Spirit AeroSystems shareholders to vote on exec pay at annual meeting

04/06/2014 12:00 AM

08/08/2014 10:23 AM

Spirit AeroSystems will hold its annual stockholder meeting April 30 in Atlanta, where shareholders will vote on four important issues.

Those who can’t attend may vote by mail.

Shareholders will cast votes on a board of directors to lead the company, a 2014 omnibus incentive plan and whether to change the number of votes a stockholder has to one vote per share.

In addition, they will cast a non-binding vote on the approval of executive compensation.

The board recommends acceptance of the nominees for directors, the incentive plan and the executive compensation. It recommends rejection of the change in voting to one vote per share.

The vote for executive compensation will serve as an advisory, the company said. Spirit considers the outcome of the vote when the board makes compensation decisions, the company said in a filing with the Securities and Exchange Commission.

Pay for Spirit’s top executives typically includes a base salary, as well as short- and long-term incentives, a discretionary award based on company performance and retirement and health care benefits.

When Spirit was formed in 2005 after Onex bought Boeing’s Wichita commercial aircraft division, salaries for its top executives were well below the market’s median pay for their peer group, according to the SEC.

But it offered above-market median annual incentives as a way to give executives the opportunity to earn the market median.

That’s changing.

“To enable the company to attract high caliber external candidates with specialized skills, the Compensation Committee has determined that executive officers’ base salaries should be paid at market median,” the filing said.

It remains committed to pay for performance to increase the alignment between the interests of the executives and the stockholders, it said.

Last year, Spirit’s leadership team changed significantly with the retirement of Spirit CEO Jeff Turner and the addition of Larry Lawson, who joined Spirit in April 2013 and Sanjay Kapoor, its chief financial officer.

In addition, several members of the leadership team changed roles and added responsibilities. Most received increases in their base salaries in 2013 to align with their new duties and to bring them up to the market.

However, Spirit fell short in 2013 of its financial and other targets that had been set as criteria for a short-term incentive plan payout.

That meant, except for Lawson and Kapoor, the executives’ pay for performance in the short-term incentive plan was less than half of what it would have been had Spirit met the targets, the filing said.

Spirit’s board is seeking to replace four incentive plans with a 2014 Omnibus Plan to be funded with 8.5 million shares of stock. That’s roughly 500,000 shares of stock less than what had been allocated to the four plans.

It will retain a commitment to pay for performance to link it with its short- and long-term business goals, the filing said.

The purpose is to provide an equity incentive plan to attract and retain key employees, independent contractors, consultants and directors and give them a greater interest in and closer identity with Spirit’s financial success, it said.

The 2014 Omnibus Plan authorizes Spirit to grant incentive stock options, restricted stock, stock appreciation rights, dividend equivalents and other stock-based or cash awards, the filing said.

Spirit will continue to reward executives for meeting short-term incentives, although new weightings in 2014 are based on company, program and individual performance, it said. It eliminated qualitative performance measures.

It eliminated the discretionary awards for 2014.

When Spirit hired Lawson to replace Turner as CEO in April 2013, it offered Lawson a compensation package based on the market, the filing said.

His initial employment agreement runs through April 5, 2016.

“As our new CEO, Mr. Lawson quickly aligned the organization to support our customers and programs, added new leadership talent to the team and helped to position the company for success,” the SEC filing said.

Lawson’s compensation included a base salary of $1 million, a signing bonus of $2 million in restricted stock, a buyout bonus of $4 million in restricted stock to make up for benefits he would have received from Lockheed Martin, his previous employer had he stayed, a guaranteed target annual bonus of at least 115 percent of his base salary for 2013 performance, a long-term incentive award equal to $4 million, contributions of $1 million in deferred compensation each year for the first five years of employment and relocation benefits.

Lawson’s 2013 total compensation package including salary, stock and other compensation totaled $12.1 million.

Turner, meanwhile, earned $2.5 million in cash and stock last year, including a base salary of $567,586.

Kapoor, Spirit’s CFO who joined the company in September, earned $2.86 million in cash and stock for his time at Spirit last year, including $119,133 in base salary for the time he was there and a $2 million in restricted stock as a signing bonus. His starting annual salary is $525,000.

Philip Anderson, senior vice president of defense and contracts, earned $1.55 million in cash and stock last year, including $400,005 in base salary.

David Coleal, executive vice president and general manager of Boeing, military, business and regional jet programs and the aftermarket business, earned $2.96 million last year in cash and stock, including $508,080 in base salary.

John Pilla, executive vice president and general manager of Airbus and A3250 program management, earned $1.97 million, including $334,618 in base salary.

And Samantha Marnick, senior vice president and chief administration officer, earned $1.59 million, including $324,725 in base salary.

Except for Lawson and Kapoor, the executives earned less than half of their targeted incentives because Spirit did not meet the goals set for a full payout.

Spirit compared its pay packages to comparably sized U.S. companies in the aerospace, defense and auto component manufacturing industries, it said.

“Our success as a company depends largely on the contributions of our senior executives and their efforts to deliver strong business results and increase shareholder value,” the company said in the SEC filing. “This understanding supports our commitment to pay-for-performance and shapes our approach to providing a competitive compensation package to our (executive officers).”

Shareholders will vote on a proposal brought by Spirit shareholder, John Chevedden of Redondo Beach, Calif., according to the SEC filing.

Chevedden wants to see that the company’s outstanding stock has one vote per share in each voting situation.

Currently, Spirit has two classes of stock – Class A common stock and Class B common stock.

Holders of Class A stock are entitled to one vote per share, while holders of Class B stock have 10 votes per share.

Onex holds 96 percent of Class B stock, which gives it 73 percent of the total voting power.

“Onex’s control of the voting power eliminates the possibility of a change in corporate control without its approval,” the proposal says. “With Spirit AeroSystems dual-class structure, our company takes our shareholder money but does not let us have an equal voice in our company’s management.”

Without a voice, shareholders can’t hold management accountable, it said.

Investment research firm GMI Ratings has rated Spirit a D when it comes to ownership and control, according to the proposal found in the SEC filing.

GMI said shareholders rights are limited by the dual-class structure.

“GMI negatively flagged a number of issues with our corporate governance,” the proposal said. “In regard to our Board, GMI said there were issues such as too many executives also serving as directors, board attendance failure, related party transactions, directors with too many outside commitments and a lack of risk management expertise.”

It noted Spirit’s pre-tax charge of $448 million related primarily to Gulfstream programs.

“In regard to executive pay, there were golden hellos, a lack of a clawback policy to recoup unearned executive pay based on fraud or error and a lack of peer performance measures,” it said.

GMI also said that Spirit’s environmental impact disclosure practices were significantly worse than its peers in the sector.

“Spirit had not adopted alternative energy practices that would lower its future environmental impacts,” the proposal said. “Spirit had not incorporated links to environmental or social performance in its incentive pay policies.”

Spirit’s board of directors recommends a vote against the proposal on the stockholder votes.

Shareholders also will vote on whether to reelect the 10 nominees for the board of directors. All are current members of the board.

The slate of nominees are current board members, and include Charles Chadwell, former vice president for General Electric Aircraft Engines; Ivor Evans, former CEO of Meritor and former chief operating officer of Union Pacific Railroad; Paul Fulchino, former chairman and CEO of Aviall, now a subsidiary of Boeing; Richard Gephardt, former member of the U.S. House of Representatives and CEO of Gephardt Group; Robert Johnson, who serves as Spirit’s chairman of the board and former CEO of Dubai Aerospace Enterprise; Ronald Kadish, former director of Missile Defense Agency and the Ballistic Missile Defense Organization; Christopher Kubasik, president and chief operating officer of Seabury Group and former executive with Lockheed Martin Corp.; Larry Lawson, Spirit’s CEO; Tawfiq Popatia, managing director of Onex Corp.; and Francis Raborn, former chief financial officer of United Defense Industries.

The board recommends approval of the nominees.

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