeting. We will make the list available during regular business hours at the above address for the ten-day period before the annual meeting.
Please vote your shares, regardless of whether you plan to attend the meeting, by following the voting instructions. Whether you vote by telephone, through the Internet, or by mail, you are authorizing the Proxy Committee (and/or the trustee of DST benefit plans or any broker or nominee through which you hold shares) to vote as you specify on the two proposals. You are also authorizing them to vote in their discretion on other proposals a stockholder properly brings before the meeting. If you hold shares on behalf of an estate or corporation, in some other legal capacity or jointly, you confirm by voting that you have the authority to vote on behalf of all owners of the shares.
If you need assistance at the annual meeting because of a disability, please let us know by May 1, 2009, at (816) 435-8655.
By Order of the Board of Directors, | ||
Randall D. Young Vice President, General Counsel and Secretary |
The date of this Notice is March 23, 2009.
DST Systems, Inc.
333 West 11th Street
Kansas City, Missouri 64105
PROXY STATEMENT
Contents
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2009 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 12, 2009: THE PROXY STATEMENT FOR SUCH MEETING AND THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008 ARE AVAILABLE AT www.edocumentview.com/DST. |
On or about March 23, 2009, we began delivering to you, our stockholders of record at the close of business on March 13, 2009 (our record date), this Proxy Statement for our 2009 annual stockholders' meeting and our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. We mailed full sets of the materials to our stockholders of record, other than stockholders of record who have consented to receive the materials electronically and employees with workplace email accounts. We delivered a Notice of Internet Availability of Proxy Materials to our stockholders holding through brokers or other nominees.
We will hold the annual meeting at 10:30 a.m. Central Daylight Time on Tuesday, May 12, 2009, at our principal executive offices, 333 West 11th Street, 3rd Floor, Kansas City, Missouri 64105. At the meeting, our Board of Directors will present two proposals and solicit your vote on them.
You may vote on the proposals if you own our common stock, par value $.01 per share, on the record date. We have listed our common stock, our only class of voting securities, on the New York Stock Exchange.
This Proxy Statement contains a separate report by each of the Audit Committee and Compensation Committee of our Board. The two Board committee reports are "furnished," not "filed," for Securities Act of 1934 purposes. Within Board committee reports, "we," "ours," "us" or similar terms mean the committee giving the report. Otherwise, such words or "the Company" mean DST Systems, Inc. and its subsidiaries.
This Proxy Statement references the Corporate Governance Guidelines, the Business Ethics and Legal Compliance Policy, and the charters of the Board's Audit Committee, Compensation Committee, and Corporate Governance/Nominating Committee ("Governance Committee"). You can access each of these documents at our website, www.dstsystems.com. We will furnish you a copy of any of these documents without charge, if you request in writing to:
DST Corporate Secretary
333 W. 11th Street, 5th Floor
Kansas City, MO 64105
1
Our Board asks that you vote "for" the two proposals. We do not know of any other matters on which you will vote at the annual meeting. Recordholders may appoint the Proxy Committee as their proxy. The Proxy Committee members are Thomas A. McDonnell, our Chief Executive Officer, Kenneth V. Hager, our Chief Financial Officer, and Randall D. Young, our General Counsel and Corporate Secretary. The Proxy Committee will vote your shares as you direct.
PROPOSAL 1
ELECT DIRECTORS
Our Bylaws divide our Board into three classes with class terms expiring each year in rotation. At each annual meeting, stockholders elect a class of directors for a full three-year term. Our Board asks you to elect Thomas A. McCullough, William C. Nelson, and Travis E. Reed for a three-year term expiring in 2012 or until their successors are elected and qualified. They are willing and able to continue serving as directors.
Mr. McCullough is our Chief Operating Officer and has served on our Board for more than 19 years. Mr. Nelson has served on our Board for more than 13 years. Mr. Reed has served on our Board for more than six years. Messrs. Nelson and Reed serve on Board committees and are serving in executive positions at other companies, as described in the Members and Service section beginning on page 4.
If any Board nominee should become unavailable for election, the Proxy Committee will vote for another nominee whom the Governance Committee will propose. Alternatively, the Board may reduce the number of directors to be elected at the meeting.
OUR BOARD RECOMMENDS THAT
YOU VOTE "FOR" THE ELECTION OF
MESSRS. MCCULLOUGH, NELSON AND REED
2
PROPOSAL 2
RATIFY THE AUDIT COMMITTEE'S SELECTION
OF PRICEWATERHOUSECOOPERS
The Audit Committee has selected PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2009. Our Board requests stockholders to ratify such selection.
PricewaterhouseCoopers will:
PricewaterhouseCoopers served as our independent registered public accounting firm for 2008, performing professional services for us. We expect representatives of PricewaterhouseCoopers to attend the annual meeting. We will allow them to make a statement if they desire and to respond to appropriate questions. The Audit Committee may retain another independent registered public accounting firm at any time during the year if it concludes that such change would be in your best interest.
OUR BOARD RECOMMENDS THAT
YOU VOTE "FOR" THE RATIFICATION OF
THE AUDIT COMMITTEE'S SELECTION
OF PRICEWATERHOUSECOOPERS
3
THE BOARD OF DIRECTORS
MEMBERS AND SERVICE
The Company employs Thomas A. McDonnell and Thomas A. McCullough as executive officers. We do not employ the remaining directors listed in the table.
DIRECTORS
|
Age | Dates of Service on our Board |
Annual Meeting at Which Term Expires |
Service on Committees of our Board |
Registered Investment Company Directorships and Public Company Directorships Other than the Company |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
A. Edward Allinson(2) |
74 | September 1995present April 1977December 1990 |
2010 | Audit Governance |
| |||||||
George L. Argyros(3) |
72 |
February 2006present |
2011 |
Compensation |
First American Corporation |
|||||||
Michael G. Fitt(4) |
77 |
September 1995present |
2010 |
Audit Compensation Governance |
|
|||||||
Robert T. Jackson(5) |
63 |
July 2007present |
2010 |
Audit |
|
|||||||
Thomas A. McCullough(6)(11) |
66 |
January 1990present |
2012 |
(1) |
|
|
||||||
Thomas A. McDonnell(7)(11) |
63 |
June 1972present |
2011 |
|
Blue Valley Ban Corp |
|||||||
William C. Nelson(8) |
71 |
January 1996present |
2012 |
(1) |
Audit Compensation Governance (Chairperson) |
Great Plains Energy Inc. |
||||||
Travis E. Reed(9) |
74 |
July 2002present |
2012 |
(1) |
Audit Compensation Governance |
|
||||||
M. Jeannine Strandjord(10) |
63 |
January 1996present |
2011 |
Audit Compensation (Chairperson) Governance |
Charming Shoppes, Inc. |
4
COMMITTEES AND MEETINGS
Our Board met eight times in 2008. The Board appoints the members of the three Board committees: the Audit Committee, the Compensation Committee, and the Governance Committee. During 2008, the Audit Committee held four meetings, the Governance Committee held one meeting, and the Compensation Committee held five meetings.
In 2008, each director attended over 90% of the sum of all regular and special Board meetings and all meetings of Board committees on which the director served. Our directors shall, whenever reasonably practicable, attend annual stockholders' meetings. All directors attended the 2008 annual stockholders' meeting. Non-employee directors, led by Presiding Director Michael G. Fitt, meet regularly in private session without management.
5
INDEPENDENCE AND ACCESSIBILITY
Non-Employee Director Independence. New York Stock Exchange standards, certain securities and tax laws, and our Corporate Governance Guidelines govern the independence of non-employee directors. A majority of our Board must be independent, and directors must be independent for purposes of Board committee service. Our Board has determined the independence for Board service and for service on their respective Board committees of each of Ms. Strandjord, Ambassador Argyros, and Messrs. Allinson, Fitt, Jackson, Nelson and Reed. As a group, they constitute a majority of the Board. To determine independence for service on the Board and the Audit Committee, the Board applied the independence standards contained in our Corporate Governance Guidelines. The Board uses the standards to determine whether a non-employee director has a material relationship with us, either directly or as a partner, stockholder or officer of an organization that has a relationship with us.
Under the Guidelines, the Board presumes a non-employee director is independent if the director:
The Guidelines are available on our website as described on page 1. They explain circumstances in which a director can be independent even though one or more of the above circumstances exist.
6
The Guidelines provide that a non-employee director is independent for purposes of serving on the Audit Committee only if:
Interested Party and Stockholder Communication with Directors. Interested parties and stockholders may communicate in writing with the Board, Presiding Director Michael G. Fitt, any director, or any group of directors such as all non-employee directors or all members of a Board committee. A vendor unaffiliated with us receives such communications and forwards them to directors. You may direct communications to the directors in care of our vendor:
Clarence M. Kelley and Associates, Inc.
Attention: Todd Dupriest/DST
7945 Flint
Lenexa, Kansas 66214
NON-EMPLOYEE DIRECTOR COMPENSATION
Only non-employee directors participate in the compensation structure we describe in this section. Thomas A. McDonnell, our Chief Executive Officer, and Thomas A. McCullough, our Chief Operating Officer, do not receive such compensation for their service on the Board.
CONSULTANT/MANAGEMENT SUPPORT TO THE COMMITTEE
The Compensation Committee recommended the current non-employee director compensation structure to our Board in 2003. Prior to recommending the compensation, the Compensation Committee engaged compensation consultant Deloitte Consulting LLP ("Deloitte") to assist in evaluating the competitiveness of our non-employee director compensation program.
In 2003, the Committee charged Deloitte with:
Nine of the thirteen companies in this 2003 peer group used to develop non-employee director compensation comprise the peer group that was used to evaluate and update executive officer compensation in late 2007 and early 2008. The Committee did not analyze competitive benchmarks specifically for 2008 director compensation.
In 2008, the Compensation Committee recommended, and the Board approved, an update to the non-employee director compensation program with respect to the equity portion of non-employee director compensation. In addition, prior to the annual stockholders' meeting in 2008, the Committee consulted with Deloitte regarding current practices for stock issuances to non-employee directors. Although Deloitte did not conduct a formal survey of director compensation practices, it advised that issuance of unrestricted stock to non-employee directors was within the range of competitive practice. The Committee believes that a transfer restriction period on equity grants to directors does not serve a significant retention or other purpose.
7
COMPENSATION STRUCTURE
The Board reviewed Deloitte data, considered Board and committee members' duties and the Compensation Committee's recommendations, and approved the current elements of non-employee director compensation. The compensation includes annual equity grants, described in note (1) on page 9, and the following:
ANNUAL RETAINERS AND MEETING FEES
|
|
|
Board Meetings | Board Committee Meetings | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
DST Audit Committee Chair Annual Retainer |
|
|||||||||||||||||
Annual Retainer |
Chair of Other Committees Annual Retainer |
In Person |
By Teleconference |
In Person |
By Teleconference |
||||||||||||||
$40,000 | $10,000 | $5,000 | $5,000 | $1,000 | $2,000 | $500 |
To address non-employee director retirement and tax planning, the Board allows non-employee directors to defer their cash compensation under the DST Systems, Inc. Directors' Deferred Fee Plan, a nonqualified deferred compensation plan. Non-employee directors may annually elect to defer all or a part of any fees earned during the next calendar year. We credit each participating non-employee director's account with the amount of fees deferred. We monthly adjust the account by a rate of return on a hypothetical investment the director selects among a limited number of choices including both long-term equity based investments and long-term income oriented investments. If the non-employee director does not select hypothetical investments for all or a portion of the account, we adjust the account by an interest factor equal to a rate of return the Board selects. We continue to hold fees related to Mr. Allinson's prior service on the Board from 1977 to 1990. The fees are held in a directors' deferred fee plan that terminated effective August 31, 1995. Non-employee directors are always fully vested in their accounts.
We will distribute a non-employee director's balance after he or she terminates Board service. We pay account balances in a lump sum but will pay in installments not to exceed ten years if the Board so allows and the director has timely elected installments pursuant to plan provisions and applicable tax laws and regulations.
We have established a grantor trust in connection with the current Directors' Deferred Fee Plan and the terminated directors' deferred fee plan. We may fund the trust equal to the sum of the payout obligations under such plans. If on or after a change in control we fail to honor obligations under such plans to a plan participant, the trust, if funded, is to distribute the required amounts to the plan participants. The trust requires us to be solvent to distribute trust accounts. Trust assets are subject to the claims of our creditors in the event of our bankruptcy. The Compensation Committee may revoke the trust until we have a change in control. The trust uses the same definition of change in control as used in executive compensation award agreements, summarized in note (2) beginning at page 37.
We purchase term life insurance for non-employee directors. The directors name the policy beneficiaries. We provide spousal travel to an annual planning meeting and reimburse family entertainment at such meeting. If we do not incur an incremental cost for an additional passenger, the spouse or significant other of a director may accompany the director to the location at which meetings of the Board or its committees are occurring by traveling on aircraft in which we have an interest.
8
2008 NON-EMPLOYEE DIRECTOR COMPENSATION
|
A | B | C | D | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Fees Earned Or Paid in Cash ($) |
Stock Awards(1) ($) |
All Other Compensation(2) ($) |
Total ($) |
|||||||||
A. Edward Allinson |
78,000 | 130,000 | 11,708 | 219,708 | |||||||||
George L. Argyros |
79,000 | 130,000 | 22,108 | 231,108 | |||||||||
Michael G. Fitt |
88,000 | 130,000 | 23 | 218,023 | |||||||||
Robert T. Jackson |
98,000 | 130,000 | 71 | 228,071 | |||||||||
William C. Nelson |
93,000 | 130,000 | 12,358 | 235,358 | |||||||||
Travis E. Reed |
88,000 | 130,000 | 19,198 | 237,198 | |||||||||
M. Jeannine Strandjord |
93,000 | 130,000 | 10,569 | 233,569 |
For a number of years, the shares issued under such plan were restricted. Subject to forfeiture for certain terminations from service and to accelerated vesting in limited circumstances, the restrictions on shares granted on the date of the annual stockholders' meetings in 2006 and 2007 lapse three years from the date of the grant.
Non-employee directors are subject to the stock ownership guidelines described in note (8) on page 19.
The following table shows each non-employee director's number of outstanding unvested shares of our common stock as of December 31, 2008.
Name
|
Unvested Shares at December 31, 2008 (#) |
|||
---|---|---|---|---|
A. Edward Allinson |
3,721 | |||
George L. Argyros |
3,721 | |||
Michael G. Fitt |
3,721 | |||
Robert T. Jackson |
| |||
William C. Nelson |
3,721 | |||
Travis E. Reed |
3,721 | |||
M. Jeannine Strandjord |
3,721 |
9
Non-Employee Director
|
Term Life Insurance Premiums ($) |
2008 Perquisites if Director had Perquisites at or above $10,000* ($) |
|||||
---|---|---|---|---|---|---|---|
A. Edward Allinson |
46 | 11,662 | |||||
George L. Argyros |
46 | 22,062 | |||||
Michael G. Fitt |
23 | | |||||
Robert T. Jackson |
71 | | |||||
William C. Nelson |
46 | 12,312 | |||||
Travis E. Reed |
46 | 19,152 | |||||
M. Jeannine Strandjord |
71 | 10,498 |
10
BOARD COMMITTEE MATTERS AND REPORTS
AUDIT COMMITTEE
We identify Committee members in the Members and Service table on page 4. Committee members serve staggered three-year terms corresponding with their terms as directors. As described in the Audit Committee charter, the Committee is responsible for:
Our Board has determined that Ms. Strandjord, who is independent under the standards on page 6, is an "audit committee financial expert" as defined in securities regulations. Other members of the Audit Committee may also qualify as audit committee financial experts under the regulations. No Committee member serves on more than two other public company audit committees.
Audit Committee Report
We reviewed and discussed the Company's consolidated financial statements with management and PricewaterhouseCoopers LLP, DST's independent registered public accounting firm. PricewaterhouseCoopers gave us its opinion, and management represented, that the Company prepared its consolidated financial statements in accordance with generally accepted accounting principles. We discussed with the Company's independent registered public accountants the matters that Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board ("PCAOB") in Rule 300T, requires the Committee and the auditors to discuss.
PricewaterhouseCoopers gave us and we reviewed the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committee) and applicable requirements of the PCAOB regarding the independent registered public accounting firm's communications with us concerning independence. We also discussed with PricewaterhouseCoopers its independence from management.
Based on the above discussions, we recommended to the Board that the audited consolidated financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.
THE AUDIT COMMITTEE
Robert T. Jackson, Chairperson
A. Edward Allinson
Michael G. Fitt
William C. Nelson
Travis E. Reed
M. Jeannine Strandjord
11
COMPENSATION COMMITTEE
Committee Structure. We identify Committee members in the Members and Service table on page 4. Committee members serve one-year terms. As described in the Compensation Committee charter, the Committee is responsible for:
Compensation Processes and Procedures. The policies and procedures for determining executive and non-employee director compensation are written and were approved by the Compensation Committee.
Executive Officer Compensation Practices. The Committee is responsible for and has the authority to determine the components of executive officer compensation. The Committee seeks to provide competitive compensation packages that include cash and non-cash as well as short-term and long-term components. It also seeks to tie a portion of executive officer compensation to whether we achieve Company performance goals.
At least every other year, the Committee reviews executive officer compensation. For each review, the Committee may consider, and decide the weight it will give to, any combination of the following:
12
The Committee may request our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Human Resources Officer, General Counsel, or other management to recommend compensation package components, to communicate hiring and retention concerns and business unit personnel needs, and to provide:
The Committee relies on our Chief Financial Officer, Human Resources Officer, General Counsel, and other management to implement executive officer compensation decisions and adopt appropriate compensation procedure internal controls.
The Committee develops the criteria for evaluating Chief Executive Officer performance and privately and annually reviews his performance against such criteria. The Chief Executive Officer periodically and privately discusses the Chief Operating Officer's performance with the Committee. The Chief Executive Officer and the Chief Operating Officer periodically and privately discuss with the Committee their views of the performance of the other executive officers. The Committee may review human resources and business unit records, contact any officer about the performance or responsibilities of any other officer, and obtain from the Corporate Secretary responses by executive officers to an annual ethics policy compliance questionnaire.
Our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, or General Counsel contacts the Chairperson of the Committee with any proposed separation arrangement for an executive officer involuntarily terminating employment. The Committee Chairperson discusses the arrangement with a majority of Committee members. She reports the Committee's determination regarding the proposed arrangement to management and makes a record of such determination at the next regularly scheduled Committee meeting.
The Committee may retain, at Company expense, an independent compensation consultant to advise the Committee on executive compensation practices and trends and to assist the Committee with any determination it will make under these procedures. The Committee selects, engages and instructs the consultant and may rely on our Chief Financial Officer, Corporate Secretary, or other management to coordinate the consultant's work.
The Committee engaged Deloitte to develop competitive pay benchmarks with respect to base salaries, annual bonus opportunities, and long-term incentives in 2004, and then again in late 2007. The Committee considered the benchmarks in connection with executive officer base salary increases for 2008. Other elements of executive officer compensation for 2008 were based in part on data provided by our compensation consultant in 2004, when the Committee engaged Deloitte to develop competitive pay benchmarks for bonuses, long-term incentives, and total direct and total cash compensation. Deloitte made recommendations in 2004 with regard to five-year upfront grants of performance vested upfront restricted stock and incentive compensation levels. In late 2005, the Committee engaged Deloitte to recommend the terms and conditions of the employment agreements of Messrs. McDonnell and McCullough. The Compensation Discussion and Analysis further describes Deloitte's work for the
13
Committee. Deloitte recommends appropriate benchmarks and compensation increases for executive officer compensation to the Committee but does not determine individual compensation adjustments.
Non-Employee Director Compensation Practices. The Committee recommends components of non-employee director compensation to the Board. Our Board is responsible for and has the authority to determine the components of non-employee director compensation.
In determining when to review non-employee director compensation, and whether to recommend that the Board modify it, the Committee may consider, and decide the weight it will give to, any combination of the following:
The Committee may request our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Human Resources Officer, General Counsel, or other management to provide:
The Committee and the Board rely on our Chief Financial Officer, Human Resources Officer, General Counsel, and other Company management to implement director compensation decisions and adopt appropriate compensation procedure internal controls.
The Committee may retain, at Company expense, an independent compensation consultant to conduct a peer review or to advise the Committee on director compensation practices and trends. The Committee selects, engages, and instructs the consultant. The Committee may rely on our Chief Financial Officer, Corporate Secretary, or other management to coordinate the consultant's work.
In late 2003, the Committee engaged Deloitte to report on competitive compensation benchmarks for the fees and equity compensation of non-employee directors, and in 2008, Deloitte provided information to the Committee on general practices for equity compensation of non-employee directors. The Non-Employee Director Compensation section beginning at page 7 further describes Deloitte's non-employee director compensation work for the Committee. Deloitte recommends to the Committee non-employee director compensation alternatives based on the market data but does not determine such compensation.
14
Compensation Committee Report
We reviewed and discussed with management the Compensation Discussion and Analysis section of this Proxy Statement. Based on such review and discussion, we recommended to the Board that this Proxy Statement include the Compensation Discussion and Analysis.
THE COMPENSATION COMMITTEE
M. Jeannine Strandjord, Chairperson
George L. Argyros
Michael G. Fitt
Robert T. Jackson
William C. Nelson
Travis E. Reed
GOVERNANCE COMMITTEE
Committee Functions and Structure. We identify Committee members in the Members and Service table on page 4. Committee members serve one-year terms. As described in the Governance Committee charter, the Committee is responsible for:
Director Nomination Matters. In recommending nominees to the Board, the Governance Committee identifies candidates who meet the current challenges and needs of the Board. The Committee identifies and evaluates nominees through multiple sources including Board and management referrals. The Committee may seek input from third-party executive search firms. It did not use a search firm to recommend the nominees for the 2009 stockholders' meeting (Messrs. McCullough, Nelson and Reed). It will consider director nominees timely proposed by stockholders in a written notice and evaluate stockholder nominees for director in the same manner it evaluates other nominees, which includes considering and giving weight to input about a nominee from management or incumbent directors.
In recommending a director nominee (including an incumbent director), the Governance Committee considers, among other factors:
15
Additionally, in recommending an incumbent director for re-election, the Committee considers:
Related Person Transaction Procedures. Written policies and procedures adopted by the Governance Committee address Committee review of transactions of $120,000 or more between the Company and a third party in which a "related person" has a direct or indirect material interest. A "related person" is a director, executive officer, 5% or more stockholder, or immediate family member of any such person. Our General Counsel reviews responses to director and officer questionnaires to determine whether any related person has, or during the relevant period has had, a direct or indirect material interest in a related person transaction and reports any actual or proposed related person transaction to the Chairperson of the Governance Committee. For each such reported transaction, the Committee considers whether the related person serves on a Board committee and, if so, whether such continued service is appropriate under securities regulations pertaining to such committee. The Committee determines whether to ratify the transaction considering:
If the Committee does not approve or ratify a transaction, it discusses with management a strategy for terminating the transaction or modifying the structure of the transaction.
16
As of the record date (March 13, 2009), we had 49,714,295 shares of our common stock outstanding, including 2,639,619 shares of unvested restricted stock.
Name and Address
|
Shares of our Common Stock(1)(#) |
Percent of Class(1)(%) |
|||||
---|---|---|---|---|---|---|---|
George L. Argyros(2)(8)(9) |
9,028,158 | 18.2 | |||||
Iridian Asset Management, LLC, The Governor and Company of the Bank of Ireland, BIAM Holdings, BancIreland (US) Holdings, Inc., BIAM (US) Inc.(3) |
4,187,945 |
8.4 |
|||||
T. Rowe Price Associates, Inc., T. Rowe Price Mid-Cap Growth Fund, Inc.(4) |
4,000,963 |
8.0 |
|||||
Marshall & Ilsley Corporation ("M&I"), parent of benefit plans trustee(5) |
3,010,713 |
6.1 |
|||||
Breeden Capital Management LLC, Breeden Partners (California) L.P., Breeden Partners (California) II L.P., Breeden Partners L.P., Breeden Capital Partners LLC, Richard C. Breeden(6) |
2,543,486 |
5.1 |
|||||
Thomas R. Abraham(9) |
45,000 |
* |
|||||
A. Edward Allinson(8)(9) |
126,357 |
* |
|||||
Michael G. Fitt(8)(9) |
39,399 |
* |
|||||
Kenneth V. Hager(9) |
530,480 |
1.1 |
|||||
Robert T. Jackson(8)(9) |
3,857 |
* |
|||||
Thomas A. McCullough(9) |
468,094 |
* |
|||||
Thomas A. McDonnell(9) |
2,455,484 |
4.8 |
|||||
William C. Nelson(8)(9) |
80,160 |
* |
|||||
Travis E. Reed(8)(9) |
27,594 |
* |
|||||
M. Jeannine Strandjord(8)(9) |
78,662 |
* |
|||||
Steven J. Towle(9) |
127,153 |
* |
|||||
All Executive Officers and Directors as a Group (17 Persons)(9) |
13,952,390 |
26.6 |
17
Ambassador Argyros disclaims beneficial ownership of the shares held by the Leon & Olga Argyros 1986 Trust, the Argyros Children's Trust II, and the George T. Poulos Trust.
Various individual and institutional investors served by Price Associates as investment adviser, including the Fund, own the shares and have the ultimate power to direct receipt of any dividends and proceeds from the sale of the securities. Price Associates has power to direct investments and/or sole power to vote the securities. Securities law reporting requirements deem Price Associates a beneficial owner of such securities but Price Associates expressly disclaims beneficial ownership of such securities.
18
|
Restricted Shares(a)(#) |
Directly Held, Unrestricted Shares(b)(#) |
DST Shares in DST Employee Stock Ownership Plan accounts(#) |
DST Shares in DST 401(k) accounts(#) |
Miscellaneous indirect holdings(c)(#) |
Shares that may be acquired through option exercises(#) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Thomas R. Abraham |
45,000 | 0 | | | | | |||||||||||||
A. Edward Allinson |
3,721 | 53,196 | | | | 69,440 | |||||||||||||
George L. Argyros |
3,721 | 4,698,011 | | | 4,326,426 | | |||||||||||||
Michael G. Fitt |
3,721 | 35,678 | | | | | |||||||||||||
Kenneth V. Hager |
50,500 | 111,728 | 26,033 | | | 342,219 | |||||||||||||
Robert T. Jackson |
0 | 3,857 | | | | | |||||||||||||
Thomas A. McCullough |
137,800 | 330,294 | | | | | |||||||||||||
Thomas A. McDonnell |
200,500 | 677,492 | | | | 1,577,492 | |||||||||||||
William C. Nelson |
3,721 | 20,669 | | | 200 | 55,570 | |||||||||||||
Travis E. Reed |
3,721 | 209 | | | 8,664 | 15,000 | |||||||||||||
M. Jeannine Strandjord |
3,721 | 19,051 | | | | 55,890 | |||||||||||||
Steven J. Towle |
86,400 | 4,503 | | 299 | 1,136 | 34,815 | |||||||||||||
Executive Officers and Non-Employee Directors as a Group(d) |
805,026 | 6,037,113 | 54,663 | 1,110 | 4,338,242 | 2,716,236 |
19
Compensation Committee Interlocks and Insider Participation. Board member and Chief Operating Officer Thomas A. McCullough is a non-executive officer of Boston Financial, our joint venture with State Street Corporation. Although Mr. McCullough and certain other of our officers and directors are members of the Boston Financial board of directors, no compensation committee interlocks exist. Boston Financial's current President and Chief Executive Officer will join the Company as our President and Chief Operating Officer on July 1, 2009, as explained in note (11) on page 5. Boston Financial uses our mutual fund shareowner accounting and recordkeeping system and services as a remote services client. Certain of our subsidiaries provide printing, mailing and other services and license software to Boston Financial and its subsidiaries. In 2008, we had consolidated revenues of $177.5 million from Boston Financial and its subsidiaries. We also entered into a related party promissory note with Boston Financial on March 1, 2006. The agreement provides for unsecured revolving borrowings by us of up to $100 million and matures on July 1, 2010. The amount outstanding under this promissory note was $75 million at December 31, 2008. For the year ended December 31, 2008, we recorded interest expense related to the loan of $4.1 million.
Beneficial Ownership Reporting Compliance. The securities regulations require our non-employee directors, certain of our officers, and each person who owns more than 10% of our common stock to file ownership reports with the Securities and Exchange Commission and the New York Stock Exchange. Based on our review of the reports, and our officers' and directors' written representations to us, we believe our reporting persons timely filed their 2008 required reports for transactions occurring during 2008 with the exception of A. Stephan Sabino, Chief Executive Officer of our wholly-owned subsidiary DST Health Solutions, Inc. Mr. Sabino liquidated his 401(k) Profit Sharing holdings in our shares on August 5, 2008 and reported the transaction on a Form 4 dated September 29, 2008.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Engagement. PricewaterhouseCoopers LLP served as our independent registered public accounting firm as of and for the year ended December 31, 2008. PricewaterhouseCoopers LLP performed professional services in connection with the audit of our consolidated financial statements and internal control over financial reporting and the review of reports we filed with the Securities and Exchange Commission. It also reviewed control procedures of our mutual fund processing services and provided us certain other accounting, auditing and tax services.
PricewaterhouseCoopers fees for services related to 2008 and 2007 were as follows:
Type of Fees
|
2008($) | 2007($) | |||||
---|---|---|---|---|---|---|---|
Financial Statement Audit Fees |
3,072,350 | 3,186,590 | |||||
Audit Related Fees(1)(2) |
1,681,000 | 1,601,285 | |||||
Tax Fees(1)(3) |
1,789,788 | 1,886,572 |
20
Engagement Procedures. Audit Committee procedures prohibit the Committee from engaging an independent registered public accounting firm to perform any service it may not perform under the securities laws. The Audit Committee must pre-approve the independent registered public accounting firm's annual audit of our consolidated financial statements. The procedures require the Committee or its Chairperson to pre-approve or reject any other audit or non-audit services the independent registered public accounting firm is to perform. The Committee has directed that its Chairperson, with the assistance of our Chief Financial Officer, present and describe at regularly scheduled Audit Committee meetings all pre-approved services. The Committee has required management to present services for pre-approval within a specified period in advance of the date the services are to commence. The Committee regularly examines whether the fees for audit services exceed estimates. Securities regulations waive pre-approval requirements for certain non-audit services if their aggregate amount does not exceed specified amounts we pay to the independent registered public accounting firm. The procedures require the Committee or its Chairperson to approve, prior to completion of the audit, any services subject to this waiver. We have not applied the waiver to a non-audit service. The Audit Committee pre-approved all services PricewaterhouseCoopers LLP rendered to us and our subsidiaries for 2008.
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee determines compensation for the named officers listed in the Summary Compensation Table. Named officers include Thomas A. McDonnell, our Chief Executive Officer, and Kenneth V. Hager, our Chief Financial Officer. They also include our three executive officers other than the Chief Executive Officer and Chief Financial Officer receiving the highest total compensation for 2008: Thomas A. McCullough, our Chief Operating Officer, Thomas R. Abraham, the Chief Executive Officer of DST International, and Stephen J. Towle, the Chief Executive Officer of DST Output.
21
COMPENSATION DEVELOPMENTS SINCE 2008
In view of the current economic downturn, the Committee decided against any increases in base salary for named officers for 2009. Moreover, Messrs. McDonnell and McCullough have each suggested, and the Committee has approved, a decrease for 2009 in the base salary payable under their employment agreements. The sole purpose for this decrease in their compensation is to appropriately reflect their individual support of, and contribution to, various payroll cost containment and expense reduction initiatives we have undertaken in light of the downturn. For 2009, Mr. McDonnell's base salary has been reduced by $100,000 to $650,000, and Mr. McCullough's base salary has been reduced by $50,000 to $525,000. In determining any incentive to be paid to such officers under the Incentive Program if we achieve goals set by the Committee for 2009, the incentive opportunity levels will continue to be applied to the base salary of each such officer as is set forth in his employment agreement and prior to the 2009 reduction. After 2009, any adjustments to named officer base salaries will be determined by the Committee in accordance with employment agreements and the Committee's process and procedures.
The Committee's primary objectives for its named officer compensation program are described in the following table:
OBJECTIVE
|
THE COMMITTEE'S GENERAL METHODS OF ACHIEVEMENT ARE TO: | TO ACHIEVE OBJECTIVE, THE COMMITTEE: |
||
---|---|---|---|---|
Align named officer and stockholder interests | Include, as a significant component of compensation, awards that tie vesting to achievement of short- and long-term financial and strategic objectives | Grants Incentive Program awards that constitute a significant portion of named officer compensation if goals are achieved and that are tied to sustained increases in diluted earnings per share ("EPS") and/or to achievement of business unit objectives(1) | ||
Granted, in 2004, restricted stock for the period of 2004-2009 that vests on January 31, 2010 only upon achievement of a diluted EPS target and named officer continued employment ("upfront restricted stock")(1) |
||||
Granted, in 2008, restricted stock to the DST Output executives (including Mr. Towle) that vests only upon DST Output's achievement of an operating margin goal and continued employment(1) |
22
OBJECTIVE
|
THE COMMITTEE'S GENERAL METHODS OF ACHIEVEMENT ARE TO: | TO ACHIEVE OBJECTIVE, THE COMMITTEE: | ||
---|---|---|---|---|
Attract and retain quality leadership |
Periodically examine peer group and general industry compensation data; structure compensation packages with the goal that total direct compensation and total cash compensation are positioned at approximately the 75th percentile of the combined peer group and general industry survey data if we achieve target incentive goals, and approximately at the 90th percentile of such data if we achieve maximum incentive goals(2) Incorporate a significant "at risk" component into compensation packages so that potential compensation is attractive and incents named officers to remain in our employ through successive, rolling vesting periods |
Strives to stay within such percentile ranges, providing a combination of: Base salaries(1) Incentive Program awards that provide named officers with significant compensation if we achieve performance goals and include, as a component of incentives at certain levels of goal achievement, a deferred cash award that is generally forfeited if the named officer voluntarily terminates employment prior to the end of the vesting period Upfront restricted stock for the period 2004-2009 to establish a level equity compensation cost over several years and to aid in executive retention over a reasonably lengthy period Granted restricted stock to Mr. Towle and other DST Output executives as incentive to achieve goals the Committee established for the DST Output business and as a retention aid while such goals are in place Awarded expatriate assignment benefits to attract a named officer to our employ(3) |
||
Promote the health and welfare of the named officers and their commitment to the Company |
Aid named officers in health crises and aid their families in the event of their deaths Provide a level of financial diversification of unvested awards Provide programs under which named officers can save for retirement Provide benefits that balance the Board's flexibility in making management changes with protection of named officers in the event of involuntary termination of employment Reasonably promote the convenience of the named officers in the performance of their duties for the Company |
Provided: Health, life and disability insurance programs(1) Deferred cash rather than restricted stock as the deferred component of Incentive Program awards so that Company stock is not the only long-term component of compensation Qualified and non-qualified deferral plans and programs that allow named officers to accumulate funds (including cash incentives and vested amounts) on a tax-deferred basis for their retirement and to have emergency funds available should employment terminate pre-retirement(1) Full or partial accelerated vesting of awards upon retirement and in certain other circumstances Reasonable but limited perquisites(1) |
23
OBJECTIVE |
THE COMMITTEE'S GENERAL METHODS OF ACHIEVEMENT ARE TO: |
TO ACHIEVE OBJECTIVE, THE COMMITTEE: |
||
---|---|---|---|---|
Maintain a level of equity grants that do not, in the Committee's opinion, cause excess dilution and expense over time | Establish target aggregate expense levels for the annualized equity compensation (the upfront restricted stock) as a percentage of pre-tax income | Determined the aggregate number of shares of upfront restricted stock it would grant in 2004 with the objective that such equity compensation to all eligible employees, considered over the grant period, should approximate no more than 6% to 7% of consolidated annual pre-tax income(4) | ||
Provide stability to the Company and limited protection to the named officers in a change in control |
Design change in control protections in employment and award agreements to: Preserve our ability to compete for executive talent in the event of a change in control Promote stability during a change in control by encouraging our executives to cooperate with and achieve a change in control approved by the Board, without being distracted by the possibility of termination or demotion following the change in control Provide our executives with change in control severance benefits similar to those in place at other companies Make it potentially more expensive for an acquirer to dismiss one of our executives rather than one of its own executives |
Included in named officer employment agreements separation pay obligations in the event of a termination without cause or resignation for good reason within the three years following a change in control(1) Provided for pro rata vesting of the upfront restricted stock upon a change in control that is not followed by a termination of employment, and full vesting of the remaining unvested stock upon a change in control that is followed within three years by a termination of employment without cause or a resignation for good reason Provided for pro rata vesting of the restricted stock granted to Mr. Towle but only at the time of goal achievement following a post-change in control resignation for good reason Provided for accelerated vesting of deferred cash awards upon a change in control followed by a termination of employment without cause or a resignation for good reason |
24
OBJECTIVE
|
THE COMMITTEE'S GENERAL METHODS OF ACHIEVEMENT ARE TO: |
TO ACHIEVE OBJECTIVE, THE COMMITTEE: |
||
---|---|---|---|---|
Structure compensation, if feasible in view of other objectives, so that the Company can obtain maximum deductibility of compensation expenses | Include as a part of compensation packages performance-based components that are designed to meet the requirements of Section 162(m) of the Internal Revenue Code(5) | Bases Incentive Program awards on the achievement of performance goals Incorporated a performance hurdle into upfront restricted stock and into restricted stock to DST Output executives Obtained stockholder approval of the 2005 Equity Incentive Plan under which upfront restricted stock and Incentive Program awards are granted Considered 162(m) ramifications in partially terminating the Supplemental Executive Retirement Plan ("SERP") and a previous ERISA excess plan |
The Committee has determined that the benefit to the executive, the Company and our stockholders justifies the Company cost in providing each element of compensation. In structuring the Incentive Program and in determining to grant upfront restricted stock, the Committee considered the target levels of compensation set forth on page 23. In determining individual elements of compensation, the Committee does not otherwise consider amounts realizable from prior compensation or awards, for the reasons below:
|
Element
|
Reason | ||
---|---|---|---|---|
Base Salaries | Base salaries should provide the named officer with a minimum level of annual pay, irrespective of payouts under our 2005 Equity Incentive Plan. | |||
Incentive Program Awards |
Annual incentive awards are tied to performance in a particular period. Tying incentive opportunity levels to other unearned awards would undermine the objective of incenting performance for the current performance period. |
|||
Upfront Restricted Stock; Restricted Stock to DST Output Executives |
The grants are for a period of time and incent performance of goals during that period, and grants for prior periods should not affect the level of compensation for the current period. |
|||
Perquisites; Insurance Benefits; and Retirement, Termination and Change in Control Provisions |
The objectives given above for these compensation elements would not be served if the benefits were tied to amounts realizable from prior awards. |
25
(2) | Total cash compensation is base salary plus the current cash portion of incentive awards. Total direct compensation is the combination of base salary, annual incentive awards, and annualized upfront equity awards. The Committee set the total cash compensation targets and total direct compensation targets in the upper quartile because: | |||
a significant portion of named officer compensation is at risk |
||||
the highly competitive nature of our industry warrants higher levels of potential compensation to allow us to attract and retain the quality leadership needed for continued success |
||||
companies that achieve similar levels of performance over a period of time are generally ranked in the upper quartile of total direct and total cash compensation ranges. |
||||
In the chart below, we have summarized how the 2008 compensation for the named officers compares to competitive compensation levels. The competitive positioning is derived from general industry survey and peer group data provided by our compensation consultant, whose services we describe in the following section. |
Compensation Component
|
Average Positioning of Named Officers |
Range of Competitive Positioning of Compensation for Named Officers |
||||
---|---|---|---|---|---|---|
Base Salary | ||||||
Published Survey Data |
2% Above Median |
13% Below Median to 23% Above Median |
||||
Peer Group Data |
9% Below Median |
26% Below Median to 2% Above Median |
||||
Target Total Cash Compensation* |
||||||
Published Survey Data |
1% Below 75th Percentile |
21% Below 75th Percentile to 13% Above 75th Percentile |
||||
Peer Group Data |
5% Below 75th Percentile |
33% Below 75th Percentile to 20% Above 75th Percentile |
||||
Target Total Direct Compensation* |
||||||
Published Survey Data |
9% Above 75th Percentile |
18% Below 75th Percentile to 39% Above 75th Percentile |
||||
Peer Group Data |
7% Below Median |
19% Below Median to 3% Above Median |
||||
|
||||||
*If we meet target incentive goals. |
26
As shown in the above table, we align named officer and stockholder interests and further retention objectives by incorporating performance goals into various elements of compensation. We do not disclose the actual goals because they are confidential business information. We believe that they are immaterial to an understanding of the Committee's executive compensation policies and decisions and that the reasons not to disclose them are compelling. One key reason is that disclosure of the goals, or any one of them, could cause substantial economic harm to our competitive position.
CONSULTANT/MANAGEMENT SUPPORT TO THE COMMITTEE
The Committee consulted with Deloitte in late 2007 to set 2008 base salaries for named officers. The Committee charged Deloitte with:
Based on a review of that information, the Committee modified base salaries of three named officers for 2008. The Committee determined not to modify the incentive compensation opportunity levels of named officers for 2008. The Committee also determined, in view of the upfront restricted stock it granted in 2004, not to make additional equity grants to named officers for 2008 other than the grant to Mr. Towle of restricted stock that vests only upon achievement of DST Output goals, discussed on page 33. In determining the incentive compensation and upfront restricted stock grant levels, the Committee charged Deloitte in 2004 with the same tasks outlined above as well as:
Deloitte advised the Committee in late 2005 regarding the terms and conditions of employment agreements for Messrs. McDonnell and McCullough. It also updated the 2004 peer group information for chief executive officer and chief operating officer compensation. Based on updated benchmark position data, Deloitte identified alternatives for the Committee's consideration with respect to the base salaries and incentive opportunity levels for these two positions.
At the Committee's direction with respect to the consulting work that has occurred beginning in 2004, the Company has provided Deloitte with financial data, peer group identification information, potential share dilution information, drafts of the employment agreements for Messrs. McDonnell and McCullough, and access to the Company's Human Resources Department, General Counsel, and benefits and securities law counsel.
27
The peer group Deloitte used for benchmarking base salaries in late 2007 included the following companies:
The 2004 survey data did not include Choicepoint Inc. or IMS Health Incorporated and included Acxiom Corporation, BISYS Group, Inc., Certegy, Inc. and SunGard Data Systems, Inc. Each difference is either a result of corporate transactions or changes over time in our peer group.
In addition to the peer group data, Deloitte has provided peer group survey information gathered from hundreds of general industry and data processing companies, and has regressed that data to match DST's size and each executive officer's responsibility level. In using the peer group and general survey data, Deloitte focuses on positions similar in scope to our executive officer positions. Deloitte uses the peer group and general industry data in tandem to summarize how executive officer compensation levels compare to competitive practice. The Committee then evaluates how the Company's executive officer compensation compares to competitive practice based on the components of compensation, as well as compensation in the aggregate, and determines if adjustments are appropriate and necessary.
Deloitte affiliates have provided certain tax related or financial advisory services to the Company. The Committee believes that, given the scope and nature of these projects, the additional assignments have not impaired Deloitte's ability to provide an independent perspective to the Committee.
In determining base salary increases for Messrs. Hager, Abraham and Towle for 2008, the Committee received input from our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer regarding:
28
In determining to grant restricted stock to Mr. Towle in 2008, the Committee received input from our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer regarding changes in the DST Output business and the need for achievement of certain goals.
The Committee determined the terms and conditions of the employment agreements of Messrs. McDonnell, McCullough and Abraham. Mr. Hager's employment agreement predates the existence of the Committee. The Committee approved amendments to four named officer employment agreements effective December 31, 2008 primarily so that any separation pay and other benefits under the agreements would be exempt from or compliant with Section 409A of the Internal Revenue Code, which imposes excise taxes and other penalties on non-exempt deferred compensation. Mr. Towle does not have an employment agreement.
OVERVIEW OF 2008 COMPENSATION
Messrs. McDonnell and McCullough
Messrs. McDonnell and McCullough received the same base salary for 2008 as for 2007. Their incentive opportunity levels (as percentages of base salary) for 2008 were the same as for 2007, although they earned slightly less of an incentive for 2008 than as for 2007 due to a modest decline in the aggregate level of goal achievement.
For all named executive officers, including the Chief Executive Officer and Chief Operating Officer, the Compensation Committee applies the same compensation objectives and reviews the same compensation general industry and peer group survey data to evaluate market rates of compensation.
The 2008 overall compensation of, and individual compensation components for, Messrs. McDonnell and McCullough exceeded that of the other named executive officers primarily because market compensation rates of base salary and other components for chief executive officers and chief operating officers exceed the market rates and components for other named executive officer positions. The long tenure with the Company of approximately 39 years for Mr. McDonnell and 21 years for Mr. McCullough, sustained long-term individual performance, and level of responsibility of each chief officer have also factored over time into their base salaries and incentive opportunity levels.
Mr. Hager
Mr. Hager's base salary for 2008 increased by 3.3% over his base salary for 2007. His incentive opportunity levels (as percentages of base salary) for 2008 were the same as for 2007, although the aggregate level of goal achievement for 2008 was modestly below the level for 2007.
Mr. Abraham
Mr. Abraham's base salary for 2008 increased by 4% over the total amount of base salary for 2007 as if we had employed him for all of 2007 (see note (1) on page 43). His incentive opportunity levels (as percentages of base salary) for 2008 were the same as for 2007; however, the bonus he was eligible to earn for 2008 was based on a pool available to DST International executives if goals were achieved. As goals were not achieved for 2008, Mr. Abraham did not receive an incentive award for 2008. He did not receive a SERP contribution in 2009 for the 2008 plan year as the partial termination of the SERP in 2007 discontinued his participation in that plan.
Mr. Towle
Mr. Towle's base salary for 2008 increased by 7.5% over his base salary for 2007. His incentive opportunity levels (as percentages of base salary) for 2008 were the same as for 2007, although the aggregate level of goal achievement for 2008 was less than the level for 2007. In addition, he became ineligible to receive that portion of any incentive award based on achievement of the business unit goal
29
above the target level, as explained on page 33. He received restricted stock in February 2008 that vests only upon achievement of DST Output goals, also as explained on page 33. He did not receive a SERP contribution in 2009 for the 2008 plan year as the partial termination of the SERP in 2007 discontinued his participation in that plan.
BASE SALARIES
Factors in Determining Base Salaries. In setting base salaries, the Committee:
The Committee does not follow a precise formula that base salaries should constitute a certain percentage of overall compensation or that base salaries should fall within a specific percentile range of peer group and general industry survey data. The Committee considers whether individual base salaries reflect responsibility levels and are reasonable, competitive and fair. The Committee also considers its total direct compensation and total cash compensation objectives stated on page 23.
Named Officer Base Salaries. In increasing base salaries for Messrs. Hager, Abraham, and Towle for 2008, the Committee reviewed published survey and peer group data prepared by Deloitte in December 2007, considered the applicability of the salary data in view of the individual positions within our company, and applied the factors described in the preceding section to each position and set of challenges. It increased each base salary to a level it believed was fair and reasonable. As suggested by Messrs. McDonnell and McCullough, the Committee did not increase their respective base salaries for 2008. Their base salaries for 2009 decreased as explained on page 22.
INCENTIVE PROGRAM COMPENSATION
Under the Incentive Program, the Committee may grant annual incentive awards based on whether the Company or business units achieve certain goals set by the Committee. The amount and components of the award depend on whether and to what degree the Company or business unit achieves goals, and the percentages of base salary (we refer to them as opportunity levels) that the named officer is eligible to receive as an incentive award.
Goal Setting. The 2005 Equity Incentive Plan requires the Committee to set goals for named officer annual incentives within the first ninety days of a performance year and governs the Committee's flexibility in determining whether we achieved our goals. We further discuss the reasons the Committee ties elements of compensation to goal achievement and the confidentiality of the goals on pages 22 through 27.
30
For each performance year, the Committee establishes annual and three-year cumulative threshold, target and maximum EPS goals for the Company's corporate officers. These are the only two goals applicable to the incentives of Messrs. McDonnell, Hager and McCullough. Half of any incentive award to them is based on performance against an annual EPS goal, and half is based on performance against a cumulative EPS goal. The Committee selected EPS goals because they directly align named officer and stockholder interests. The Committee sets both annual and cumulative goals because it believes the relationship between historical and future achievement should affect the degree of difficulty of combined goal achievement each year.
Used in tandem, annual and cumulative goals allow the Committee to encourage the achievement of current year performance as well as sustained multi-year growth. The Committee sets the cumulative EPS goals each year of the three-year period in advance of certifying achievement of any annual goal for the three-year period. Incentive awards would be decreased if the cumulative goal was not met, even if the annual goal was met at the maximum level. Lack of annual goal achievement during any of the three years would impede cumulative goal achievement.
In setting annual EPS goals, the Committee generally considers our mix of businesses, competitive outlook, annual capital expenditures and short-term strategy objectives in determining appropriate earnings objectives for the specific year. In setting cumulative EPS goals for a prospective three-year period, the Committee considers long-term strategic objectives and the possibility that, over the long-term, results for a certain year could exceed or fall below the desired annual growth targets and that a cumulative goal should have the effect of balancing the impact of significant year to year fluctuations in named officer incentive compensation as a result of performance toward annual goals. The Committee intends the combination of annual and cumulative goals to reflect sustained performance over time consistent with management's and the Board's emphasis on long-term stockholder value.
For each performance year for business unit participants, including Messrs. Abraham and Towle, the Committee bases incentive awards on a combination of business unit and/or Company goals. The combination depends on the extent to which the Committee seeks to emphasize business unit goals compared to overall Company goals. The Company cumulative EPS goal and a DST Output annual operating income goal is applied to Mr. Towle, as the success of the DST Output business is connected to the success of the Company's business through combined customer relationships and operating facilities. Mr. Towle's incentive award depends half on each of the two goals, except that, as explained below, Mr. Towle is not eligible to receive that portion of any award based on achievement of the DST Output operating income goal above the target level. DST Output annual goals are set for three-year periods.
For DST International's goal for 2008, the Committee considered changes in the subsidiary's business model and economic conditions relative to its license-based business. It based the goal on an increase over DST International's 2007 income from operations before bonus. The Committee separately emphasizes and incents performance of DST International because its customer relationship and success factors generally are not directly related to other Company operations.
For the DST goals, the Committee generally seeks to require the growth in diluted EPS to be at a rate at least comparable to upper percentiles of other public companies with similar products and
31
services. For all goals, it seeks to increase the difficulty of goal achievement by the named officer's opportunity levels as follows:
Goal Level
|
Expected Conditions Under Which Goals Would be Met
|
|
---|---|---|
Threshold EPS and DST Output Goals; Minimum Bonus Pool Amount for DST International |
Unless adverse business conditions occur | |
Target EPS and DST Output Goals; Increased Bonus Pool Amount for DST International |
If we execute strategic business plans and if business conditions are reasonable |
|
Maximum EPS and DST Output Goals; Increased Bonus Pool Amount for DST International |
If we execute strategic business plans more effectively and market conditions are better than we expect |
Various factors could cause actual results to vary from performance goals, and in light of these variables it is not possible for the Committee to reliably quantify differences in difficulty among the various achievement levels. The Committee does not perform a statistical analysis to predict future achievement based on historical goal achievement. Rather, the Committee seeks to set goals it believes will incent participant performance at levels that would achieve Board objectives, and will cause payouts of incentive compensation at levels over time that further its purpose of retaining executives and linking pay to performance.
The Committee finalized the 2008 cumulative EPS goals applicable to Messrs. McDonnell, Hager, McCullough and Towle and the annual EPS goal applicable to Messrs. McDonnell, McCullough and Hager in November 2005, the business unit annual operating income goal applicable to Mr. Towle in February 2008, and the business unit increase in income from operations before bonus goals applicable to Mr. Abraham in March 2008.
Annual Incentive Opportunity Levels. The Committee determines the percentage of each named officer's base salary to be awarded as an incentive at each level of goals we meet. The Committee does not follow a precise formula to cause incentive awards to constitute a certain percentage of overall compensation. However, the Committee does consider its total direct compensation and total cash compensation objectives set forth on page 23.
Named officer incentive opportunity levels are:
|
Opportunity Level % of Base Salary |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Named Officer
|
Threshold | Target | Maximum | |||||||
Thomas A. McDonnell |
100 | 200 | 300 | |||||||
Thomas A. McCullough |
90 | 180 | 270 | |||||||
Messrs. Hager, Abraham and Towle |
50 | 100 | 150 | * |
The Committee selected the percentages based on the total cash and total direct compensation objectives, on executive officer retention considerations, and on the officer's position level, rather than on individual performance.
For all named officers other than Mr. Abraham, the Committee determines the total incentive by applying the opportunity level at the goal level achieved to base salary. Mr. Abraham participates in a bonus pool available to DST International participants. The dollar amount available to the participants
32
depends on the goal level achieved, and the pool is divided among participants based on the ratio of each participant's bonus at the threshold opportunity level to the aggregate of bonuses at the threshold level.
Annual Incentive Award Determinations. The 2005 Equity Incentive Plan requires the Committee to certify, no later than 90 days following the performance year, the degree to which goals were met for the performance year. The Committee grants awards on the same date it determines goal certification, and cash incentives are paid no later than March 15 of the year following the performance year. With the exception of Mr. Towle's incentive, as explained below, we average payout levels of the two goals applicable to each named officer to determine an aggregate percentage of salary that will dictate the amount of the award.
Under the Plan, the Committee, on an award grant date, may provide that the performance results may be adjusted to reflect unusual or nonrecurring events or in response to changes in applicable laws, regulations or accounting principles. The Committee may only exercise downward discretion with respect to named officers subject to Section 162(m) of the Internal Revenue Code. In determining the award payments for the 2008 performance year, the Committee excluded from the EPS results certain tax expenses and costs related to transactions occurring prior to 2008, in order to be consistent with the exclusion of the effects of such transactions in the years the transactions occurred.
The Committee did not otherwise exercise discretion in determining goal achievement or award amounts. The Committee certified that the Company met its maximum cumulative goal and exceeded its target annual EPS goal, that DST Output exceeded its target operating income goal, and that DST International did not meet its increase in income from operations before bonus goal.
Award Deferral. The Committee requires deferral of half of the award attributable to performance above the threshold level. Subject to forfeiture and to accelerated vesting in limited circumstances (as discussed beginning at page 37), the deferred cash award vests two years and 11 months from the end of the performance year for which the deferred portion was earned.
Special Incentive Arrangements for Mr. Towle. Management has sought to improve the profitability of DST Output by making important changes to its business model. DST Output has invested in new technologies since 2006 as part of working toward that objective. The associated capital spending and operational implementation costs have adversely affected operating results.
In 2008, the Committee desired to tie a portion of the compensation of DST Output executives, including Mr. Towle, directly to improvement in DST Output operating margins. To incent an operating margin improvement for a three-year period (2008-2010), the Committee believed it appropriate to grant restricted stock in early 2008 to DST Output executives and base vesting on achievement of an operating margin goal for any fiscal year of such period. The Committee will include the book compensation cost of the grant in determining whether the goal is achieved. We further discuss the reasons the Committee ties elements of compensation to goal achievement and the confidentiality of the goals on pages 22 through 27.
In determining the aggregate number of shares to grant to each DST Output executive, the Committee considered the expense it was willing to authorize for the incentive, and then divided the aggregate number of shares equal to such expense among the executives based on the proportion of each individual's base salary to the aggregate base salaries of the grantees. The Committee has determined that the grants are in lieu of a portion of the executive's potential annual incentive compensation and has restructured such compensation. As a result, Mr. Towle is ineligible to receive that portion of his cash and deferred cash annual incentive that would have been based on achievement of the DST Output goal above the target level of goal achievement.
33
The shares are generally subject to forfeiture upon termination of employment (as discussed beginning at page 37). The restricted stock does not vest unless and until the goal is achieved for any of 2008, 2009 or 2010. The goal was not achieved for 2008, and, as a result, the shares did not vest.
UPFRONT RESTRICTED STOCK
The Committee has granted stock under the 2005 Equity Incentive Plan that vests over a period of time. For all of the named officers other than Mr. Abraham, the upfront restricted stock incorporates a performance hurdle to vesting, and we discuss our achievement of the goal below. In addition to achieving the performance hurdle, named officers generally must have remained in our employ until the end of the five-year restrictive period in order for the stock to vest.
2004 Determination of Upfront Grants. In November 2004, named officers other than Mr. Abraham received restricted stock grants intended to cover the period 2005 through 2009. The Committee did not follow a specific formula in determining the value of upfront restricted stock as a certain percentage of individual compensation or in determining each named officer's number of shares. The Committee considered the total direct compensation ranges set forth on page 23 as well as:
The Committee set a diluted EPS goal to be met for any of the five years of the upfront period (2005-2009). The Committee desired that the goal be reasonably achievable if we accomplished strategic and challenging objectives. The Committee selected a reported results structure, requiring that goal achievement be reflected in our audited results and reported in our Annual Report on Form 10-K. The structure precluded the Committee from exercising discretion to allow vesting absent goal attainment. Named officers would forfeit the shares unless we met the goal for any year of the five-year period. We further discuss the reasons the Committee ties elements of compensation to goal achievement and the confidentiality of the goals on pages 22 through 27.
We met the goal with 2005 results, realizing significant long-term strategic objectives sooner than anticipated through favorable market conditions and the execution of three significant transactions in 2005. Thus, the restrictions will lapse January 31, 2010, without the need for further goal achievement, but the shares are generally subject to forfeiture upon termination of employment and to accelerated vesting in limited circumstances (as discussed beginning at page 37).
Determination of Mr. Abraham's Upfront Grant. The Committee granted Mr. Abraham restricted shares in February 2007. The number granted was 60% of the number of shares granted to his predecessor (J. Michael Winn, retired Chief Executive Officer of DST International) for the upfront vesting period. The lesser number was in recognition of the fact that Mr. Abraham's vesting period would be slightly over 60% of his predecessor's vesting period. Mr. Abraham's award did not have a performance feature, which assisted in his recruitment to the Company. In addition, the performance hurdle incorporated into the 2004 grants had already been achieved, and the Committee did not deem it appropriate to establish a performance hurdle for only one executive.
34
PERQUISITES
The Committee receives input regarding perquisites from our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer. The Committee allows Mr. McDonnell personal use of aircraft in which we own fractional interests. It also allows Mr. McCullough limited personal use. The Committee monitors such use through receipt at least four times per year of reports from our Chief Financial Officer. Executives may also receive estate planning services, tax return services, paid parking, reimbursement for medical physical examinations, and personal use of a Company car or car allowance. We reimburse spouse or guest travel to, and family entertainment at, an annual planning meeting at which executive officers and spouses or guests interact with each other and with members of the Board and their spouses or guests, and in 2008 we reimbursed spouse travel and entertainment for Messrs. McDonnell and Hager at a meeting in the United Kingdom at which the Board familiarized itself with our international businesses. Mr. Abraham, who works in the United Kingdom at the request of the Company, receives a housing and utility allowance and tuition reimbursement for his children as expatriate assignment benefits and an amount in connection with the incremental income taxes he incurs by working as an expatriate for the Company. We do not gross-up named officer perquisites for tax liabilities.
INSURANCE BENEFITS
The Committee receives input from our Chief Financial Officer regarding health and welfare benefits for all employees. Named officers can participate in group health, vision and dental insurance plans on the same basis as other employees. We provide the named officers with individual variable life insurance policies in lieu of participation in our employee group life policy. The policies are portable and allow the named officers to accrue cash surrender value. We also provide named officers with a long-term disability policy to allow a similar income replacement percentage of salary as is available to employees in general.
RETIREMENT BENEFITS; TERMINATION AND CHANGE IN CONTROL PROVISIONS
For our retirement benefits, the Committee considered:
Qualified Retirement Program. Each named officer is a participant in the 401(k) Profit Sharing Plan. The plan has been in place in various forms since January 1, 1970. Like other participants, named officers receive from the Company both discretionary profit sharing contributions and matching contributions with respect to their salary deferral contributions. Accounts generally vest based on years of service. The 401(k) portion of the accounts is credited with earnings, gains or losses based on the participant's investment direction from among various investment options available under the plan, including Company stock, and the profit sharing portion of the accounts is credited with earnings, gains or losses based on Company-directed investments. Accounts are distributable upon separation from service for any reason, financial hardship, or reaching age 591/2.
35
Non-Qualified Retirement Programs. The Committee allows deferrals of current cash awards and extended deferrals of vested deferred cash awards. We distribute deferred amounts on the earlier of the payout date elected by the participant or termination of employment so long as, for deferred cash, the award is vested. The named officers did not have current cash incentives in voluntary deferral during 2008, but Messrs. McDonnell, Hager and McCullough have elected to keep their deferred cash awards for the 2005 performance year, which vested December 1, 2008, in voluntary deferral until separation from service.
During 2007, the Compensation Committee reviewed the tax costs and efficiencies from maintaining the SERP, which is our current nonqualified deferred compensation plan, and the Executive Plan, a nonqualified deferred compensation plan that terminated in 1995. It also considered other deferral arrangements available to named officers. The Committee partially terminated the SERP, partially discontinued the maintenance of Executive Plan account balances, and distributed total SERP and Executive Plan account balances to all active participants except Messrs. McDonnell, Hager and McCullough.
For Messrs. McDonnell, Hager and McCullough, the Committee makes an annual SERP contribution at a rate that is higher than the previous annual contributions that were made to equalize the value of contributions we would have made to our 401(k) Profit Sharing Plan and of forfeiture amounts that we would have credited to plan accounts if certain tax regulations had not limited contributions (for 2008, 7.69% to terminating participants). The higher annual contribution rate (20% for 2008) to the remaining three participants is in consideration of the unavailability of account distribution to them. The Committee also recognized that the three officers may not be able to participate in the plan for a sufficient future period such that continuing annual contributions would equal the value of the special contribution that was made to the terminating participants in connection with the partial plan termination. The Committee will evaluate whether to continue to make the annual contribution at a similar rate based on these factors. The SERP and Executive Plan balances of Messrs. McDonnell, Hager and McCullough are vested.
Accelerated Vesting/Issuance, Separation Pay, and Change in Control Protections. The following table shows the terms and conditions of various awards granted to named officers outstanding at December 31, 2008 and of employment agreements for Messrs. McDonnell, Hager, McCullough and Abraham.
36
VESTING, FORFEITURE AND PAYOUT TERMS AND CONDITIONS
|
|
Death, Disability, or Retirement(1) |
Voluntary Termination |
Termination without Cause(1) |
Termination for Cause(1) |
Change in Control (2)(3) |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
A. | Upfront Restricted Stock(4)(11) | Death and disabilitycauses accelerated vesting(5); retirementshares pro rata vest(6) | Grantee forfeits shares(7) | Grantee forfeits shares with exceptions(8) | Grantee forfeits shares(9) | See note(10) | ||||||
B. |
Restricted Stock with Vesting Tied to DST Output Performance Goal (4)(11) |
Death and disabilitypro rata vesting only if and when goals are achieved(5); retirementTowle forfeits shares(6) |
Grantee forfeits shares(7) |
Grantee forfeits shares(8) |
Grantee forfeits shares(9) |
See note(10) |
||||||
C. |
Incentive Program Deferred Cash Award(4)(11) |
Causes accelerated vesting(5)(6) |
Grantee forfeits award(7) |
Grantee forfeits award with exceptions(8) |
Grantee forfeits award(9) |
See note(10) |
||||||
D. |
Employment Agreement Separation Benefits(11) |
Employment terminates; no employment agreement benefits |
No benefits |
Base salary and certain benefits for a separation pay period(12) |
No benefits |
See note(13) |
||||||
E. |
Vested Stock Options(11) |
One year from date of disability(5) and remainder of term to exercise after retirement(6) |
Generally lapse unless exercised by termination date(7) |
Exercise within 3 months of termination date(8) |
Grantee forfeits options(9) |
No benefit |
Each change in control event, and the rationale for it, generally are:
37
an agreement with a so-called "white knight" (a third party with whom the Board negotiates an acquisition of the Company for the purpose of defeating a hostile takeover attempt).
38
39
grants were made for a prospective period and a terminated employee would have served the Company for only a portion of the period.
Change in Control; No Termination of Employment.
40
terminations of employment and provide the Company with a level of stability following a change in control.
Change in Control Followed by a Termination of Employment. If during the vesting period but no later than three years from the change in control date, the named officer resigns "for good reason" (generally, depending on the applicable agreement, because the Company has reduced base salary, failed to continue benefits at a certain level, materially breached the employment agreement, or, relocated its principal offices or required employee to be based elsewhere) or we terminate him without "cause" (as defined in note (1)):
Requiring that a termination occur after the change in control for early vesting of deferred cash awards and upfront restricted stock and for payout of separation benefits is known as a "double trigger." The Committee believes a double trigger is in the best interest of our stockholders because it:
The stock granted to Mr. Towle in February 2008 vests pro rata in connection with a resignation for good reason following a change in control but only if the goal had been achieved. Only a portion vests because Mr. Towle will not have remained through the entire period of service on which vesting is based.
41
of the Committee. We do not have an employment agreement with Mr. Towle. The four named officer employment agreements provide that, if we terminate employment without cause, we will:
42
|
|
A | B | C | D | E | F | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name and Principal Position
|
Year | Salary ($) |
Bonus (2)($) |
Stock Awards (3)($) |
Non-Equity Incentive Plan Compensation (4)($) |
All Other Compensation (5)($) |
Total (5)(6)($) |
||||||||||||||||
Thomas A. McDonnell | 2008 | 750,000 | | 1,801,254 | 1,362,897 | 1,032,687 | 4,946,838 | ||||||||||||||||
President and Chief | 2007 | 750,000 | | 1,801,254 | 2,277,116 | 900,515 | 5,728,885 | ||||||||||||||||
Executive Officer | 2006 | 750,000 | | 1,801,254 | 2,343,731 | 576,288 | 5,471,273 | ||||||||||||||||
Kenneth V. Hager |
2008 |
310,000 |
|
453,682 |
333,236 |
174,358 |
1,271,276 |
||||||||||||||||
Vice President, Chief | 2007 | 300,000 | | 453,682 | 476,605 | 164,002 | 1,394,289 | ||||||||||||||||
Financial Officer and Treasurer | 2006 | 287,500 | | 453,682 | 435,544 | 93,873 | 1,270,599 | ||||||||||||||||
Thomas A. McCullough |
2008 |
575,000 |
|
1,237,969 |
1,444,693 |
512,763 |
3,770,425 |
||||||||||||||||
Executive Vice President | 2007 | 575,000 | | 1,237,969 | 1,603,663 | 500,407 | 3,917,039 | ||||||||||||||||
and Chief Operating Officer | 2006 | 575,000 | | 1,237,969 | 1,574,871 | 259,966 | 3,647,806 | ||||||||||||||||
Thomas R. Abraham |
2008 |
312,000 |
|
1,206,491 |
|
840,741 |
2,359,232 |
||||||||||||||||
Chief Executive Officer | 2007 | 267,115 | 650,000 | 1,105,950 | | 760,685 | 2,783,750 | ||||||||||||||||
of DST International(1) | |||||||||||||||||||||||
Steven J. Towle |
2008 |
430,000 |
|
931,716 |
344,380 |
57,577 |
1,763,673 |
||||||||||||||||
President and Chief Executive Officer of DST Output, LLC(1) | 2007 | 400,000 | | 673,786 | 619,473 | 231,477 | 1,924,736 |
43
Named Officer
|
Current Cash Incentive for 2008 Performance Year, Paid in 2009 ($) |
Deferred Cash Incentive for 2008 Performance Year, Granted in 2009 ($) |
Earnings (Losses) During 2008 for Incentive Awards in Deferral ($) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Thomas A. McDonnell |
1,492,500 | 742,500 | (872,103 | ) | |||||||
Kenneth V. Hager |
308,450 | 153,450 | (128,664 | ) | |||||||
Thomas A. McCullough |
1,029,825 | 512,325 | (97,457 | ) | |||||||
Steven J. Towle |
376,250 | 161,250 | (193,120 | ) |
|
Thomas A. McDonnell ($) |
Kenneth V. Hager ($) |
Thomas A. McCullough ($) |
Thomas R. Abraham ($) |
Steven J. Towle ($) |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Matching Contribution to 401(k) for 2008 plan year |
6,900 | 6,900 | 6,900 | 6,900 | 6,900 | ||||||||||||
Discretionary Profit Sharing Contribution for 2008 plan year |
10,003 |
10,003 |
10,003 |
10,003 |
10,003 |
||||||||||||
Supplemental Executive Retirement Plan Contribution for 2008 plan year |
551,000 |
108,381 |
377,430 |
|
|
||||||||||||
Life Insurance Premiums |
23,584 |
9,949 |
14,832 |
12,218 |
8,292 |
||||||||||||
Tax Gross-Ups/Tax Equalizations during 2008(a) |
|
|
|
334,790 |
|
||||||||||||
Perquisites and Personal Benefits if Total is at or above $10,000(b) |
441,200 |
39,126 |
103,713 |
477,071 |
33,382 |
44
Perquisite or Personal Benefit
|
Thomas A. McDonnell |
Kenneth V. Hager |
Thomas A. McCullough |
Thomas R. Abraham |
Steven J. Towle |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Paid Parking |
X | X | X | | | ||||||
Family Expenses for Annual Planning Meeting |
X | X | X | X | X | ||||||
Spouse Expenses for Board Meeting in the United Kingdom |
X | X | | | | ||||||
Long-Term Disability Premiums |
X | X | X | X | X | ||||||
Personal Use of Company Car or Car Allowance |
X | X | X | | X | ||||||
Estate Planning Services |
X | | X | | | ||||||
Tax Return Preparation Services |
X | X | X | X | | ||||||
Expatriate Reimbursements* |
| | | X | | ||||||
Company Reimbursed Physical |
X | | | | | ||||||
Personal Use of Aircraft in which the Company has a Fractional Interest** |
X | | X | | | ||||||
Matching Charitable Gift for Which Subsidiary Incurred an Incremental Cost |
| | | X | X |
45
ADDITIONAL INFORMATION REGARDING SUMMARY COMPENSATION TABLE
The Compensation Committee does not target base salary to be a certain percentage of total compensation. Rather, the Committee determines base salaries as described on page 30. The Committee incorporates a significant "at risk" component into compensation packages using the methods described in the Compensation Objectives table that begins at page 22. Named officers have the Incentive Program awards, restricted stock, retirement programs, perquisites, insurance benefits, deferral programs, and separation from service and change in control protections we describe in our Compensation Discussion and Analysis.
Employment agreements address certain of the compensation elements shown in the Summary Compensation Table, as shown in the following table. Mr. Towle does not have an employment agreement.
EMPLOYMENT AGREEMENTS
Named Officer
|
Base Salary | Incentive Program Opportunity Levels |
Term of Agreement* |
Non-solicitation, Non-compete Obligations |
Miscellaneous | |||||
---|---|---|---|---|---|---|---|---|---|---|
Thomas A. McDonnell | At least $750,000, but amount will be less for 2009 as explained on page 22 | At least the percentages shown on page 32 | December 31, 2010 | As described in note (11) on page 5 | See note * | |||||
Kenneth V. Hager |
As determined by the Compensation Committee |
As determined by the Compensation Committee |
At the pleasure of the Board |
|
See note * |
|||||
Thomas A. McCullough |
At least $575,000 but amount will be less for 2009 as explained on page 22 |
At least the percentages shown on page 32 |
December 31, 2009 |
As described in note (11) on page 5 |
See note * |
|||||
Thomas R. Abraham |
$300,000 to be adjusted from time to time as agreed |
At least the percentages shown on page 32 |
February 1, 2010 |
As described in note (11) on page 5 |
Expatriate assignment benefits discussed on page 26; see note * |
46
NONQUALIFIED DEFERRED COMPENSATION
The following table shows nonqualified deferred information for amounts contributed and earnings during 2008. We describe the various forms of nonqualified deferral programs following the table.
|
A | B | C | D | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Named Officer
|
Registrant Contributions in 2008 (1)($) |
Aggregate Earnings (Losses) in 2008 (2)($) |
Aggregate Withdrawals/ Distributions in 2008(3)($) |
Aggregate Balance at December 31, 2008(4)($) |
|||||||||
Thomas A. McDonnell |
1,310,106 | (1,481,898 | ) | | 10,176,442 | ||||||||
Kenneth V. Hager |
255,966 | (98,925 | ) | | 1,025,984 | ||||||||
Thomas A. McCullough |
901,500 | (116,639 | ) | | 4,586,728 | ||||||||
Thomas R. Abraham |
24,220 | | 24,220 | | |||||||||
Steven J. Towle |
394,054 | (193,120 | ) | 461,112 | 169,217 |
Named Officer
|
SERP Contribution in 2008 for 2007 Partial Plan Termination($) |
SERP Contributions in 2008 for 2007 Plan Year($) |
||||||
---|---|---|---|---|---|---|---|---|
Thomas A. McDonnell |
| 560,106 | ||||||
Kenneth V. Hager |
| 105,966 | ||||||
Thomas A. McCullough |
| 384,000 | ||||||
Thomas R. Abraham |
9,446 | 14,774 | ||||||
Steven J. Towle |
134,457 | 59,598 |
Named Officer
|
Distribution of Deferred Cash Award for 2005 Performance Year($) |
SERP Account Distribution($) |
||||||
---|---|---|---|---|---|---|---|---|
Thomas R. Abraham |
| 24,219 | ||||||
Steven J. Towle |
116,351 | 344,761 |
47
|
Type of Account | ||||||||
---|---|---|---|---|---|---|---|---|---|
Named Officer
|
Deferred Cash Award |
SERP | Terminated Executive Plan |
Terminated Directors' Deferred Fee Plan |
|||||
Thomas A. McDonnell |
X | X | X | X | |||||
Kenneth V. Hager |
X | X | X | | |||||
Thomas A. McCullough |
X | X | X | X | |||||
Thomas R. Abraham |
| | | | |||||
Steven J. Towle |
X | | | |
Of the Column D amount, we reported the following as "All Other Compensation" in the Summary Compensation Tables contained in prior annual meeting proxy statements:
Named Officer
|
Amounts from Column C Reported in Previous Summary Compensation Tables($)(*) |
||||
---|---|---|---|---|---|
Thomas A. McDonnell |
3,974,352 | ||||
Kenneth V. Hager |
650,815 | ||||
Thomas A. McCullough |
2,725,597 | ||||
Thomas R. Abraham |
24,220 | ||||
Steven J. Towle |
982,946 |
Excluding deferred cash awards for performance years 2006 and 2007 under the Incentive Program, which are not vested, the amounts shown in Column D are vested. The vested portion of the amounts shown in Column C is:
Named Officer
|
Vested Amounts at December 31, 2008($) |
||||
---|---|---|---|---|---|
Thomas A. McDonnell |
9,240,829 | ||||
Kenneth V. Hager |
800,158 | ||||
Thomas A. McCullough |
3,575,272 |
We would pay the vested amounts upon death, disability, or termination of employment for any reason. A change in control not followed by termination of employment would not trigger payment of such vested amounts. In addition, we would pay deferred cash awards for performance years 2006 and 2007 to Messrs. McDonnell and McCullough upon termination without cause, as they are retirement eligible and such awards vest upon retirement. Their deferred cash award amounts for these years are included in the deferred cash amounts shown in the table beginning on page 52.
48
Nonqualified Deferral Programs.
Incentive Program Awards in Deferral. We explain on page 23 why the Committee allows voluntary deferrals of cash incentives and vested amounts. With respect to current cash incentives, named officers can, by making an election by June 30 of the performance year, voluntarily defer for a period of years or until separation from service the current cash awards they receive under the Incentive Program. Named officers can voluntarily extend the future payout of vested deferred cash awards beyond the vesting period for a period of years or until separation from service. After electing an initial payout date, participants can further extend the payout for a minimum of five years. Per applicable law, we must receive such election no later than one year prior to the initially selected payout date in order to comply with Internal Revenue Code Section 409A.
Deferral Plans. We describe the SERP in our Compensation Discussion and Analysis at page 36. For years prior to 2008, we made annual SERP contributions to equalize the value of contributions we would have made to various qualified plans and of forfeiture amounts that we would have credited to qualified plan accounts if certain tax regulations had not limited contributions. During 2008, we distributed SERP balances to Messrs. Abraham and Towle. The SERP accounts of Messrs. McDonnell, Hager and McCullough are vested. We make annual contributions to their accounts, as further described in our Compensation Discussion and Analysis.
The Executive Plan is a nonqualified deferred compensation plan terminated in 1995. Prior to termination of the plan, we credited each participant's account with the value of contributions we would have made to the various qualified plans we maintained without regard to statutory contribution limits and eligibility requirements, less the amount we contributed to such qualified plans on the participant's behalf. Messrs. McDonnell, Hager and McCullough have vested accounts.
We continue to hold fees Messrs. McDonnell and McCullough previously deferred under a Directors' Deferred Fee Plan that was frozen effective August 31, 1995. The accounts are vested.
Installment Payments. If elections were properly made, account balances are payable in installments as follows:
Award or Plan
|
Installment Payout Requirement |
Installment Period Not to Exceed |
||
---|---|---|---|---|
Incentive Program Awards In Deferral | Must be at least age 591/2 at termination date | Five years | ||
SERP |
Must be at least age 591/2 at termination date |
Ten years |
||
Terminated Executive Plan |
Compensation Committee Chairperson must approve installment payment and period |
Five years |
||
Terminated Directors' Deferred Fee Plan |
Must be a least age 65 |
Ten years |
Mr. McDonnell has elected to receive deferred Incentive Program balances in installments upon retirement. Messrs. Hager and McCullough have elected to receive all of their account balances in installments. Mr. Towle has not made retirement installment elections, and Mr. Abraham does not have any amounts in deferral.
Earnings on Deferred Amounts. We make credits to or deductions from all nonqualified deferral accounts, other than those maintained under the terminated Directors' Deferred Fee Plan, based on hypothetical earnings. For the Incentive Program awards in deferral, we base earnings on the participants' elections among a limited number of choices including both long-term equity based
49
investments and long-term income oriented investments. The number of choices is administratively manageable but allows participants to diversify their hypothetical earnings and control their level of risk. The terminated Directors' Deferred Fee Plan also grows or decreases based on similar types of investments that are Company-directed. SERP and Executive Plan balances are adjusted based on a formula using 10-year U.S. Treasury bond rates. For all the plans, earnings and losses are credited or debited at least annually.
GRANTS OF PLAN-BASED AWARDS IN 2008
The amounts shown in this section are deferred cash awards resulting from performance against 2007 Incentive Program goals, and the payout amounts shown are not affected by future Company performance. The named officers who received deferred cash awards also received a current cash incentive equal to twice the deferred cash amount shown. Such incentives were not future payments, and the table does not include them.
Named Officer
|
Grant Date |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards($) |
|||||
---|---|---|---|---|---|---|---|
Thomas A. McDonnell |
2/22/2008 | 750,000 | |||||
Kenneth V. Hager |
2/22/2008 | 150,000 | |||||
Thomas A. McCullough |
2/22/2008 | 517,500 | |||||
Steven J. Towle |
2/22/2008 | 200,000 |
The deferred cash awards vest on December 1, 2010, subject to accelerated vesting in limited circumstances and to forfeiture. We will adjust the payout amount based on hypothetical investments the named officers select from among choices we offer. The estimated payout amount shown in the table does not include this adjustment.
The table below shows January 1, 2008 vesting of Incentive Program restricted stock granted as part of incentives for achieving goals above threshold levels for the 2004 performance year.
|
Stock Awards | ||||||
---|---|---|---|---|---|---|---|
Named Officer
|
Number of Shares Acquired On Vesting(#) |
Value Realized On Vesting($) |
|||||
Thomas A. McDonnell |
11,515 | 437,340 | |||||
Kenneth V. Hager |
2,845 | 108,053 | |||||
Thomas A. McCullough |
8,432 | 320,247 | |||||
Steven J. Towle |
3,794 | 144,096 |
50
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table shows outstanding awards at December 31, 2008. All awards shown are earned but either not yet exercised or vested as of December 31, 2008.
|
Option Awards(1) | Stock Awards(2) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
A |
B |
C |
D |
E |
|||||||||||
Named Officer
|
Number of Securities Underlying Unexercised Options Exercisable(#) |
Option Exercise Price($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested(#) |
Market Value of Shares or Units of Stock That Have Not Vested($) |
|||||||||||
Thomas A. McDonnell |
318,175 | 46.8750 | 02/28/10 | 200,500 | 7,614,990 | |||||||||||
|
47,040 | 36.5625 | 05/09/10 | |||||||||||||
|
109,700 | 55.9688 | 11/14/10 | |||||||||||||
|
17,397 | 60.3500 | 02/28/11 | |||||||||||||
|
264,250 | 45.7500 | 05/08/11 | |||||||||||||
|
25,250 | 54.1400 | 07/10/11 | |||||||||||||
|
301,930 | 43.9350 | 11/13/11 | |||||||||||||
|
16,620 | 47.1550 | 01/08/12 | |||||||||||||
|
32,430 | 42.5500 | 02/26/12 | |||||||||||||
|
44,700 | 48.2300 | 05/14/12 | |||||||||||||
|
388,075 | 31.0450 | 11/01/12 | |||||||||||||
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11,925 | 37.6200 | 01/14/13 | |||||||||||||
Kenneth V. Hager |
66,294 |
42.9000 |
02/28/10 |
50,500 |
1,917,990 |
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23,920 | 36.5625 | 05/09/10 | |||||||||||||
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54,250 | 55.9688 | 11/14/10 | |||||||||||||
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4,473 | 60.3500 | 02/28/11 | |||||||||||||
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68,110 | 45.7500 | 05/08/11 | |||||||||||||
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2,930 | 43.9350 | 11/13/11 | |||||||||||||
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8,811 | 42.5500 | 02/26/12 | |||||||||||||
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100,000 | 31.0450 | 11/01/12 | |||||||||||||
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13,431 | 27.9200 | 02/26/13 | |||||||||||||
Thomas A. McCullough |
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137,800 |
5,233,644 |
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Thomas R. Abraham |
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45,000 |
1,709,100 |
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Steven J. Towle |
7,000 |
58.0313 |
9/26/10 |
75,000 |
2,848,500 |
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3,500 | 60.3500 | 2/28/11 | 11,400 | 432,972 | |||||||||||
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100,000 | 39.3350 | 2/16/13 | |||||||||||||
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14,315 | 41.8650 | 2/10/14 |
51
NAMED OFFICER AWARD/ACCOUNT VALUES FOR CERTAIN EVENTS
In this section, we show the effect of certain events if, hypothetically, they had occurred as of December 31, 2008. Neither voluntary termination of employment other than retirement nor termination for cause would have caused accelerated award vesting, accelerated award issuance, or separation benefits. Other termination of employment events would have caused acceleration or separation benefits as shown in the following table. We describe the employment agreements referenced in this table on page 46. We describe the terms and conditions of the awards and the meaning of certain terms used in this chart beginning on page 37.
|
Thomas A. McDonnell |
Kenneth V. Hager |
Thomas A. McCullough |
Thomas R. Abraham |
Steven J. Towle |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($) |
($) |
($) |
($) |
($) |
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December 31, 2008 |
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Death or Disability(a) |
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Upfront Restricted Stock |
7,614,990 | 1,917,990 | 5,233,644 | 1,709,100 | 2,848,500 | ||||||||||||
Deferred Cash Awards |
935,612 | 225,826 | 1,011,457 | | 169,217 | ||||||||||||
Total |
8,550,602 | 2,143,816 | 6,245,101 | 1,709,100 | 3,017,717 | ||||||||||||
Retirement(b) |
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Upfront Restricted Stock |
6,345,825 | | 4,361,370 | | | ||||||||||||
Deferred Cash Awards |
935,612 | | 1,011,457 | | | ||||||||||||
Total |
7,281,437 | | 5,372,827 | | | ||||||||||||
Termination without cause in connection with a reduction in force |
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Upfront Restricted Stock(c) |
6,345,825 | 1,598,325 | 4,361,370 | 1,074,291 | 2,373,750 | ||||||||||||
Deferred Cash Awards(c) |
935,612 | | 1,011,457 | | | ||||||||||||
Severance Base Salary(h) |
1,500,000 | 310,000 | 1,150,000 | 624,000 | | ||||||||||||
Life and Health Premiums(h) |
64,194 | 32,400 | 46,698 | 48,972 | | ||||||||||||
Severance Incentive Award(h) |
2,235,000 | 461,900 | 1,542,150 | | | ||||||||||||
Premium Gross-Up(i) |
44,966 | 23,120 | 33,323 | 34,031 | | ||||||||||||
Total |
11,125,597 | 2,425,745 | 8,144,998 | 1,781,294 | 2,373,750 | ||||||||||||
Termination without cause in connection with business unit divestiture |
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Upfront Restricted Stock(d) |
7,614,990 | 1,917,990 | 5,233,644 | 1,709,100 | 2,848,500 | ||||||||||||
Deferred Cash Awards(d) |
935,612 | | 1,011,457 | | | ||||||||||||
Severance Base Salary(h) |
1,500,000 | 310,000 | 1,150,000 | 624,000 | | ||||||||||||
Life and Health Premiums(h) |
64,194 | 32,400 | 46,698 | 48,972 | | ||||||||||||
Severance Incentive Award(h) |
2,235,000 | 461,900 | 1,542,150 | | | ||||||||||||
Premium Gross-Up(i) |
44,966 | 23,120 | 33,323 | 34,031 | | ||||||||||||
Total |
12,394,762 | 2,745,410 | 9,017,272 | 2,416,103 | 2,848,500 | ||||||||||||
Other termination without cause |
|||||||||||||||||
Deferred Cash Awards(e) |
935,612 | | 1,011,457 | | | ||||||||||||
Severance Base Salary(h) |
1,500,000 | 310,000 | 1,150,000 | 624,000 | | ||||||||||||
Life and Health Premiums(h) |
64,194 | 32,400 | 46,698 | 48,972 | | ||||||||||||
Severance Incentive Award(h) |
2,235,000 | 461,900 | 1,542,150 | | | ||||||||||||
Premium Gross-Up(i) |
44,966 | 23,120 | 33,323 | 34,031 | | ||||||||||||
Total |
4,779,772 | 827,420 | 3,783,628 | 707,003 | | ||||||||||||
Change in control(f) |
|||||||||||||||||
Upfront Restricted Stock |
6,345,825 | 1,598,325 | 4,361,370 | 1,074,291 | 2,373,750 |
52
|
Thomas A. McDonnell |
Kenneth V. Hager |
Thomas A. McCullough |
Thomas R. Abraham |
Steven J. Towle |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($) |
($) |
($) |
($) |
($) |
||||||||||||
Change in control followed by termination without cause or resignation for good reason |
|||||||||||||||||
Upfront Restricted Stock(g) |
7,614,990 | 1,917,990 | 5,233,644 | 1,709,100 | 2,848,500 | ||||||||||||
Deferred Cash Awards(g) |
935,612 | 225,826 | 1,011,457 | | 169,217 | ||||||||||||
Severance Base Salary(j) |
2,250,000 | 930,000 | 1,725,000 | 936,000 | | ||||||||||||
Benefit Continuation(j) |
610,337 | 238,727 | 414,818 | 126,021 | | ||||||||||||
Severance Incentive Award(j) |
4,500,000 | 930,000 | 3,105,000 | 936,000 | | ||||||||||||
Income or Excise Tax Gross-Up(k) |
| 914,727 | | | | ||||||||||||
Change in Control Benefit Reduction(k) |
(862,628 | ) | | | | | |||||||||||
Total |
15,048,311 | 5,157,270 | 11,489,919 | 3,707,121 | 3,017,717 |
53
continuing to vest. Vesting of the Towle Grant would not have occurred, and employment agreement benefits would not have been paid.
54
55
Quorum. For you to approve proposals at the 2009 annual meeting, we must have a quorum. A quorum means the holders of a majority of the shares of common stock outstanding on the record date are present at the annual meeting. Stockholders are present either in person or by proxy. We generally consider present at the meeting all shares of our common stock held through a broker or other nominee that votes at least some of its customers' shares.
Tabulation of Votes. You may cast one vote for each share of our common stock you held on the record date on all proposals. You may vote cumulatively for directors. In other words, you may cast a number of votes equal to the number of shares of our common stock held on the record date multiplied by the number of directors to be elected. You may cast all such votes for a single nominee or distribute them among the nominees as you choose.
Stockholders elect directors by a plurality of the voted shares which we determine by reference to the number of votes for each nominee. Where, as here, stockholders are electing three directors, they elect the three nominees with the highest number of affirmative votes. You may cast your vote in favor of a director or withhold it. We disregard withheld votes in determining a plurality.
The proposal to ratify PricewaterhouseCoopers will pass with the affirmative vote of a majority of the shares represented at the meeting in person or by proxy. We determine the percentage of shares voted affirmatively by dividing "for" votes by the total of the number of shares voted. In other words, we treat abstentions as votes against a proposal. We do not count as "against" votes any votes that are "broker non-votes." These occur when a broker has not received directions from customers and does not have discretionary authority to vote the customers' shares.
How Stockholders Vote. Voters include recordholders, persons holding our common stock in our tax-qualified benefit plans, and investors holding common stock through a broker or other nominee.
Common Stock Held of Record. You may vote shares of record if you are present at the 2009 annual meeting either in person or through your proxy. By casting a paper, Internet or telephone vote (each of which is valid under Delaware law), you appoint our Proxy Committee as your proxy to vote your shares. Three of our officers constitute the Proxy Committee, which will vote as specified all shares of our common stock for which it is proxy. To name as proxy someone other than the Proxy Committee, please contact the Corporate Secretary for instructions (the address is on page one). The person named as replacement proxy must attend and vote at the annual meeting. This Proxy Statement solicits, and you grant by voting, discretionary authority for the Committee to vote cumulatively for the election of directors. If you do not specify how you are voting your shares, the Proxy Committee intends to vote them for the Board nominees, for ratification of PricewaterhouseCoopers, and in accordance with the discretion of the Proxy Committee on such other matters as properly come before the annual meeting.
Common Stock Held Under the Plans. If you hold shares through our benefit plans, you may, by casting a paper, Internet or telephone vote, instruct the trustee of the benefit plans how to vote the shares allocated to your accounts. The trustee will vote your shares as you instruct. For shares of our common stock not allocated to benefit plan accounts or for which it has not received instructions, the trustee must vote the shares in the same proportion as those shares for which it received instructions. The trustee may vote benefit plan shares either in person or through a proxy. The trustee intends to vote in the same manner as the Proxy Committee on any miscellaneous matters stockholders properly bring before the annual meeting.
Common Stock Held Through a Broker or Other Nominee. Each broker or nominee must solicit from its customers their directions on how to vote the shares the broker or nominee holds on their behalf. The broker or nominee must then vote the shares in accordance with such directions. We
56
request brokers or nominees to forward soliciting materials to you. Whether brokers and nominees may vote shares when they have not received directions depends on the proposals and on the rules and procedures of the New York Stock Exchange. We expect that, for our proposals, the New York Stock Exchange will give brokers and nominees discretion to vote even those shares for which they have not received customer instructions.
Recasting or Revoking Your Vote. Until the polls close (or, as applicable, until the trustee, broker or nominee votes), you may recast your votes with a later-dated voting card or an Internet or telephone vote. You may revoke your vote by following the revocation procedures of the trustee, broker or nominee or, as a recordholder, by delivering your written revocation to our Corporate Secretary before the polls close during the annual meeting.
Attendance and Voting in Person at the Annual Meeting. Only recordholders or their properly appointed proxies, beneficial owners of our common stock who have evidence of such ownership, and our guests may attend the annual meeting. Benefit plan participants and broker customers may only vote by instructing the trustee, broker or nominee and may not cast ballots at the annual meeting unless the trustee, broker or nominee has instructed us otherwise. Recordholders who have not appointed a proxy, or who have revoked the appointment of a proxy, may cast a ballot at the annual meeting.
General Information. We pay the cost of the annual meeting, including the cost of mailing the proxy materials. We may ask directors, officers and employees to solicit proxies by telephone, in writing, or in person. We have retained D.F. King & Co., Inc. to assist in obtaining proxies. We expect to pay D.F. King less than $10,000 plus expenses. In addition, we may reimburse brokerage firms and other persons representing beneficial owners of our common stock for their expenses in forwarding this Proxy Statement, the Annual Report and other Company soliciting materials to the beneficial owners.
Stockholder Proposals. As a stockholder, you may submit proposals for consideration at the 2010 annual stockholders' meeting. We are not considering any stockholder proposals at the 2009 annual meeting.
Including Stockholder Proposals in the 2010 Annual Meeting Proxy Statement. If you desire to have a proposal included in our proxy statement for the 2010 annual meeting, our Corporate Secretary must receive your proposal on or before November 23, 2009 (the address is on page 1). The proposal must comply with the securities regulations and our Bylaws.
Timely Notice of Nominations for Director and Other Stockholder Proposals. Our Bylaws provide that you may not make a proposal (other than a proposal requested to be included in a proxy statement, as noted above) unless:
57
Your proposal is timely:
To timely submit a proposal for the 2010 annual meeting if it occurs on May 11, 2010, you must deliver it no earlier than January 12, 2010 and no later than February 11, 2010.
Contents of Notice of Proposal. Your proposal must be written. The required contents depend on whether the proposal pertains to nominating a director or to other business. The Chairman of the annual meeting has the power to determine whether the proposed business is appropriate and whether you properly brought it before the meeting.
In addition to any eligibility or other information we may require, your notice pertaining to the nomination of a director shall include:
In addition to any other information we may require, your notice concerning business other than nominating a director shall set forth:
Availability of Annual Report. The Annual Report on Form 10-K for the fiscal year ended December 31, 2008 as filed (with only new exhibits) with the Securities and Exchange Commission includes a list of all exhibits. We will furnish copies of exhibits listed in the Form 10-K if you request them in writing from our Corporate Secretary at the address on page one of this Proxy Statement. We will ask you to pay our reasonable expenses in furnishing such exhibits. You may make such request only if you are a beneficial owner of our common stock entitled to vote at the annual meeting and you identify yourself as such. The Form 10-K, including any specific exhibits filed with it, are available at www.dstsystems.com and www.sec.gov.
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Householding for Broker Customers. Services that deliver materials to broker customers may deliver to multiple stockholders sharing the same address a single copy of our Form 10-K, Proxy Statement, and Notice of Internet Availability of Materials, as applicable. If you received a single copy at an address shared by other stockholders, we will promptly deliver to you upon your written or verbal request a separate copy of the documents. Make your request in writing to our Corporate Secretary (the address is on page one) or by calling (816) 435-8655. To receive separate copies of our Form 10-K, Proxy Statement, or Notice of Availability of Internet Materials in the future from your broker or nominee, or to receive only one copy per household, please contact the bank, broker or other nominee holding your shares.
By Order of the Board, | ||
Randall D. Young |
||
Vice President, General Counsel and Secretary | ||
Kansas City, Missouri March 23, 2009 |
59
*** Exercise Your Right to Vote ***
IMPORTANT NOTICE Regarding the Availability of Proxy Materials
for the Stockholder Meeting to be held on 5/12/09
DST SYSTEMS, INC.
Meeting Information
Meeting Type: Annual Meeting
For Holders as of: March 13, 2009
Date: May 12, 2009
Time: 10:30 a.m. CDT
Location: |
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333 West 11th Street |
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Third Floor |
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Kansas City, MO 64105 |
You are receiving this communication because you hold shares in the above named company.
This is not a ballot. You cannot use this notice to vote these shares. This is an overview only of the proxy materials. The materials you should review before you cast your vote are now available. You may view the proxy materials online or easily request a paper copy (see reverse side).
We encourage you to access and review all of the important information contained in the proxy materials before voting.
See the reverse side of this notice to obtain proxy materials and voting instructions.
Before You Vote
How to Access the Proxy Materials
Proxy Materials Available to VIEW or RECEIVE:
1. Form 10-K 2. Notice & Proxy Statement
How to View Online
Have the 12 Digit Control Number available (located on the following page) and visit: www.proxyvote.com.
How to Request and Receive a PAPER or E-MAIL COPY:
You can choose to receive a paper or an e-mail copy. There is NO charge for requesting a copy. Please choose one of the following methods to make your request:
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1. BY INTERNET: |
www.proxyvote.com |
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2. BY TELEPHONE: |
1-800-579-1639 |
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3. BY E-MAIL*: |
sendmaterial@proxyvote.com |
* If requesting materials by e-mail, please send a blank e-mail with the 12 Digit Control Number (located on the following page) in the subject line.
Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. To facilitate timely delivery please make the request as instructed above on or before April 28, 2009.
How To Vote
Please Choose One of The Following Voting Methods
Vote in Person: If you choose to vote these shares in person at the meeting, you must request a legal proxy. To do so, please follow the instructions at www.proxyvote.com or request a paper copy of the materials, which will contain the appropriate instructions. Many shareholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance.
Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the 12 Digit Control Number available and follow the instructions.
Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a voting instruction form.
Voting items
The Board of Directors recommends that you vote FOR the following.
1. Election of Directors
Nominees:
01 Thomas A. McCullough 02 William C. Nelson 03 Travis E. Reed
The Board of Directors recommends you vote FOR the following proposal(s).
2. Ratification of the Audit Committees Selection of Independent Registered Public Accounting Firm
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
Electronic Voting Instructions
You can vote by Internet or telephone!
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on May 12, 2009.
Vote by Internet
· Log on to the Internet and go to www.envisionreports.com/DST
· Follow the steps outlined on the secured website.
Vote by telephone
· Call toll free 1-800-652-VOTE (8683) within the United States, Canada & Puerto Rico any time on a touch tone telephone. There is NO CHARGE to you for the call.
· Follow the instructions provided by the recorded message.
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. |
x |
Annual Meeting Proxy Card
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
A Proposals The Board of Directors recommends a vote FOR the nominees listed and FOR Proposal 2.
1. |
Election of Directors. |
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For |
Withhold |
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For |
Withhold |
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For |
Withhold |
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01 Thomas A. McCullough |
o |
o |
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02 William C. Nelson |
o |
o |
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03 Travis E. Reed |
o |
o |
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For |
Against |
Abstain |
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2. Ratification of Independent Registered Public Accounting Firm. |
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o |
o |
o |
By signing this card, you are authorizing the Proxy Committee (if you own Com Shares) and the Trustee of the DST Benefit Plan(s) (if you own Benefit Plan Shares) to vote your shares as you specify on the two proposals presented at the Annual Meeting or any adjournment thereof and to vote in their respective discretion on other proposals that may properly come before such meeting.
To vote in accordance with all of the DST Board of Directors recommendations, please sign and date; you need not mark any boxes. The DST Board of Directors recommends that you vote FOR each of the proposals.
SEE IMPORTANT INFORMATION ON THE REVERSE SIDE OF THIS CARD.
B Non-Voting Items
Change of Address Please print new address below. |
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Meeting Attendance
Mark box to the right if you plan to attend the Annual Meeting. |
o |
C Authorized Signatures This section must be completed for your vote to be counted. Date and Sign Below
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
Date (mm/dd/yyyy) Please print date below. |
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Signature 1 Please keep signature within the box. |
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Signature 2 Please keep signature within the box. |
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Consent to receive annual meeting materials through Internet access:
Current regulations and standards require your consent if, as a holder of record, you wish to stop paper delivery of annual meeting materials to you and, in the future, receive e-mail notice of Internet access to the materials. The Internet voting site for this years meeting allows you to consent for future years. If you are not voting over the Internet, you may consent at www.computershare.com/us/ecomms. If you hold your DST shares through a broker or other nominee, you can stop paper delivery only by following the instructions of the broker or nominee.
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
Proxy DST Systems, Inc.
Annual Meeting of Stockholders - May 12, 2009
THE DST BOARD OF DIRECTORS SOLICITS YOUR VOTE
The DST Board is making the two proposals. They are not related to or conditioned on the approval of any other proposals which may come before the Annual Meeting.
The Com number(s) shown on the front of the card is the number of shares you held directly in certificate form or in a book entry account with DSTs transfer agent as of the close of business on the Record Date (March 13, 2009). The Proxy Committee appointed by the DST Board that will vote your Com shares is comprised of Thomas A. McDonnell, Kenneth V. Hager and Randall D. Young. If you do not specify how you authorize the Proxy Committee to vote your Com shares, you authorize it to vote FOR each of the proposals.
The ESOP and 401k numbers shown on the front of the card (Benefit Plan Shares) are the total number of shares you held as of the close of business on the Record Date through your participation in the DST Employee Stock Ownership Plan and/or the DST 401(k) Profit Sharing Plan. If you fail to return this Voting Card or do not specify your vote, the Trustee of the applicable plan will vote the shares allocated to your benefit plan account in the same proportion as the shares held by the plan for which the Trustee receives voting instructions.
You may revoke this proxy in the manner described in the Proxy Statement dated March 23, 2009, receipt of which you hereby acknowledge.
PLEASE DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.
DST Systems, Inc.
Annual Meeting of Stockholders
May 12, 2009
Proxy Login Details:
Control Number: [[ControlNumber]]
Holder Account Number: [[HolderAccountNumber]]
Proxy Access Number: [[ProxyAccessNumber]]
To: [[Registration]]
We are pleased to deliver your Proxy Statement and Form 10-K Annual Report via email and provide you with the opportunity to vote online. The Proxy Statement and Form 10-K Annual Report are now available, and you can now vote your shares for the 2009 Annual Stockholders Meeting. Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Daylight Time, on May 12, 2009.
This communication pertains to DST shares you hold directly in your account(s) at Computershare, not to shares you hold through a broker or other nominee. You will receive a separate communication for any such shares. Please separately vote those shares.
To view the Proxy Statement and Form 10-K Annual Report and to cast your vote, please visit: www.envisionreports.com/dst and then follow the instructions. You will need the Holder Account Number and Proxy Access Number above.
You may also vote by calling toll free within the United States, Canada and Puerto Rico, 1-800-652-VOTE (8683), Computershares interactive voice response (IVR). When the IVR references the number located in the circle, please use the Control Number above. When the IVR references the number that is underlined, please use the Holder Account Number above. When the IVR references the number located in the box, please use the Proxy Access Number above. For purposes of telephonic voting, please note that, for Proposal 1, the three persons nominated for service on our Board of Directors are: 01 Thomas A. McCullough, 02 William C. Nelson, 03 Travis E. Reed; and that Proposal 2 is the Ratification of Independent Registered Accounting Firm.
If you have any questions regarding your account balance or other account information, please call 1-877-282-1168 and we will be pleased to help. Alternatively, you may also submit such questions directly through our secure, online contact form at: mailto:www.computershare.com/ContactUs
Thank you for using our online voting or telephone service.
This email and any files transmitted with it are solely intended for the use of the addressee(s) and may contain information that is confidential and privileged. If you receive this email in error, please advise us by return email immediately. Please also disregard the contents of the email, delete it and destroy any copies immediately. Computershare Limited and its subsidiaries do not accept liability for the consequences of any computer viruses that may be transmitted with this email.
You may request a paper copy of the Proxy Statement and Form 10-K by calling Val Lake, 816/435-8655, or emailing vllake@dstsystems.com.