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Section 1: DEF 14A (DEF 14A)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.           )

 

 

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a‑6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a‑12

 

 

 

 

LTC Properties, Inc.

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a‑6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

(2)

Aggregate number of securities to which transaction applies:

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

(4)

Proposed maximum aggregate value of transaction:

 

(5)

Total fee paid:

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

(2)

Form, Schedule or Registration Statement No.:

 

(3)

Filing Party:

 

(4)

Date Filed:

 

 

 


 

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 30, 2018


The 2018 Annual Meeting of Stockholders of LTC Properties, Inc. will be held on Thursday, May 30, 2018 at 5:00 p.m., local time, at Hyatt Westlake Plaza, 880 S. Westlake Blvd., Westlake Village, CA 91361, to conduct the following items of business:

 

(1)

To elect five directors to serve on the Board of Directors for the ensuing year and until the election and qualification of their respective successors;

(2)

To ratify the appointment of Ernst & Young LLP as independent registered public accounting firm for fiscal 2018;

(3)

To approve, on an advisory basis, the compensation of the named executive officers; and

(4)

To transact such other business as may properly come before the meeting.

Only stockholders whose names appear of record on our books at the close of business on April 16, 2018 are entitled to notice of, and to vote at, such 2018 Annual Meeting or any adjournments of such 2018 Annual Meeting.

 

 

 

By Order of the Board of Directors

 

Picture 2

 

PAMELA J. SHELLEY‑KESSLER
Executive Vice President, Chief Financial Officer and
Corporate Secretary

 

Westlake Village, California

April 24, 2018

 

 

IMPORTANT:

Whether or not you plan to attend the 2018 Annual Meeting in person, please vote as promptly as possible (a) via the internet or telephone, if and as instructed by your broker or other nominee holder, or (b) if this proxy statement was mailed to you by completing, dating and signing the enclosed proxy card and mailing it in the accompanying postage paid envelope.

 

 

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 30, 2018—the Proxy Statement and the Annual Report are available at

http://www.astproxyportal.com/ast/26002/.

 

 


 

Table of Contents

TABLE OF CONTENTS

 

 

 

PROXY STATEMENT 

1

Solicitation 

1

Voting Rights 

1

Voting of Proxy 

1

Broker Non‑Votes 

2

Majority Voting 

2

Board of Directors’ Recommendations 

2

Revocability of Proxy 

2

CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS 

3

Code of Ethics 

3

Corporate Governance Guidelines 

3

Board Structure and Committee Composition 

3

Communications with the Board 

5

Consideration of Director Nominees 

5

Section 16(a) Beneficial Ownership Reporting Compliance 

6

PROPOSAL 1 ELECTION OF DIRECTORS 

7

PROPOSAL 2 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

10

PROPOSAL 3 ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION 

11

EXECUTIVE OFFICERS 

12

EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS 

13

Executive Summary 

13

Executive Compensation Program Philosophy and Objectives 

15

Executive Compensation Program Elements 

15

Compensation Committee 

16

Competitive Considerations 

16

Compensation Consultant 

17

Executive Compensation Review 

17

Executive Compensation Practices 

18

Stock Ownership Guidelines 

24

Prohibition on Pledging and Hedging Stock 

24

Tax and Accounting Considerations 

24

Clawback Policy 

24

Compensation Risk Assessment 

25

EXECUTIVE COMPENSATION TABLES 

26

Summary Compensation Table 

26

CEO to Median Employee Pay Ratio 

27

Employment Agreements 

27

Grants of Plan‑Based Awards 

28

Outstanding Equity Awards at Year‑End 

29

Option Exercises and Stock Vested 

29

Potential Payments Upon Termination or Change In Control 

30

DIRECTOR COMPENSATION 

32

Director Compensation for the Year ended December 31, 2017 

32

COMPENSATION COMMITTEE REPORT 

33

Compensation Committee Interlocks and Insider Participation 

33

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 

34

Beneficial Ownership Table 

34

Securities Authorized for Issuance under Equity Compensation Plans 

35

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 

35

Review, Approval or Ratification of Transactions with Related Persons 

35

Transactions with Related Persons 

35

Director Independence 

36

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES 

37

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS 

38

RISK OVERSIGHT 

39

OTHER MATTERS 

39

Stockholder Proposals 

39

Householding 

39

Directions 

40

Appendix—RECONCILIATION OF NON‑GAAP FINANCIAL MEASURES 

A-1

 

 

 

 


 

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PROXY STATEMENT

Solicitation

This proxy statement is furnished to the stockholders of LTC Properties, Inc., a Maryland corporation (“LTC”), in connection with the solicitation of proxies by the Board of Directors (“Board”) for use at our 2018 Annual Meeting of Stockholders to be held on Thursday, May 30, 2018 at 5:00 p.m., local time, at the Hyatt Westlake Plaza, 880 S. Westlake Blvd., Westlake Village, CA 91361 and at any and all adjournments of our 2018 Annual Meeting. The approximate date on which this proxy statement and the form of proxy are first being sent to our stockholders is April 24, 2018.

The cost of the solicitation of proxies will be borne by us. In addition to solicitation by mail, our directors and officers, without receiving any additional compensation, may solicit proxies personally, by telephone, by facsimile or electronically. We will request brokers, banks, and other nominees holding stock in their names for others to forward proxy materials to their customers or principals who are the beneficial owners of common shares and will reimburse them for their expenses in doing so. We have retained the services of Georgeson LLC for a fee of $8,000 plus out‑of‑pocket expenses, to assist in the solicitation of proxies.

We will provide without charge to any person solicited hereby, upon the written request of any such person, a copy of our Annual Report on Form 10‑K for the year ended December 31, 2017 filed with the Securities and Exchange Commission (“SEC”). Such requests should be directed to LTC Properties, Inc., Attn: Investor Relations, 2829 Townsgate Road, Suite 350, Westlake Village, CA 91361. Our Annual Report also is available on our website at www.LTCreit.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this proxy statement.

Voting Rights

At the close of business on April 16, 2018, there were 39,628,835 shares of common stock outstanding and eligible for voting at the 2018 Annual Meeting. Only stockholders of record at the close of business on April 16, 2018, are entitled to notice of, and to vote at, the 2018 Annual Meeting. The presence, in person or by proxy, of stockholders entitled to cast a majority of all the votes entitled to be cast constitutes a quorum for the transaction of business at the 2018 Annual Meeting.

Voting of Proxy

You may vote by attending the 2018 Annual Meeting and voting in person, or you may vote by submitting a proxy. The method of voting by proxy differs depending on whether (1) you are viewing this proxy statement on the internet or receiving a paper copy, and (2) you hold your shares as a record holder or in “street name.”

If you are the record holder of your stock and you are receiving a paper copy of this proxy statement, you may vote by completing, dating and signing the proxy card that was included with the proxy statement and promptly returning it in the pre‑addressed, postage paid envelope provided to you. If you do not have a postage‑prepaid envelope, please mail your completed proxy card to the following address: American Stock Transfer and Trust Company, Proxy Department, 6201 15th Avenue, Brooklyn, NY 11219.

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If you hold your shares of common stock in “street name,” you will receive instructions from your broker, bank or other nominee on how to vote your shares. Your broker, bank or other nominee may allow you to deliver your voting instructions via the internet and may also permit you to submit your voting instructions by telephone. Please note that, if you hold your shares in “street name” and you wish to vote in person at the 2018 Annual Meeting, you must obtain and present a proxy card issued in your name from your broker, bank or other nominee.

Broker Non‑Votes

If you are a “street name” beneficial owner whose shares are held of record by a broker, the rules of the New York Stock Exchange (“NYSE”) require your broker to ask you for instructions on how to vote. If you do not provide voting instructions to your broker, then your broker may only exercise discretionary authority to vote on routine matters. Of the items described in this proxy statement, routine matters consist only of Proposal 2 ratification of independent registered public accounting firm. Your broker may not exercise discretionary authority to vote on non-routine matters. This lack of discretionary authority is called a “broker non-vote.” Of the items described in this proxy statement, non-routine matters consist of Proposal 1 election of directors, Proposal 3 advisory vote to approve named executive officer compensation, and Proposal 4 advisory vote on the frequency of advisory vote on executive compensation. The effect of broker non-votes is set forth in the description of each item in this proxy statement. Despite limitations impacting broker non-votes, your broker can register your shares as being present at the 2018 Annual Meeting for purposes of determining the presence of a quorum.

Majority Voting

The Bylaws of our company provide for a majority voting standard for the election of directors. Under this voting standard, once a quorum has been established with respect to an election that is not contested, directors are elected by a majority of the votes cast. This means that the number of shares voted for a director nominee must exceed the number of shares voted against that director nominee. Abstentions and broker non‑votes are not counted as a vote cast either for or against a director nominee. If a director standing for reelection is not elected by the requisite majority of the votes cast in an uncontested election, that director must tender his or her resignation, subject to acceptance by the Board. The Nominating and Corporate Governance Committee will then make a recommendation to the Board as to whether to accept or reject the tendered resignation or whether other action should be taken. Within 90 days of certification of the stockholder vote, the Board will publicly disclose its decision and rationale regarding whether it accepted or rejected the resignation or describe what other action it took in response to the tendered resignation. In a contested election, where the number of nominees exceeds the number of directors to be elected, directors will be elected by a plurality of the votes cast. The election of directors at the 2018 Annual Meeting is uncontested and, therefore, the majority voting standard will apply.

Board of Directors’ Recommendations

The Board of Directors’ recommendations are set forth together with the description of each item in this proxy statement. In summary, the Board of Directors recommends a vote:

·

For the election of each of the Board of Directors’ nominees for director;

·

For the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal 2018; and

·

For the approval of the compensation of the named executive officers, as disclosed in this proxy statement.

Revocability of Proxy

The giving of a proxy does not preclude the right to revoke the proxy or vote in person should the stockholder giving the proxy so desire.

If you are a stockholder of record, you have the power to revoke your proxy at any time prior to its exercise by: (a) delivering a written statement to our Investor Relations Department that the proxy is revoked; (b) by delivering to us a later‑dated proxy executed by the person executing the prior proxy; or (c) by attending the 2018 Annual Meeting and voting in person.

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If you hold your shares in “street name” through a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee. Please note that voting in person at the 2018 Annual Meeting will only act to revoke prior voting instructions if you have obtained and present a proxy card issued in your name from your broker, bank or other nominee.

ALL STOCKHOLDERS ARE URGED TO VOTE AS PROMPTLY AS POSSIBLE VIA (A) THE INTERNET OR TELEPHONE, IF AND AS INSTRUCTED BY YOUR BROKER OR OTHER NOMINEE, OR (B) IF THIS PROXY STATEMENT WAS MAILED TO YOU, BY COMPLETING, DATING AND SIGNING THE ENCLOSED PROXY CARD AND MAILING IT IN THE ACCOMPANYING POSTAGE PAID ENVELOPE.

CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

Code of Ethics

LTC is committed to having sound corporate governance principles. To that end, we have adopted a Code of Business Conduct and Ethics applicable to the members of the Board of Directors and all of the company’s employees, including the principal executive officer, principal financial officer, principal accounting officer or controller, and persons providing similar functions. Our Code of Business Conduct and Ethics is available on our website at www.LTCreit.com. If we amend or waive the Code of Business Conduct and Ethics with respect to any of our directors or executive officers, we will post the amendment or waiver on our website.

Corporate Governance Guidelines

To guide us in director independence and other governance matters, we have adopted Corporate Governance Guidelines as required by the NYSE listing standards. The matters addressed in our Corporate Governance Guidelines include Board composition, Board meetings, Board committees, management responsibility, and stock ownership guidelines. A copy of our Corporate Governance Guidelines is available on our website at www.LTCreit.com.

Board Structure and Committee Composition

The business of LTC is conducted under the direction of the Board of Directors, which is elected by our stockholders. The basic responsibility of the Board is to lead our company by exercising its business judgment to act in what each director reasonably believes to be the best interests of our company and its stockholders. Leadership is important to facilitate the Board acting effectively as a working group so that our company and its performance may benefit. Our Corporate Governance Guidelines contemplate that the Chief Executive Officer shall be nominated annually to serve on the Board.

Our company currently combines the positions of Chairman of the Board and Chief Executive Officer. Separation of the positions of Chairman and Chief Executive Officer is not mandated by our company’s Articles, Bylaws, or Corporate Governance Guidelines. The Board believes that the advisability of having a separate or combined Chairman and Chief Executive Officer is dependent upon the strengths of the individual(s) holding these positions. Wendy L. Simpson, Chairman and Chief Executive Officer, has served as a senior executive and director of our company for more than a decade. She has a deep understanding of our company’s historical and current business and financial operations and is able to lead the Board in anticipating and responding to key company developments, challenges, and opportunities. The Board believes that combining the Chairman and Chief Executive Officer positions provides our company with the right foundation to pursue strategic and operational objectives, while maintaining effective oversight and objective evaluation of the performance of our company. Ms. Simpson does not serve on any outside boards of directors other than LTC, so that she is able to devote her full attention to our company.

Aside from Ms. Simpson, all members of the Board are independent directors. Our Corporate Governance Guidelines provide that one independent director may be appointed lead independent director. Currently, Boyd W. Hendrickson is the lead independent director. Particularly given that our company combines the positions of Chairman and Chief Executive Officer, the lead independent director serves an important role in our leadership structure. The Board has adopted a Lead Independent Director Charter governing the responsibilities and duties of the lead independent director. A copy of our Lead Independent Director Charter is available on our website at www.LTCreit.com. As set forth in the Lead Independent Director Charter, the lead independent director position serves to enhance Board effectiveness, oversee Board matters, and act as a liaison between the independent directors and the Chairman. The lead independent director position also serves to ensure the independent directors have adequate resources in making decisions. The lead independent director is empowered to approve meeting agendas, meeting schedules and information sent to the Board.

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The lead independent director also has the authority to call meetings of the independent directors and presides at executive sessions of the independent directors.

The Board annually conducts a self‑evaluation to determine whether it and its committees are functioning effectively. This annual performance evaluation is a component of our Corporate Governance Guidelines. The evaluation includes discussions to determine what, if any, actions should be taken to improve the Board’s effectiveness.

The Board has three committees: (1) Audit; (2) Compensation; and (3) Nominating and Corporate Governance. The function of each committee and the membership of the committees currently and during the last year are described below. Each committee operates under a written charter adopted by the Board. All of the committee charters are available on our website at www.LTCreit.com.

The Board held five meetings in 2017. Each Board member attended 100% of Board meetings in 2017 except for one Board member who was absent for one meeting. Our policy is to schedule our annual meeting of stockholders after consulting with each director regarding their availability to help ensure their ability to attend. All Board members attended our 2017 Annual Meeting of Stockholders.

The following table reflects the current composition of each committee:

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Nominating and

 

 

 

Audit

 

Compensation

 

Corporate Governance

 

Director

 

Committee

 

Committee

 

Committee

 

Boyd W. Hendrickson+

 

*

 

*

 

*

 

James J. Pieczynski

 

*

 

*

 

 

Devra G. Shapiro

 

 

*

 

*

 

Wendy L. Simpson

 

 

 

 

 

 

 

Timothy J. Triche, MD

 

*

 

 

*

 

 

+ Lead Independent Director

* Member

 Chairman

Audit Committee

The Audit Committee has oversight of all compliance related to financial matters, SEC reporting and auditing. The Report of the Audit Committee of the Board of Directors is on page 38 of this proxy statement. The Audit Committee Charter is available on our website at www.LTCreit.com. The Audit Committee met six times in 2017.

The Board has determined that each member of the Audit Committee is independent within the meaning of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and NYSE listing standards. The Board also has determined that Ms. Shapiro and Mr. Pieczynski each qualify as an “audit committee financial expert” as defined by SEC rules and that they each have accounting and related financial management expertise within the meaning of NYSE listing standards. Ms. Shapiro serves as Chairman of the Audit Committee and served in that role throughout 2017.

Compensation Committee

The Compensation Committee is responsible for overseeing, reviewing, and administering our compensation and benefit practices. The Compensation Committee oversees our general compensation policies, reviews and approves compensation of our executive officers and administers all of our employee benefit plans. The Compensation Committee Charter is available on our website at www.LTCreit.com. The Compensation Committee met six times in 2017.

The Board has determined that each member of the Compensation Committee is independent within the meaning of NYSE listing standards. Dr. Triche serves as Chairman of the Compensation Committee and served in that role throughout 2017.

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Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee is responsible for (i) identifying, screening and reviewing individuals qualified to serve as directors and recommending to the Board candidates for nomination for election at our Annual Meeting of Stockholders or to fill Board vacancies; (ii) overseeing our policies and procedures for the receipt of stockholder suggestions regarding Board composition and recommendations of candidates for nomination by the Board; (iii) developing, recommending to the Board and overseeing implementation of our Corporate Governance Guidelines and our Code of Business Conduct and Ethics; and (iv) reviewing on a regular basis our overall corporate governance and recommending improvements when necessary. The Nominating and Corporate Governance Committee Charter is available on our website at www.LTCreit.com. The Nominating and Corporate Governance Committee met two times in 2017.

The Board has determined that each member of the Nominating and Corporate Governance Committee is independent within the meaning of NYSE listing standards. Mr. Pieczynski serves as Chairman of the Nominating and Corporate Governance Committee and served in that role throughout 2017.

Communications with the Board

Stockholders and all other parties interested in contacting the Board, its committees, the independent directors as a group, the lead independent director, or individual directors may send written correspondence to the Audit Committee Chairman of LTC Properties, Inc. at 2829 Townsgate Road, Suite 350, Westlake Village, California 91361. All such communications will be forwarded to the relevant director(s), except for solicitations or other matters unrelated to our company.

Consideration of Director Nominees

The Board is responsible for the selection of candidates for the nomination or appointment of all Board members. The Nominating and Corporate Governance Committee, in consultation with the Chief Executive Officer, recommends candidates for election to the Board and considers recommendations for Board candidates submitted by stockholders using the same criteria it applies to recommendations from Nominating and Corporate Governance Committee members, directors and members of management. The Nominating and Corporate Governance Committee will also consider whether to nominate any person nominated by a stockholder pursuant to the provisions of our company’s Bylaws relating to stockholder nominations as described below. Since 2017, there have been no material changes to the procedures by which stockholders may recommend nominees. Stockholders may submit recommendations in writing addressed to the Nominating and Corporate Governance Committee, LTC Properties, Inc., 2829 Townsgate Road, Suite 350, Westlake Village, CA 91361.

Stockholders may directly nominate persons for director only by complying with the procedure set forth in our company’s Bylaws, which in summary requires that the stockholder submit the names of such persons in writing to our Corporate Secretary not less than 60 days nor more than 150 days prior to the first anniversary of the date of the preceding year’s Annual Meeting. The nominations must set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director and as to the stockholder giving the notice (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of our capital stock which are beneficially owned by such person on the date of such stockholder notice, (d) such nominee’s consent to serve as a director if elected and (ii) as to the stockholder giving the notice (a) the name and address, as they appear on our books, of such stockholder to be supporting such nominees and (b) the class and number of shares of our capital stock which are beneficially owned by such stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such nominees on the date of such stockholder notice.

Once a prospective nominee has been identified, by either the Nominating and Corporate Governance Committee or proposed by a stockholder, the Nominating and Corporate Governance Committee makes an initial determination as to whether to conduct a full evaluation of the prospective candidate. This initial determination would include whatever information is provided with the recommendation of the prospective candidate and the Nominating and Corporate Governance Committee’s own knowledge of the prospective candidate. The Nominating and Corporate Governance Committee may make inquiries of the person making the recommendation or of others regarding the qualifications of the prospective candidate. The preliminary determination is based primarily on the need for additional

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Board members to fill vacancies or expand the size of the Board. The Board’s policy is to encourage selection of directors who will contribute to our overall corporate goals and to the discharge of the Board’s responsibility to our stockholders. The Nominating and Corporate Governance Committee may, at the request of the Board from time to time, review the appropriate skills and characteristics required of Board members in the context of the current makeup of the Board. Board members are expected to prepare for, attend and participate in meetings of the Board and the committees on which they serve; therefore, a prospective candidate must have the ability to dedicate sufficient time, energy and attention to the diligent performance of his or her duties as a Board member.

The Nominating and Corporate Governance Committee may conduct interviews with prospective nominees in person or by telephone. After completing the evaluation and interviews, the Nominating and Corporate Governance Committee makes a recommendation to the full Board as to the persons who should be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the Nominating and Corporate Governance Committee.

The Nominating and Corporate Governance Committee does not have a specific policy with regard to the consideration of diversity in identifying director nominees. As part of its periodic review of the composition of the Board, the Nominating and Corporate Governance Committee considers whether the composition of the Board reflects the appropriate balance of independence, sound judgment, business specialization, technical skills, diversity, and other desired qualities. The Nominating and Corporate Governance Committee does not have formal objective criteria for determining the amount of diversity needed or present on the Board. Instead, the Nominating and Corporate Governance Committee seeks to have a Board with a diversity of background and experience.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of our company.

To our knowledge, based solely on review of the copies of such reports and written representations that no other reports were required, for the year ended December 31, 2017 all directors, executive officers and persons who beneficially own more than 10% of our common stock have complied with the reporting requirements of Section 16(a).

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PROPOSAL 1

ELECTION OF DIRECTORS

Five directors will be elected at the 2018 Annual Meeting of Stockholders. Each person elected as director will hold office until the 2019 Annual Meeting of Stockholders and, in each case, until their respective successors have been duly elected and qualified.

In accordance with the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated Boyd W. Hendrickson, James J. Pieczynski, Devra G. Shapiro, Wendy L. Simpson, and Timothy J. Triche for election as director. Each nominee is currently a director of our company. The five director nominees, their business experience, and specific qualifications, attributes, or skills to serve as director, are set forth below:

 

 

 

 

 

Boyd W. Hendrickson

Director since 2005

Age 73

         

Mr. Hendrickson served as the Chief Executive Officer of Skilled Healthcare Group, Inc. (“SHG”) from April 2002 through November 2013. From November 2013 through December 2014, Mr. Hendrickson served as a consultant to SHG. Mr. Hendrickson also served as a Member of the Board of Directors of SHG from August 2003 through November 2013, including as Chairman of the Board of Directors of SHG from December 2005 through November 2013. SHG was a publicly‑traded company with subsidiaries that own and operate skilled nursing and assisted living facilities. In February 2015, SHG was acquired by Genesis HealthCare, Inc. Prior to joining SHG, Mr. Hendrickson was the President and Chief Executive Officer of Evergreen Healthcare, LLC, an operator of long‑term health care facilities, from January 2000 through April 2002. Additionally since 2005, Mr. Hendrickson has served as a managing member of Executive Search Solutions, LLC, a provider of recruiting services to the health care services industry. Mr. Hendrickson is a member of the Board of Directors of Earthling Interactive, a private software development company, and is a former member of senior management and the Boards of Directors of Beverly Enterprises, Inc. and Hallmark Health Services.

 

 

 

 

 

Mr. Hendrickson’s prior service as an independent director of LTC, past executive and director experience with other public companies, and his multi‑decade involvement in the understanding of the health care industry led the Board to conclude he should be nominated to serve another term as director.

 

 

 

James J. Pieczynski

Director since 2014

Age 55

 

Mr. Pieczynski is currently the President of the CapitalSource division of Pacific Western Bank and is a member of the board of directors of Pacific Western Bank and PacWest Bancorp. Prior to that he was a member of the Board of Directors of CapitalSource, Inc. (“CSE”) from January 2010 until April 2014 when CSE was acquired by PacWest Bancorp. Mr. Pieczynski served as Chief Executive Officer from January 2012 until the acquisition in April 2014. CSE was a publicly‑held bank providing commercial loans to small and middle‑market businesses nationwide and depository products and services in southern and central California. Mr. Pieczynski previously served as CSE’s Co‑Chief Executive Officer from January 2010 through December 2011, CSE’s President—Healthcare Real Estate Business from November 2008 until January 2010, and CSE’s Co‑President—Healthcare and Specialty Finance from January 2006 until November 2008. Additionally, Mr. Pieczynski served as an executive officer of our company from 1994 to 2001, and as a member of the Board of Directors of LTC from 1997 to 2001.

 

 

 

 

 

Mr. Pieczynski’s prior service as an executive officer and director of LTC, his recent position as Chief Executive Officer of a public financial company, his years of experience in financial and executive positions with health care companies, and his expertise in accounting, financial reporting and controls led the Board to conclude that he should be nominated to serve as director.

 

 

 

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Devra G. Shapiro

Director since 2009

Age 71

         

Ms. Shapiro served as Chief Financial Officer of IPC Healthcare, Inc. (”IPC”) from the time she joined IPC in March 1998 through October 2011. From 2011 to her retirement in 2014, she served as IPC's Chief Administrative Officer. IPC, was a publicly–traded national physician group practice company focused on the delivery of acute and post-acute hospitalist medicine services which was acquired by Team Health in 2015. Prior to joining IPC, Ms. Shapiro held chief financial officer and other executive financial positions with several health care companies and was in the health care practice of an international accounting firm for 11 years. Formerly, Ms. Shapiro was with Arthur Andersen & Company.

 

 

 

 

 

Ms. Shapiro’s prior service as an independent director of LTC, her sixteen years prior experience as a senior executive of a public health care company, her many years of experience in financial and executive positions with health care companies and in public accounting, and her expertise in accounting, financial reporting and controls led the Board to conclude that she should be nominated to serve a another term as director.

 

 

 

Wendy L. Simpson

Director since 1995

Age 69

         

Ms. Simpson was appointed Chairman of the Board of Directors of LTC in August 2013 and has served as Chief Executive Officer and President since March 2007. She also served as Chief Financial Officer from July 2000 through March 2007, Treasurer from January 2005 through March 2007, and President and Chief Operating Officer from October 2005 through March 2007. She also was Vice Chairman of the Board from April 2000 through October 2005.

 

 

 

 

 

Having served as a senior executive officer of LTC for more than a decade, including currently as Chairman, Chief Executive Officer and President, Ms. Simpson brings a deep understanding of our company’s historical and current business and financial operations. Additionally, our Corporate Governance Guidelines contemplate that our Chief Executive Officer shall be nominated to serve on the Board of Directors. These factors, and Ms. Simpson’s prior service as director of LTC, led the Board to conclude that she should be nominated to serve another term as director.

 

 

 

Timothy J. Triche, MD

Director since 2000

Age 73

         

Dr. Triche has been the Director of the Center for Personalized Medicine at Children’s Hospital Los Angeles since July 2010 and previously served as the Chairman of the Department of Pathology and Laboratory Medicine at Children’s Hospital Los Angeles since 1988.  He has also been a Professor of Pathology and Pediatrics at the University of Southern California Keck School of Medicine in Los Angeles, California since 1988. He also serves on the Board of Directors of Novelix Pharmaceuticals, Inc., a private biotechnology company, NanoValent Pharmaceuticals, Inc., a private nanotechnology company, GenomeDx, a private biotechnology company, MedGenome, Inc. (f/k/a Silicon Valley Biosystems and Lifecode, Inc.), a private biotechnology company, and Sanguine BioSciences, a private biomedical research company.

 

 

 

 

 

Dr. Triche’s prior service as an independent director of LTC, current and past executive and director experience with other health care companies, and his overall background in the health care industry led the Board to conclude he should be nominated to serve another term as director.

If any nominee becomes unavailable to serve as a director for any reason (which event is not anticipated), the shares of common stock represented by proxy may (unless such proxy contains instructions to the contrary) be voted for such other person or persons as may be determined by the holders of such proxies.

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Required Vote and Recommendations

As described under “Majority Voting” on page 2 of this proxy statement, a majority of the votes cast is required for the election of each director in an uncontested election, which is the case at the 2018 Annual Meeting. A majority of the votes cast means that the number of votes cast FOR a nominee must exceed the number of votes cast AGAINST that nominee. For purposes of the vote on Proposal 1, abstentions and broker non‑votes will not be counted as votes cast and will have no effect on the result of the vote, although they will count towards the presence of a quorum for Proposal 1. Properly executed and unrevoked proxies will be voted FOR the Board’s nominees unless contrary instructions or an abstention are indicated in the proxy.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF

THE BOARD OF DIRECTORS’ NOMINEES FOR DIRECTOR.

 

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PROPOSAL 2

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the independent registered public accounting firm to audit LTC’s consolidated financial statements for the year ending December 31, 2018. Ernst & Young LLP served as our independent registered public accounting firm during 2017 and also provided certain tax services as described in the Independent Registered Public Accounting Firm Fees and Services section of this proxy statement. A representative of Ernst & Young LLP is expected to be present at the 2018 Annual Meeting.

Although ratification is not required by our company’s Bylaws or otherwise, the Board is submitting the selection of Ernst & Young LLP to our stockholders for ratification as a matter of good corporate practice. If the selection is not ratified, the Audit Committee will consider whether it is appropriate to select another registered public accounting firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of our company and our stockholders.

Required Vote and Recommendation

Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2018 requires the affirmative vote of a majority of all the votes cast at a meeting at which a quorum is present. For purposes of the vote on Proposal 2, abstentions and broker non‑votes will not be counted as votes cast and this will have no effect on the result of the vote although they will count towards the presence of a quorum for Proposal 2. Properly executed, unrevoked proxies will be voted FOR Proposal 2 unless a vote against Proposal 2 or abstention is specifically indicated in the proxy.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE

APPOINTMENT OF ERNST & YOUNG LLP AS LTC’S

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

FOR THE YEAR ENDING DECEMBER 31, 2018.

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PROPOSAL 3

ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

The Dodd‑Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd‑Frank Act”) requires that we provide our stockholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of the named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC. This proposal, commonly known as a “say‑on‑pay” proposal, gives stockholders the opportunity to express their views on named executive officer compensation. As previously reported in the Current Report on Form 8‑K that we filed with the SEC on June 5, 2017, the Board of Directors has determined that LTC will hold a nonbinding, advisory “say‑on‑pay” vote every year to approve named executive officer compensation.

As described in the Executive Compensation Discussion and Analysis (“CD&A”) section of this proxy statement, we seek to align compensation of our executives with our overall performance as well as the individual performance of each executive. As noted in the CD&A section, our 2017 financial performance was characterized by growth in assets, revenues, and normalized funds from operations, as well as, increased liquidity. As also described in the CD&A section, our Annual Cash Bonus Incentive Plan provides for 50% of the bonus opportunity for participating executives to be based on achievement of performance goals.

Our compensation programs are designed to attract and retain executives responsible for our company’s success and are administered in the long-term interests of our company and our stockholders. In connection with services provided in 2017, approximately 60% of total named executive officer compensation was in the form of long-term incentive awards.

Please see the CD&A (and in particular its “Executive Summary” on page 13) and the Summary Compensation Table sections of this proxy statement for further details regarding our executive compensation decisions for 2017 and how our compensation program for executives is structured to support and reward our annual and long‑term financial performance as an organization.

Pursuant to the resolution below, we are asking our stockholders to indicate their support for named executive officer compensation. The vote on this resolution is not intended to address any specific element of compensation. Rather, the vote relates to the compensation of the named executive officers, as described in the CD&A and accompanying tables.

Accordingly, stockholders are being asked to vote on the following resolution at the 2018 Annual Meeting:

“RESOLVED, that the stockholders of LTC Properties, Inc. approve, on an advisory basis, the compensation of the named executive officers, as disclosed in LTC Properties, Inc.’s Proxy Statement for the 2018 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the summary compensation table, and the other related tables and disclosure.”

Required Vote and Recommendation

Because the vote is advisory, it is not binding on our company, the Board of Directors, or the Compensation Committee of the Board of Directors. The Board and the Compensation Committee will take into account the outcome of the vote, however, when designing future executive compensation programs.

For purposes of the vote on Proposal 3, abstentions and broker non‑votes will not be counted as votes cast and this will have no effect on the result of the vote although they will count towards the presence of a quorum for Proposal 3. Properly executed, unrevoked proxies will be voted FOR Proposal 3 unless a vote against Proposal 3 or abstention is specifically indicated in the proxy.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE

COMPENSATION OF THE NAMED EXECUTIVE OFFICERS,

AS DISCLOSED IN THIS PROXY STATEMENT.

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EXECUTIVE OFFICERS

The Board of Directors has determined that Wendy L. Simpson, Pamela J. Shelley-Kessler, and Clint B. Malin are our company’s “executive officers” as that term is defined in Rule 3b-7 under the Exchange Act. The biographies of our three current executive officers are as follows:

 

 

 

 

 

Wendy L. Simpson

Chief Executive Officer and

President

Age 69

       

Wendy L. Simpson has been a director of our company since 1995, Vice Chairman from April 2000 through October 2005, Chief Financial Officer from July 2000 through March 2007, Treasurer from January 2005 through March 2007, President and Chief Operating Officer from October 2005 through March 2007 and Chief Executive Officer and President from March 2007 through August 2013. In August 2013, Ms. Simpson was appointed Chairman of the Board of Directors.

 

 

 

Pamela J. Shelley‑Kessler

Executive Vice President, Chief

Financial Officer and Corporate Secretary

Age 52

 

Pamela J. Shelley-Kessler is the Executive Vice President and Chief Financial Officer, a position she has held since December 2010. From March 2007 to December 2010 she served as Senior Vice President and Chief Financial Officer and as Vice President and Controller from July 2000 to March 2007. Prior to joining our company, Ms. Shelley-Kessler was the Corporate Controller for a privately held commercial and multifamily real estate developer. She was also the Director of Financial Reporting for a Southern California apartment REIT. Ms. Shelley-Kessler also served as the Assistant Controller of the Inland Empire division of KB Home, a publicly traded homebuilder. She began her career as a certified public accountant in the real estate group of Ernst and Young LLP. In January 2018, Ms. Shelley-Kessler joined the board of Physician’s Realty Trust where she serves on the audit committee.

 

 

 

Clint B. Malin

Executive Vice President and

Chief Investment Officer

Age 46

 

Clint B. Malin is the Executive Vice President and Chief Investment Officer, a position he has held since June 2012. From December 2010 to June 2012 he served as Senior Vice President and Chief Investment Officer and as Vice President and Chief Investment Officer from May 2004 to December 2010. Prior to joining our company, Mr. Malin was employed by Sun Healthcare Group, Inc. (“Sun”), a nationwide owner and operator of post-acute care and skilled nursing centers from 1997 through 2004. Mr. Malin’s last position held at Sun was Vice President of Corporate Real Estate. Genesis Healthcare, Inc. acquired Sun in December 2012. Mr. Malin began his career in public accounting, initially practicing at KPMG Peat Marwick LLP and then Arthur Andersen LLP.

 

 

 

 

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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

2017 Business Highlights

In 2017, we focused on capturing long-term growth opportunities for our company and stockholders. We adhere to a disciplined investment underwriting policy and do not make investments in assets that management believes may be mispriced relative to the value of the assets to our operator and to the company. This disciplined investment policy has allowed us to weather challenging economic environments and positioned us to take advantage of new investment opportunities. In addition to real estate acquisitions, mortgage originations, mezzanine loan originations and joint venture investments, in certain circumstances, we have focused on developing new properties at costs below current per unit/bed market values.

We also conduct marketing activities to enhance awareness of our company among local and regional operators of skilled nursing, assisted living, independent living and memory care properties, particularly in certain states. The marketing campaign highlights our support and commitment to provide financing to operators in these property classes, our strong balance sheet, our access to capital, our focus on smaller size off-market transactions, our strong management team and many years in the industry.

As a result of these efforts, in 2017, we underwrote $103.5 million in new investments consisting of $81.0 million in real estate acquisitions, and $22.5 million in development commitments, including the purchase of land. Also in 2017, we completed and opened a  66-unit memory care community and we completed the renovation of a 120-bed skilled nursing center. We believe new investments are important for our continued growth and future profitability. 

During 2017, we sold $100.0 million of 15-year senior unsecured notes at fixed rates of 4.5%. Additionally, we sold 312,881 shares of common stock under our equity distribution agreements at an average gross price of $47.42 per share resulting in net proceeds of $14.6 million. At December 31, 2017, we had cash on hand of $5.2 million, $503.5 million available for borrowing under our unsecured revolving line of credit, $63.7 million available under our shelf agreement with Prudential Investment Management, Inc. and $185.2 million available under our equity distribution agreements.  

During 2017, we identified opportunities to recycle capital on assets that are no longer core or strategic. Accordingly, during 2017, we sold five assisted living communities with a carrying value of $10.1 million for an aggregate price of $15.7 million. As a result of this sale, we raised $14.9 million in net proceeds and recognized a net gain on sale of $5.0 million. Furthermore, we donated an 85-unit skilled nursing center with a carrying value of $1.2 million to a nonprofit health care provider.    

Our 2017 year-over-year revenue growth was 4.0% and our year-over-year normalized funds from operations growth was 4.1%. Funds from operations (“FFO”) is used by the company as a supplemental measure of operating performance and normalized FFO allows our management to compare the company’s operating performance against other REITs and across time periods on a consistent basis. We also continue to maintain a conservative capital structure with low debt evidenced by our debt to enterprise value of 28.0% and debt to annualized normalized EBITDA of 4.3x at December 31, 2017. Additionally, as an added measure of conservatism, we seek to match our debt maturities to our annual projected free cash flow thereby minimizing our exposure to refinancing risk. We believe our low debt levels and ample liquidity provide us with financing flexibility and allows us to opportunistically access the capital markets at favorable rates. For more information about normalized FFO, debt to enterprise value, and annualized normalized EBITDA, refer to the non-GAAP reconciliation in the Appendix to this proxy statement. 

Finally, as the stock performance graph in our 2017 Annual Report on Form 10-K shows, $100 invested in LTC common stock on December 31, 2012 would be worth $157.69 on December 31, 2017,  which is in line with $157.14 from a like investment in the NAREIT Equity REIT Index.

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2017 Compensation Highlights

We seek to closely align the interests of our executive officers with those of our stockholders. We have structured our executive compensation program to support this alignment, with relatively modest base salaries and a greater proportion of total compensation delivered through annual bonus, long-term equity incentive opportunities and equity participation.

In 2016, the Compensation Committee introduced performance contingent equity in the form of performance-based stock units (“PSUs”) as a key form of long-term equity incentive awards for our executive officers to balance our historical practice of granting restricted common stock awards (“RSAs”). Approximately 50% of the long-term equity incentive awards granted to our executive officers in 2017 was performance contingent. Further, 2017 compensation decisions were made in the first quarter of the year, following a strong 2016, which influenced the compensation opportunities provided.

In view of their accomplishments and our financial performance during 2017, the Compensation Committee and the Board approved:

·

Base salary increases for executives and other members of the management team; and

·

Annual bonuses and equity grants for the named executive officers. 

·

2017 cash bonuses were 46% and 38% lower than bonuses in 2016 for Ms. Simpson and for Ms. Shelley-Kessler and Mr. Malin, respectively, reflecting a lower internal assessment of performance versus goals.

·

The Committee’s view of NEO total compensation in 2017 was that it was slightly lower than 2016, though this requires comparison of February 2016 equity awards to February 2017 equity award value, which is not how 2016 equity compensation is reported in the Summary Compensation Table of the proxy.

·

Further, for 2018 the CEO’s salary and target bonus were held flat, with equity grant value that was approximately 15% lower than 2017 in recognition of lower stock price than at the time of the 2017 award.

2017 “Say‑On‑Pay” Vote

At LTC’s 2017 Annual Meeting of Stockholders, approximately 96% of the votes cast in the advisory “say‑on‑pay” vote were for approval of named executive officer compensation. The Board of Directors and Compensation Committee have considered the results of the 2017 “say‑on‑pay” vote and believe that it indicates that stockholders are supportive of the executive compensation program. The Board and Compensation Committee will continue to consider “say‑on‑pay” votes in formulating future executive compensation policies and decisions.

Corporate Governance Highlights

We seek to maintain good governance standards, including with respect to the oversight of our compensation policies and practices. Highlights of the policies and practices in effect during 2017 are as follows:

·

Our Insider Trading Policy, which covers all employees and directors, includes prohibitions on hedging and pledging of our common stock;

·

We have a cash incentive compensation Clawback Policy in the event of an accounting restatement;

·

We maintain a separate “lead independent director” role in our leadership structure for the Board;

·

Each committee of the Board is comprised solely of independent directors; and

·

We have stock ownership guidelines in place for our executives and independent directors, and all executives and directors are in compliance.

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2018 Compensation Changes

LTC continues to align the executive compensation program with long-term interests of shareholders. In 2018, LTC decreased the CEO’s 2018 long-term equity incentive grant value by about 15% year-over-year to acknowledge the Company’s negative 2017 year-end total shareholder return.  Although on a relative basis LTC ranked 12th out of the 23 companies in its peer group in total shareholder return for 2017. In addition, no increase in base salary or target bonus opportunity was awarded to the CEO, resulting in target direct compensation that was below the median of the peer group companies.

Executive Compensation Program Philosophy and Objectives

We endeavor to ensure that the compensation programs for our executives are effective at attracting and retaining the key executives responsible for our success and are administered to support the long‑term interests of our company and our stockholders. Through the oversight of the Compensation Committee, we seek to align total compensation for executive management with our overall performance as well as the individual performance and role of each executive.

Our executive compensation program may be summarized as follows:

·

An executive’s salary, bonuses, incentive compensation and other benefit programs should reflect their role, our company’s performance, and the executive’s individual performance and effort; and

·

Compensation should provide a financial interest in our company that parallels the financial interests of our stockholders.

We encourage you to read this Executive Compensation Discussion and Analysis (“CD&A”) for further details about our executive compensation program, including information about the 2017 compensation of the named executive officers.

Executive Compensation Program Elements

We seek to achieve our compensation program objectives through the following key compensation elements: base salary, annual bonus opportunity, long‑term equity incentive opportunity and severance upon termination of employment under certain conditions or change in control of our company. We believe that each element of our executive compensation program helps us to achieve one or more of our compensation objectives as follows:

Base salary—attract, motivate, and retain qualified key executives. We believe the base salary should reflect job responsibilities, value to our company, individual performance/expertise and competitiveness of the market for the executive’s services/salary norms for persons in comparable positions at comparable companies. We believe that it is important to provide executives with predictable benefit amounts that reward the executive’s continued service. Salaries are set in the first quarter of the year, with reference to both market data and prior year performance.

Annual bonuses—reward company performance and individual performance and effort. We believe the annual bonus should be linked to individual performance and to our company’s performance as a whole, and where practicable, should be related to variables under our management’s control. The target bonus is set in the first quarter of the year, and actual bonus is scored at the end of the year, after performance is known.

Long‑term equity incentives—align executives’ financial interests with those of our stockholders. We believe that long‑term compensation should motivate and reward the creation and preservation of long‑term stockholder value through both price increases and dividends. Long‑term equity incentives typically vest over multiple years to reward performance over one or more years or based on achieving certain performance targets.  

In June 2016, with the introduction of long-term performance based compensation, we changed the methodology for granting equity awards. Prior to June 2016, equity grants consisted solely of time-based vesting restricted stock awards (RSAs) that were granted as part of compensation for the prior year.  Accordingly, the RSAs granted in February 2016 are included in the Summary Compensation Table in 2015. In June 2016, we introduced a long-term incentive compensation program that enables senior management to earn

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performance-based stock awards (PSUs) that vest based upon certain total shareholder return targets (see page 20 for a description of our equity incentive program). PSUs granted in June 2016 are reported in 2016 Summary Compensation. Thus, Summary Compensation in 2016 reflects only PSUs granted that year because RSAs granted in 2016 are included in 2015 Summary Compensation.

Beginning in 2017, RSAs and PSUs were granted together in the first half of the year, with reference to market data, prior year performance, and the previous year’s grant and are reported in 2017 Summary Compensation. This reporting transition for the February RSAs makes it difficult to compare total compensation during 2015-2017 without adjusting prior years’ grants to current year methodology. Although the 2017 RSAs appear nearly 2x higher than 2016, equity grant values were roughly flat in 2017 if compared to the grant made in the prior year. However, due to the transition in granting methodology resulting from the adoption of a performance-based equity component, equity grant values appear significantly higher in the Summary Compensation Table in 2017 as compared to 2016 because the RSA component of the 2017 grant is reported in 2017 whereas the RSA grant in 2016 is included in 2015 in accordance with prior granting methodology. In addition to the Summary Compensation Table on page 26, which reflects equity grant values using the granting methodology in place at the time of the grant, we have included a table on page 22 which reflects equity grant values in prior years using current granting methodology and illustrates the decrease in equity award value in 2017.

Severance—attract, motivate and retain qualified key executives. We believe that providing our executives with severance and other benefits upon termination of employment or change in control is consistent with the severance protections offered by similar companies and is an integral part of total executive compensation.

Compensation Committee

The Compensation Committee reviews and approves the compensation of our executive officers and determines our general compensation policy. The Compensation Committee considers whether compensation decisions create incentives to take risks that could materially harm our company and does not believe that such incentives exist.

The Compensation Committee is also responsible for the administration of our equity compensation plans. Under the 2015 Equity Participation Plan of LTC Properties, Inc. (“2015 Equity Participation Plan” or “2015 Plan”), 1,400,000 shares of common stock have been reserved for awards, including nonqualified stock options grants and equity grants to officers, employees, non-employee directors and consultants. The Compensation Committee is authorized to determine the options and equity awards to be granted under equity compensation plans and the terms and provisions of such options and equity awards. The Compensation Committee determines the base salary, annual bonus and long-term equity incentives of our Chief Executive Officer. Ms. Simpson, our Chief Executive Officer and President, recommends to the Compensation Committee the base salary, annual bonus and long-term compensation levels for all of our other officers. None of the other senior executives had any role in determining or recommending the form or amount of the compensation of the other senior executives.

Competitive Considerations

In determining the level and composition of compensation for our executive officers, the Compensation Committee considers various corporate performance measures, both in absolute terms and in relation to similar companies, and individual performance measures. The Compensation Committee establishes specific quantitative measurements and targets based upon our company’s FFO and new investments to determine the annual bonus awards for our senior executives as described under “Annual Cash Bonus Incentive Plan” below. The Compensation Committee also may evaluate the following factors in establishing executive compensation: (a) comparative compensation surveys and other material concerning compensation levels and stock grants at similar companies; (b) our historical compensation levels and stock awards; (c) overall competitive environment for executives and the level of compensation necessary to attract and retain executive talent; (d) financial performance of other real estate investment trusts relative to market condition; and (e) from time to time, the Compensation Committee may seek the advice of an independent compensation consultant in assessing its overall compensation philosophy. The Compensation Committee assigns no specific weight to any of the factors described above in establishing executive compensation. In determining the appropriate levels of compensation to be paid to our executive officers, the Compensation Committee does not generally factor in amounts realized from prior compensation.

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While the Compensation Committee may review competitive market data in determining the reasonableness of the compensation of our executive officers, compensation levels are not set by reference to any percentile or benchmark within any peer group of companies or otherwise. Consistent with our compensation philosophies described above, our goal is to provide each executive with a current compensation package that is at market based upon the Compensation Committee’s perception of comparable executives at comparable companies, including real estate investment trusts.

The total direct compensation provided to our CEO in 2017, and again in 2018, was set below the median of data available in our peer group of compensation reference companies at the time the compensation decisions were made. The Company believes that this below-median target position, combined with the performance-based nature of the bonus plan, as well as the fact that 50% of the equity grant value provided to the named executive officers is contingent on higher TSR performance, reflects a disciplined, reasonable, and performance-driven program that is aligned with shareholders’ short- and long-term interests.

Compensation Consultant

Pursuant to its charter, the Compensation Committee has the authority to engage independent compensation consultants and other professionals to assist in the design, formulation, analysis, and implementation of compensation programs for our executive officers.

Since September 2015, the Compensation Committee has retained Frederic W. Cook & Co., Inc. (“Cook”), as its independent compensation consultant, to evaluate new programs and compensation methodologies. Cook has conducted a comprehensive review of our company’s executive compensation programs and provided a report of its review to the Compensation Committee as described under “Executive Compensation Review” below. The Compensation Committee references the Cook report in making executive compensation decisions.

After review and consultation with Cook, the Compensation Committee determined that Cook is and was an independent advisor and there is and was no conflict of interest resulting from retaining Cook in 2017.  

Executive Compensation Review

As described above, Cook was engaged by the Compensation Committee to conduct a comprehensive review of our executive compensation programs. The Cook review included:

·

assisting with the development of a peer group for compensation comparisons; consisting of publicly-traded real estate investment trusts (“REITs”) with total assets, enterprise value, and funds from operations (“FFO”) generally similar to our company, and with a broad focus on healthcare REITs or REITs that have a triple-net business orientation and/or tenants that are commercial businesses;

·

conducting a review of the competitiveness of current compensation levels, programs and arrangements provided to our executives, including the named executive officers; and

·

conducting a competitive assessment of our non‑employee director compensation program.

The Cook peer group used for 2017 compensation decisions included the following twenty-three REITs:

·

American Assets Trust, Inc.

·

Care Capital Properties

·

CareTrust

·

Cedar Realty Trust, Inc.

·

Cousins Properties Incorporated

·

EastGroup Properties, Inc.

·

EPR Properties

·

First Potomac Realty Trust

·

Healthcare Realty Trust Incorporated

·

Healthcare Trust of America, Inc.

·

Hersha Hospitality Trust

·

Hudson Pacific Properties, Inc.

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·

Medical Properties Trust Inc.

·

National Health Investors Inc.

·

Omega Healthcare Investors Inc.

·

Parkway Properties, Inc.

·

Physicians Realty Trust

·

PS Business Parks Inc.

·

Retail Opportunity Investments Corp.

·

Sabra Health Care REIT, Inc.

·

Seritage

·

STAG Industrial, Inc.

·

Terreno Realty Corp.

Subsequent to compensation decisions in 2017, Parkway Properties and Care Capital Properties were removed from the peer group as they were no longer publicly-traded. Data from this updated peer group were used for 2018 compensation decisions.

Cook compared our company’s total direct compensation (base salary, annual and long‑term incentives) for each executive position against the market compensation levels for similar executives in the consultant’s respective peer group. The review by Cook provided context that CEO’s 2017 target total direct compensation was slightly below the median of the market data available when 2017 decisions were made.

Further, in 2018, following our negative 2017 year-end TSR, the Committee did not increase the CEO’s salary or target bonus opportunity in 2018, and decreased the 2018 equity grant date fair value by about 15% year-over-year. Resulting CEO 2018 total direct compensation was set below the median peer group data available again in 2018.

Executive Compensation Practices

Base Salaries

The named executive officers each have an employment agreement granting them the contractual right to receive a fixed base salary as described under “Employment Agreements” on page 27 of this proxy statement.

Base salaries are reviewed and adjusted by the Compensation Committee on an annual basis. The Compensation Committee seeks to ensure that base salaries are established at levels considered appropriate in light of the responsibilities and duties of our executives as well as at levels which are competitive with amounts paid to executives of other real estate investment trusts, including our peer group companies. In determining an individual executive’s actual base salary, the Compensation Committee also considers other factors, which may include the executive’s past performance and contributions to our success.

Based on the recommendations received from the Chief Executive Officer (except with respect to the Chief Executive Officer’s own salary) and taking into account our company’s performance as well as the findings from the Cook report, the Compensation Committee approved the following increases to base salaries for the named executive officers. Base salary increases were effective January 1, 2017. The following table summarizes salary adjustments approved by the Compensation Committee for 2017:

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

 

 

 

2017 Base

 

2016 Base

 

Year over

 

Named Executive Officer

 

Salary

 

Salary

 

Year Increase

 

Wendy L. Simpson

 

$

675,000

 

$

655,000

 

3.1

%

Pamela J. Shelley-Kessler

 

 

400,000

 

 

390,000

 

2.6

%

Clint B. Malin

 

 

400,000

 

 

390,000

 

2.6

%

 

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Annual Cash Bonus Incentive Plan

Our Annual Cash Bonus Incentive Plan provides an annual incentive bonus for selected executives whereby each participating executive has a range of incentive opportunity (threshold, target and maximum) defined as a percentage of base salary. Annually, the Compensation Committee will select the participants in the plan and establish its performance goals. 

For 2017, the Compensation Committee selected senior executives Ms. Simpson, Ms. Shelley‑Kessler and Mr. Malin as participants in the Annual Cash Bonus Incentive Plan, with the following range of bonus opportunities:

 

 

 

 

 

 

 

 

 

 

Bonus Opportunity as a % of

 

 

 

Base Salary

 

Executive

 

Threshold

    

Target

    

Maximum

 

Wendy L. Simpson

    

93.8

%  

125.0

%  

218.8

%

Pamela J. Shelley-Kessler

 

67.5

%  

90.0

%  

157.5

%

Clint B. Malin

 

67.5

%  

90.0

%  

157.5

%

Bonuses under the 2017 bonus program were earned based 50% on the financial performance of our company and 50% on the Compensation Committee’s subjective evaluation of both individual and our company performance. Financial performance was measured using Diluted Normalized FFO per share and new investments, with 40% of the bonus plan tied to FFO per share and 10% tied to new investments. The subjective component in 2017 included factors such as individual performance, capital structure management, credit ratings, dividend growth and total stockholder return relative to peers. Performance achievement for the subjective component is determined at the discretion of the Compensation Committee. The factors used for qualitatively determining the score for the subjective factors are discussed below.

For purposes of the Annual Cash Bonus Incentive Plan, Diluted Normalized FFO, including the means of calculating it, is disclosed in our annual earnings release and in the Appendix to this proxy statement. The Board may adjust the Diluted Normalized FFO component to reflect the pro forma impact of changes to our company’s capital structure, strategic changes and other items, at the Board’s discretion, that were not contemplated at the time of adoption of the performance goals. New investments include acquisitions, loan originations, equity investments and total commitments underwritten for developments, redevelopments, expansions and renovations.

The following table summarizes each metric and its relative weighting, the approved 2017 performance goals at threshold, target and maximum levels, and actual performance achieved. For 2017, actual performance versus the Diluted Normalized FFO per share goal was achieved at 99% of the objective, and new investments was achieved at 69% of the performance objective. The subjective assessment was scored at the 100% maximum based on the factors described below. Based on the degree of goal achievement, the bonus formula for the year resulted in a payout of 88% of target for Ms. Simpson, Ms. Shelley-Kessler and Mr. Malin. This below-target bonus level resulted in considerably lower cash bonus awards in 2017 than were earned by the named executive officers in 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

2017 Performance Goals

 

Performance

 

Target

 

Metric

 

Weight

 

Threshold

 

Target

 

Maximum

 

Achieved

 

Achieved

  

Diluted Normalized FFO per share

  

40

%  

  

 

$
3.10

  

 

$
3.14

  

 

$
3.18

  

 

$
3.10

  

99

%  

New Investments ($ in millions)

 

10

%  

 

 

$
100

 

 

$
150

 

 

$
200

 

 

$
103

 

69

%  

Subjective Performance

 

50

%  

 

Compensation Committee Determination

 

 

Target

 

100

%  

In determining the subjective component of the annual bonuses, the Compensation Committee evaluated the performance of our company for the year compared to other real estate investment trusts and the overall market. The target bonus allowed under the subjective component was awarded as a result of the following 2017 accomplishments:

·

Purchased two memory care communities, one combination assisted living and memory care community, and one assisted living community for a total of $71.0 million;

·

Entered into a partnership agreement and acquired a combination assisted living and memory care community for $10.0 million; 

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·

Entered into a partnership agreement for the acquisition of land and development of a 110-unit combination independent living, assisted living and memory care community for a total commitment of $22.5 million;  

·

Completed and opened a  66-unit memory care community and completed the renovation of a 120-bed skilled nursing center;

·

Sold five assisted living communities raising $14.9 million in net proceeds and recognized a net gain on sale of $5.0 million;

·

Donated an 85-unit skilled nursing center with a carrying value of $1.2 million to a nonprofit health care provider;

·

Raised $100.0 million through the sale of 15-year senior unsecured notes at fixed rates of 4.5%;

·

Raised net proceeds of $14.6 million under our equity distribution agreements;

·

Achieved 12th to highest total shareholder return relative to our 23-company peer group; and

·

Maintained our investment grade rating from the National Association of Insurance Commissioners (NAIC).

Based on the performance achieved, the Compensation Committee approved the following payouts under the Annual Cash Bonus Incentive Plan:

 

 

 

 

 

 

 

 

 

 

 

 

    

Wendy L.

    

Pamela J. Shelley-

    

Clint B.

 

Metric

 

Simpson

 

Kessler

 

Malin

 

Diluted Normalized FFO per share

 

$

253,125

 

$

108,000

 

$

108,000

 

New Investments ($ in millions)

 

 

64,547

 

 

27,540

 

 

27,540

 

Subjective Performance

 

 

421,875

 

 

180,000

 

 

180,000

 

Total Bonus Earned

 

$

739,547

 

$

315,540

 

$

315,540

 

 

 

2017 bonus awards were 46% lower than the CEO’s bonus for 2016 performance and were 38% lower than the 2016 bonus earned by the other two named executive officers for 2016 performance. This materially lower level of bonus awards reflected the Committee’s view that 2017 was not as strong a year as 2016 and that compensation should be reduced to align with performance.

Long‑Term Equity Incentives

Long‑term incentives are granted to align the executives’ financial interests with those of our stockholders and are in the form of RSAs, PSUs and stock options. Awards are made on an individual basis and are not granted at any pre‑determined time during the year.

RSAs typically vest ratably over a three- to five‑year period and are generally subject to the individual executive officer’s continued employment. The PSU awards are earned over a four-year performance period, subject to the ability to accelerate earnout if three-year performance is high enough, with the number of shares earned dependent on our total stockholder return (“TSR”) over the applicable performance period. The level of long‑term incentive compensation is determined by the Compensation Committee based on an evaluation of competitive factors in conjunction with total compensation provided to each individual executive officer. The relevant weight given to each of these factors varies from individual to individual. We do not have an exact formula for allocating between cash and non‑cash compensation, nor do we have a policy for allocating between long‑term and currently paid out compensation.

The grant date of an equity award is typically the date the Compensation Committee approves the equity award. The grant date may also be a future date from the date of approval as specified by the board resolution. In no instances has the grant date been retroactive or prior to the date the Compensation Committee approved the equity award. For long‑term incentive awards in the form of stock options, the exercise price is the closing price of our company’s stock as reported by the NYSE on the grant date. The Compensation Committee has not and does not time the granting of equity awards with any favorable or unfavorable news released by us.

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Under the 2015 Equity Participation Plan, awards that may be granted include stock options (incentive or non‑qualified), stock appreciation rights, RSAs, PSUs, deferred stock and dividend equivalents. The 2015 Plan is administered by the Compensation Committee which sets the terms and provisions of the awards granted under the plan. Incentive stock options, stock appreciation rights, RSAs, PSUs, deferred stock and dividend equivalents may only be awarded to officers and other full‑time employees to promote our long‑term performance and specifically, to retain and motivate management to achieve a sustained increase in stockholder value. Non‑qualified stock options, stock appreciation rights, RSAs, PSUs, deferred stock and dividend equivalents may be awarded to non‑employee directors, officers, employees, consultants and other key persons who provide services to us.

In 2017, the Compensation Committee used RSAs and the performance-contingent equity in the form of PSUs as the key form of long-term equity incentive awards provided to our executive officers. The Compensation Committee approved equity awards to the Chief Executive Officer and the Chief Executive Officer recommended and the Compensation Committee approved equity awards to Ms. Shelley‑Kessler and Mr. Malin for their service in 2017. In approving the equity awards, the Compensation Committee took into consideration the executive’s historical performance and contributions, total ownership levels and the value of equity delivered historically, the market positioning of the executives’ pay and our company’s desire to retain the executives by providing a meaningful long‑term incentive award to each executive which is aligned with stockholder interests.

On February 14, 2017, the Compensation Committee granted the following RSAs which vest ratably over a three-year period from the grant date:

 

 

 

 

 

 

 

 

    

Restricted

    

Number of

 

 

 

Stock

 

Restricted

 

Named Executive Officer

 

Value

 

Stock

 

Wendy L. Simpson

 

$

1,015,003

 

22,181

 

Pamela J. Shelley-Kessler

 

 

556,991

 

12,172

 

Clint B. Malin

 

 

556,991

 

12,172

 

For PSU awards, the Compensation Committee approved specific dollar values to be awarded to the named executive officers and the number of shares was determined by dividing the Committee approved target dollar value by the accounting fair value per share on the date of grant. The following table sets forth the grant values of PSUs granted on February 14, 2017:

 

 

 

 

 

 

 

 

    

PSU

    

Number of

 

 

 

Award

 

PSU

 

Named Executive Officer

 

Value

 

Award

 

Wendy L. Simpson

 

$

1,015,000

 

20,915

 

Pamela J. Shelley-Kessler

 

 

557,000

 

11,477

 

Clint B. Malin

 

 

557,000

 

11,477

 

PSUs granted in 2017 can be earned between 0-200% based on LTC’s cumulative TSR performance through February 14, 2021 (4-year performance period), and have an opportunity to be earned early if TSR through February 14, 2020 (3-year performance period) is at least 3%. The four-year performance period may be shortened to three years if three-year TSR performance is high enough to fund the maximum PSU earnout after three years. The share price at the grant date is used as the starting point for the TSR calculation, and a trailing 20 trading-day average share price is used to calculate the share price at the end of the performance period. Dividends for outstanding PSUs are accrued in the form of additional stock units during the restriction period, and are distributed if and when the underlying shares are earned (dividends accrued on unearned/forfeited PSU shares are not paid).

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Under the 2017 PSU design, payouts range from 0% to 200% of target, based on the schedule below:

 

 

 

 

 

 

 

 

 

    

Cumulative

    

Accelerated

    

Payout %

 

 

 

4-year

 

Cumulative

 

of Target

 

Growth Requirements

 

TSR

 

3-year TSR

 

Share Granted

 

Below Threshold

 

Less than 4.1%

 

Less than 3.0%

 

 —

 

Threshold

 

4.1%

 

3.0%

 

50.0%

 

Target

 

21.6%

 

15.8%

 

100.0%

 

Maximum

 

46.4%

 

33.1%

 

200.0%

 

The 2017 PSUs are earned based on 4-year cumulative TSR. The program has several features to minimize the impact of daily volatility and point-to-point variation. A 20 trading-day average price is used to measure performance at the end of the period.

The Summary Compensation Table makes comparing the 2016 equity value to 2017 value difficult. Prior to 2017 the RSAs granted in February were disclosed in the Summary Compensation Table as reflecting an award for prior year performance. This was changed in 2017 because the February RSA grant is not determined formulaically based on prior year performance. However, the transition causes the February 2016 RSA award to be reported as compensation for 2015 and therefore understates the value of the 2016 compensation decision. 

In order to view compensation in the same manner as the Compensation Committee and to make consistent comparisons of year-to-year value, the 2015 RSA value, which was granted in February 2016, was treated as 2016 compensation in the following table. Adjusting the grants to reflect consistent grant timing methodology, the 2017 equity grant value was substantially similar to the equity grant value provided in 2016: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSA

 

PSU Award

 

Total Stock

 

 

Name and Principal Position

 

Year

 

Value

 

Value

 

Awards

 

 

Wendy L. Simpson

 

2017

 

$

1,015,003

 

$

1,015,000

 

$

2,030,003

 

 

Chairman, Chief

 

2016

 

 

977,224

 

 

950,000

 

 

1,927,224

 

 

Executive Officer and

 

 

 

 

 

 

 

 

 

 

 

 

 

President

 

 

 

 

 

 

 

 

 

 

 

 

 

Pamela J. Shelley-Kessler

 

2017

 

 

556,991

 

 

557,000

 

 

1,113,991

 

 

Executive Vice President,

 

2016

 

 

514,556

 

 

500,000

 

 

1,014,556

 

 

Chief Financial Officer and

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

Clint B. Malin

 

2017

 

 

556,991

 

 

557,000

 

 

1,113,991

 

 

Executive Vice President

 

2016

 

 

514,556

 

 

500,000

 

 

1,014,556

 

 

and Chief Investment Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Further, the normalization of the reporting for 2016 and 2017 RSA awards above results in lower year-over-year total direct compensation for all named executive officers if applied to the Summary Compensation Table. This alternative Summary Compensation Table view that 2017 was lower than 2016 as a result of performance during the year is consistent with the Committee’s view of 2017 compensation relative to 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

 

    

Non-Equity

    

 

 

    

 

 

 

 

 

 

 

 

 

 

Stock

 

Incentive Plan

 

All other

 

 

 

 

Name and Principal Position

 

Year

 

Salary

 

Awards

 

 Compensation 

 

Compensation

 

Total

 

Wendy L. Simpson

 

2017

 

$

675,000

 

$

2,030,003

 

$

739,547

 

$

1,663

 

$

3,446,213

 

Chairman, Chief

 

2016

 

 

655,000

 

 

1,927,224

 

 

1,368,131

 

 

711

 

 

3,951,066

 

Executive Officer and

 

2015

 

 

627,917

 

 

561,090

 

 

952,500

 

 

1,653

 

 

2,143,160

 

President

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pamela J. Shelley-Kessler

 

2017

 

 

400,000

 

 

1,113,991

 

 

315,540

 

 

10,250

 

 

1,839,781

 

Executive Vice President,

 

2016

 

 

390,000

 

 

1,014,556

 

 

506,142

 

 

4,572

 

 

1,915,270

 

Chief Financial Officer and

 

2015

 

 

375,833

 

 

504,275

 

 

427,500

 

 

4,955

 

 

1,312,563

 

Corporate Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clint B. Malin

 

2017

 

 

400,000

 

 

1,113,991

 

 

315,540

 

 

4,333

 

 

1,833,864

 

Executive Vice President

 

2016

 

 

390,000

 

 

1,014,556

 

 

506,142

 

 

3,444

 

 

1,914,142

 

and Chief Investment Officer

 

2015

 

 

375,833

 

 

504,275

 

 

427,500

 

 

3,481

 

 

1,311,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Severance and Other Benefits Upon Termination of Employment or Change in Control

The employment agreements with certain executive officers of our company provide severance and other benefits upon termination of employment or a change in control of our company. We believe that we need to provide key executives with severance protections that are competitive with those offered by companies similar to ours. The severance protections we have provided the named executive officers are consistent with our compensation objective to attract, motivate and retain qualified key executives.

We believe that severance should be payable to key executives if their employment is terminated for any reason, except for a termination for cause or a voluntary resignation without a good reason. The amount of severance we have agreed to pay and other severance benefits we extend to our executive officers upon such an occurrence is intended to help compensate them during a period of expected unemployment in the event of a termination without cause.

We also believe that severance should be payable to our key executives in connection with a change in control transaction. A change in control creates uncertainty regarding the continued employment of the executives. We provide severance in the event of a change in control to make our key executives indifferent about their own job security if the Board determines that it is in the best interests of shareholders to sell the company. The amount of cash severance we have agreed to pay and other severance benefits we extend to our executive officers upon such an occurrence is intended to encourage the executives to remain employed by us during an important time when their prospects for continued employment following the change in control transaction are often uncertain. Our current practice for change in control severance follows a “double‑trigger” approach. Ms. Simpson’s, Ms. Shelley‑Kessler’s, and Mr. Malin’s employment agreements contain double‑trigger change in control provisions. Under a double‑trigger approach, a severance payment obligation arises only if a change in control occurs and the executive’s employment is terminated for any reason, except for a termination for cause or a voluntary resignation without a good reason, within a 24-month period after the change in control.

Additionally, upon the circumstances described above regarding termination of employment or change in control, we have agreed to provide health insurance benefits to each named executive officer for a period of 18 months. None of the employment agreements with our executive officers provide for lifetime benefits.

None of the employment agreements with our executive officers provide for “gross‑up payments” to offset taxes due for severance or other benefits upon termination of employment or change in control.

401(k) Savings Plan

We have a 401(k) Savings Plan which is a defined contribution plan covering all of our employees. Each year participants may contribute up to 15% of pre‑tax annual compensation. In 2017, the contributions may not exceed $18,000, or $24,000 if the employee is 50 years or older. We match up to 3% of salaries for our vice presidents and contribute 3% of the individual’s salary for staff that open an account. We will not match contributions for our executive officers at the senior vice president level and higher.

Benefits

With limited exceptions, the Compensation Committee’s policy is to provide benefits to executive officers that are substantially the same as those offered to other officers of our company at or above the level of vice president. Except for the health insurance benefits described in “Severance and Other Benefits Upon Termination of Employment or Change in Control” above and the supplemental medical insurance described below, the employee benefits programs in which our executive officers participate (which provide benefits such as medical, dental and vision benefits coverage, life insurance protection, and 401(k) savings plan) are generally the same programs offered to all of our full‑time employees. Our officers at the level of vice president and above are eligible to participate in a supplemental medical insurance program which reimburses participants up to a maximum of $10,000 per year for eligible out‑of‑pocket medical expenses such as primary insurance co‑payments, deductibles, and certain elective medical procedures not covered by the employee’s primary insurance policy.

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Table of Contents

Stock Ownership Guidelines

We encourage our executives to hold our company’s stock on a long‑term basis. The following table represents our company’s stock ownership guidelines for our executives and independent directors:

 

 

Chief Executive Officer

Six times base salary

Executive Vice Presidents

Three times base salary

Independent Directors

Five times annual fee

Our company’s stock ownership guidelines recommend that the Chief Executive Officer and Executive Vice Presidents achieve the targeted level of ownership within three years from the date of hire, promotion or appointment. The stock ownership guidelines recommend that the independent directors achieve the targeted level of ownership within five years from date of election. At this time all of our executive officers and independent directors hold at least the full amount of the guideline. The Nominating and Corporate Governance Committee receives a quarterly report on executive and independent director stock ownership of company stock.

Prohibition on Pledging and Hedging Stock

Pursuant to our company’s Insider Trading Policy, we prohibit employees and directors from (i) pledging their shares in our company’s stock, and (ii) purchasing financial instruments or otherwise engaging in transactions that are designed to or have the effect of hedging the economic risk of ownership in our company’s stock. All of our executive officers and directors are in compliance with these anti‑pledging and anti‑hedging provisions.

Tax and Accounting Considerations

Policy with Respect to Section 162(m)

Section 162(m) of the Code denies deduction for Federal income tax purposes for certain compensation in excess of $1,000,000 paid to certain executive officers, unless certain performance, disclosure, stockholder approval and other requirements are met. The Compensation Committee periodically reviews the effects of its compensation programs with regard to Code Section 162(m) and evaluates alternatives to ensure executive compensation is reasonable, performance‑based, and consistent with our overall compensation objectives. The Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to our success, even where the compensation paid under such programs may not be deductible. Interpretations of and changes in the tax laws and other factors beyond the Compensation Committee’s control may affect the deductibility of certain compensation payments. The Compensation Committee may consider various alternatives to preserve the deductibility of compensation payments and benefits to the extent reasonably practicable and to the extent consistent with its other compensation objectives.

Tax Withholding

We permit our employees and directors to elect to withhold shares of stock to satisfy their tax withholding requirements upon the vesting of restricted stock.

Clawback Policy

We have adopted a Clawback Policy that grants the Board the discretion to recoup from executive officers, including each currently serving named executive officer, all cash bonuses paid that would not have been paid if performance had been measured in accordance with restated financials, for the periods covering any of the three fiscal years preceding a restatement (other than to comply with changes in applicable accounting principles). The Board of Directors is responsible for the interpretation and enforcement of this Clawback Policy.

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Table of Contents

Each of the senior executive employment agreements we entered into in 2017 with Ms. Simpson, Ms. Shelley‑Kessler and Mr. Malin contains a clawback provision. In particular, the employment agreements provide the Board of the Directors with the contractual ability to clawback a cash or share grant bonus in the event of a restatement of our financial results if:

·

the restatement is attributable to misconduct or wrongdoing by the executive;

·

the bonus was issued within three years preceding the restatement;

·

the bonus was calculated and awarded pursuant to a specific financial formula; and

·

the bonus would have been diminished based on the restated financial results.

Compensation Risk Assessment

We have reviewed our compensation policies and practices to determine whether risks arising from our compensation policies and practices for employees are reasonably likely to have a material adverse effect on our company. The review included assessment of our various compensation programs and consideration of risk mitigating factors. We believe that our compensation policies and practices for employees do not present risks that are reasonably likely to have a material adverse effect on our company. We generally take a conservative approach to managing our business. Although some risk-taking is necessary to manage and grow any business, we believe our compensation policies and practices do not encourage unnecessary or excessive risk-taking and do not promote short-term rewards for management decisions that could pose long‑term risks to our company. With particular respect to compensation of our executive officers:

·

the Compensation Committee exercises discretion in determining cash bonuses and equity awards to executive officers;

·

awards of restricted stock with long‑term vesting periods provides executive officers with an incentive to make decisions that contribute to long‑term performance of our company;

·

our Clawback Policy and provisions in our senior executive employment agreements provide our company with recourse in the event of material non‑compliance with any financial reporting requirement that leads to a material or significant restatement; and

·

stock ownership guidelines for executive officers further aligns their personal wealth with the long‑term performance of our company.

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EXECUTIVE COMPENSATION TABLES

Summary Compensation Table

The following table presents information regarding compensation of the named executive officers for services provided in 2017,  2016 and 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

 

    

Non-Equity

    

 

 

    

 

 

 

 

 

 

 

 

 

 

Stock

 

Incentive Plan

 

All other

 

 

 

 

Name and Principal Position

 

Year

 

Salary

 

Awards(1)

 

Compensation

 

Compensation(2)

 

Total

 

Wendy L. Simpson

 

2017

 

$

675,000

 

$

2,030,003

(3)(4)

$

739,547

(5)

$

1,663

 

$

3,446,213

 

Chairman, Chief

 

2016

 

 

655,000

 

 

950,000

(6)

 

1,368,131

(5)

 

711

 

 

2,973,842

 

Executive Officer and

 

2015

 

 

627,917

 

 

977,224

(7)

 

952,500

(5)

 

1,653

 

 

2,559,294

 

President

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pamela J. Shelley-Kessler

 

2017

 

 

400,000

 

 

1,113,991

(3)(4)

 

315,540

(5)

 

10,250

 

 

1,839,781

 

Executive Vice President,

 

2016

 

 

390,000

 

 

500,000

(6)

 

506,142

(5)

 

4,572

 

 

1,400,714

 

Chief Financial Officer and

 

2015

 

 

375,833

 

 

514,556

(7)

 

427,500

(5)

 

4,955

 

 

1,322,844

 

Corporate Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clint B. Malin

 

2017

 

 

400,000

 

 

1,113,991

(3)(4)

 

315,540

(5)

 

4,333

 

 

1,833,864

 

Executive Vice President

 

2016

 

 

390,000

 

 

500,000

(6)

 

506,142

(5)

 

3,444

 

 

1,399,586

 

and Chief Investment Officer

 

2015

 

 

375,833

 

 

514,556

(7)

 

427,500

(5)

 

3,481

 

 

1,321,370

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Represents the fair value on the grant date of the stock awards, as required by SEC rules. Under U.S. generally accepted accounting principles, compensation expense with respect to stock awards granted is generally recognized over the vesting periods applicable to the awards. For a discussion of the assumptions and methodologies used to value the stock awards granted refer to Note 9. Equity of Notes to Consolidated Financial Statements included in our company’s 2017 Annual Report on Form 10-K.

(2)

Represents supplemental health insurance benefits.

(3)

Named executive officers were awarded the following performance-based stock units during 2017 with the number of shares to be earned depending on our TSR over the applicable performance period. These PSUs require a minimum threshold of 4.1% cumulative annual TSR performance, before threshold shares are earned, and they require 21.6% cumulative TSR performance before target shares are earned, each as measured over a 4-year performance period, with opportunity to earn the awards after 3 years if cumulative TSR performance is at least 3.0% at the end of 3 years:

 

 

 

 

 

 

 

 

    

PSU

    

Number of

 

 

 

Award

 

PSU

 

Named Executive Officer

 

Value

 

Award

 

Wendy L. Simpson

 

$

1,015,000

 

20,915

 

Pamela J. Shelley-Kessler

 

 

557,000

 

11,477

 

Clint B. Malin

 

 

557,000

 

11,477

 

 

(4)

Named executive officers received the following restricted common stock awards on February 14, 2017 which vest ratably over a three-year period from the grant date:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Number of

 

 

 

Restricted

 

Restricted

 

Named Executive Officer

 

Stock Value

 

Stock

 

Wendy L. Simpson

 

$

1,015,003

 

22,181

 

Pamela J. Shelley-Kessler

 

 

556,991

 

12,172

 

Clint B. Malin

 

 

556,991

 

12,172

 

(5)

Represents amounts earned in cash under the Annual Cash Bonus Incentive Plan for performance in 2017, 2016 and 2015 which were paid in 2018, 2017 and 2016.

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(6)

Named executive officers were awarded the following performance-based stock units during 2016 with the number of shares to be earned depending on our TSR over the applicable performance period. These PSUs require a minimum threshold of 4.1% cumulative annual TSR performance, before threshold shares are earned, and they require 21.6% cumulative TSR performance before target shares are earned, each as measured over a 3.74-year performance period, with opportunity to earn the awards after 2.74 years if cumulative TSR performance is at least 3.0% at the end of 2.74 years:

 

 

 

 

 

 

 

 

    

PSU

    

Number of

 

 

 

Award

 

PSU

 

Named Executive Officer

 

Value

 

Award

 

Wendy L. Simpson

 

$

950,000

 

19,808

 

Pamela J. Shelley-Kessler

 

 

500,000

 

10,425

 

Clint B. Malin

 

 

500,000

 

10,425

 

(7)

Named executive officers received the following restricted common stock awards on February 18, 2016 for services provided in the preceding 2015 year. In 2017, the Compensation Committee determined that RSAs should be attributable to the year in which the award is granted as compared to the approach of awarding RSAs to the named executive officer for performance in the preceding year. The Committee’s view of the RSA awards is provided in an alternate grant table and an alternate summary compensation table on page 22 in the CD&A section of this proxy statement. The February 18, 2016 awards vest ratably over a three-year period from the grant date:

 

 

 

 

 

 

 

 

    

 

 

    

Number of

 

 

 

Restricted

 

Restricted

 

Named Executive Officer

 

Stock Value

 

Stock

 

Wendy L. Simpson

 

$

977,224

 

22,600

 

Pamela J. Shelley-Kessler

 

 

514,556

 

11,900

 

Clint B. Malin

 

 

514,556

 

11,900

 

CEO to Median Employee Pay Ratio

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing information about the relationship of the annual total compensation of our employees and the annual total compensation of our CEO. The applicable rules allow companies to use various assumptions and methodologies in calculating the pay ratio and, accordingly, our pay ratio may not be comparable with the pay ratios of other companies.

We identified the median employee by examining the 2017 total compensation in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K for all individuals, excluding our CEO, who were employed by us as of December 31, 2017. We used our payroll records to identify this information. In making this determination, we did not annualize compensation for those employees who did not work for the Company for the entire fiscal year. We also did not make any cost-of-living adjustments in identifying the median employee. Our chief executive officer had annual total compensation of $3,446,213 and our median employee had annual total compensation of $212,013. Therefore, we estimate that our CEO’s annual total compensation is 16 times that of the median of the annual total compensation of all of our employees, excluding our CEO.

Employment Agreements

Our company has entered into employment agreements with each of the named executive officers. The following table presents information regarding the employment agreements with the named executive officers for the year ended December 31, 2017:

 

 

 

 

 

 

 

 

 

Named Executive Officer

    

Agreement Date

    

Agreement Term

    

Salary

 

Wendy L. Simpson

 

11/12/14

 

3-year evergreen

 

$

675,000

 

Pamela J. Shelley-Kessler

 

11/12/14

 

2-year evergreen

 

 

400,000

 

Clint B. Malin

 

11/12/14

 

2-year evergreen

 

 

400,000

 

The employment agreements provide that the base salaries may be increased at the discretion of the Board. Any increase in base salary will automatically amend each executive’s respective employment agreement to provide that thereafter the executive’s annual base salary will not be less than the increased base salary approved by the Board. During the term of his or her employment by us, each officer will devote the time necessary to provide the services reasonably required by the Board and will not, without the express approval of the Board, engage for his or her own account or for the account of any other person or entity, in a business which competes with us.

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The employment agreements contain standard provisions regarding bonuses and benefits, as described in the CD&A section of this proxy statement. Additionally, the employment agreements with the named executive officers provide payments for severance upon termination of employment, including in connection with a change in control, as described under “Severance and Other Benefits Upon Termination of Employment or Change in Control” on page 22 of this proxy statement and under “Potential Payments Upon Termination or Change in Control” on page 30 below. 

Grants of Plan-Based Awards

The following table presents information regarding plan-based awards made in 2017 and as of December 31, 2017 to the named executive officers and is intended to supplement the summary compensation table above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Possible

 

Stock

 

Grant Date

 

 

 

 

 

 

 

Estimated Possible Payouts Under

Payouts Under Equity

 

Awards:

 

Fair Value

 

 

 

Grant

 

Grant

 

Non-Equity Incentive Plan Awards

Incentive Plan Awards

 

Number

 

of Stock

 

Named Executive Officer

 

Date

 

Type

  

Threshold

 

Target

 

Max

   

Threshold

  

Target

  

Max

 

of RSAs

 

Awards

 

Wendy L. Simpson

  

2/14/17

(1)  

RSA

 

$

 

$

 

$

   

 —

  

  

 —

  

22,181

 

$

1,015,003

 

 

 

2/14/17

(2)  

PSU

 

 

 

 

 

 

 

10,458

 

20,915

 

41,830

 

 —

 

 

1,015,000

 

 

 

(3)  

 

 

632,813

 

 

843,750

 

 

1,476,563

 

 —

 

 

 —

 

 —

 

 

 —

 

Pamela J. Shelley-Kessler

 

2/14/17

(1)  

RSA

 

 

 

 

 

 

 

 —