Overview of Our Corporate Governance Program
Our Board and executive leaders are stewards of the interests of our shareholders and believe that strong and effective corporate governance is essential to our success. A cornerstone of our corporate governance program is transparent disclosure to our shareholders on a consistent basis. Our approach integrates all components of effective governance, including a strong ethical culture, a comprehensive enterprise risk management program, an ongoing shareholder engagement program, sound financial and legal compliance functions and a commitment to responsibility. Our holistic strategy focuses on delivering long-term shareholder value and has been recognized as producing the highest standards of governance.
The following chart highlights the key aspects of our corporate governance program.
|Board Composition||Shareholder Rights||Key Policies||Company Strategy||Recognition|
|✔ 88% of Board is Independent||✔ Shareholder Right to Call a Special Meeting with No Material Restrictions||✔ Pay-For-Performance Executive Compensation Philosophy||✔ Five Year Strategic Growth Plan to Expand Workforce Solutions||✔ #11 of Fortune 100 Fastest Growing Companies (2017)|
|✔ Independent Board Chairman||✔ Proxy Access||✔ Stock Ownership Guidelines||✔ Defined and Transparent Long-Term Financial Targets||✔ Bloomberg Gender Equality Index (2017)|
|✔ Independent Audit, Governance and Compensation Committees||✔ Annual Election of Directors & No Staggered Board||✔ Anti-Hedging Policy||✔ Recognized Leader and Innovator in Healthcare Workforce Solutions||✔ Human Rights Campaign Corporate Equality Index (2018)|
|✔ Engaged & Diverse Board with 25% Female Directors||✔ Majority Voting in Uncontested Elections||✔ Formal Shareholder Engagement Program||✔ Corporate Social Responsibility Report||✔ Largest Healthcare Staffing Firm in the U.S. Staffing Industry Analysts (2017)|
|✔ Annual Board & Committee Evaluations||✔ Shareholder Right to Act by Written Consent||✔ Clawback Policy||✔ Active Enterprise Risk Management Program||✔ The Achievers 50 Most Engaged Workplaces (2016)|
|✔ Two “Financial Experts” on the Audit Committee||✔ No Poison Pill in Effect||✔ Anti-Pledging Policy||✔ Annual Ethics & Engagement Survey||✔ NYSE Governance, Risk and Compliance Leadership Awards (2015)|
In addition to the highlights summarized above, we regularly review, benchmark and update our current corporate governance policies and procedures to ensure best practices. Below are some examples of recent steps we have taken as a result of our efforts to continually evolve our governance program to reflect best practices.
- In 2016, we instituted a formal shareholder corporate governance outreach program to elicit the views of our investors on matters that interested them. As a foundational element to this program, the Board adopted a policy on shareholder engagement, which we have continued to build on in 2017.
- In 2017, we amended the Company’s Bylaws to implement “proxy access,” which allows a shareholder, or a group of up to 20 shareholders, owning at least 3% of our outstanding Common Stock for at least three years, to nominate and include in the our annual meeting proxy materials, directors constituting the greater of two individuals or 20% of the Board. Our engagement with shareholders in 2016 and 2017 played a significant role in our Board’s decision to adopt proxy access.
- In early 2018, we reviewed and revised our Executive Compensation Philosophy to clearly articulate our commitment to equal pay principles and promoting a values-based culture.
- In 2018, our Corporate Governance Committee revised our Corporate Governance Guidelines (the “Guidelines”) to affirm the Board’s commitment to a diverse board. We recognize that board refreshment is an area of focus for many investors and proxy advisory firms. As a result, we proactively discuss this topic with our largest investors. We believe that the composition of our current Board collectively possesses the necessary experience, skills and knowledge, as well as a high level of engagement, to serve the best interests of our shareholders.
Our 2017 Shareholder Outreach Summary
To further promote open communication with our shareholders on an ongoing and consistent basis, we initiated a formal shareholder corporate governance outreach and engagement program in 2016 to supplement our financial related investor meetings. The underpinnings of our corporate governance shareholder outreach program are set forth in the Guidelines and posted on the Investor Relations page of the Company’s website. At AMN, we recognize that we must earn and maintain our shareholders’ continued support throughout the entire year. Therefore, our robust program has been designed to facilitate meaningful engagement on an ongoing basis with the objective of building a stronger and more successful company.
With a formal program and clear objectives in place, we proactively reached out to over 25 of our top shareholders in June of 2017, representing approximately two-thirds of our outstanding Common Stock, and invited them to meet with us to discuss any matters that may be of interest to them. We received responses to our engagement invitation from over half of these shareholders, representing approximately 50% of our outstanding Common Stock. We were pleased to touch base with our shareholders after the 2017 Annual Meeting, and we found the meetings to be enlightening and productive. Each shareholder expressed appreciation for our proactive interest in their views, and we certainly appreciated the time they took to share their thoughts with us. Collectively, the meetings touched upon the following topics: (1) proxy access, (2) our Board’s involvement in setting our strategic direction, (3) Board diversity, expertise and refreshment, (4) corporate culture and ethics, (5) corporate social responsibility, (6) human capital management and engagement, and (7) executive compensation, including the metrics utilized for performance-based compensation. Although each shareholder’s particular focus was slightly different, our mission, long-term strategy, culture and ethics, emphasis on corporate social responsibility and human capital, approach to executive compensation and commitment to high standards of corporate governance were well received.
The Board reviewed the key takeaways from these meetings and has taken action with the goal of continuing to evolve our corporate governance practices to best meet the needs of the Company and our key stakeholders. Specifically, as mentioned, the Board amended the Company’s Bylaws to provide proxy access to shareholders. Other developments that resulted from our shareholder meetings in 2017 include modifications to our equity compensation awards, board evaluation process and enhanced corporate social responsibility related disclosures. With respect to board refreshment, we believe that our current Board composition provides us with diverse experiences and perspectives for the industry in which we operate. We will continue to engage with our shareholders on this topic and the Board will continue to consider our directors’ relevant experience and tenure, both individually and collectively, as it analyzes and develops a pipeline of potential director nominees.
Our Culture, Ethics, Engagement and Guidelines
Another essential element to our approach to quality corporate governance is our commitment to promoting a culture of ethics and integrity, that guides the manner in which we do business. The Board and Executive Management are committed to fostering a strong ethical corporate culture and expect all team members to fulfill their responsibilities in accordance with the highest standards of professional and personal conduct.
To uphold this commitment, AMN has adopted:
- a Code of Conduct and Ethics (“Code of Conduct”), that is based on the Company’s core values of respect, trust, passion, innovation, customer focus and continuous improvement. The content and format of our Code of Conduct is designed to provide a practical and user-friendly guide for our team members to refer to on a daily basis. It contains examples and questions that help them put our core values into practice. In 2017, we continued to review and refresh our Code of Conduct to provide additional guidance and training on hot topics such as information security and privacy.
- an Annual Ethics and Engagement Survey of our team members. We also share the results of this survey with the Board to ensure we are delivering on the AMN Difference, which includes our core values, leader and coworker quality, collegial work environment and development and career opportunities.
- a supplementary Code of Ethics for the Principal Executive Officer and Senior Financial Officers (“Financial Officers Code of Ethics”),
- the Guidelines, which function as a critical component to the overall framework for the governance of our Company and was recently revised to reflect the Board’s commitment to a diverse board, and our Executive Compensation Philosophy, which we recently revised to reflect our commitment to equal pay.
As discussed above, our Board and its committees regularly and carefully review these key governance documents to ensure they contain what we believe to be the best governance practices for the Company. We publish these documents, among others, under the “Corporate Governance” section of the “Investors Relations” page on the Company’s website at www.amnhealthcare.com. We also make these materials available in print to any shareholder upon request. Our Board closely monitors corporate governance developments and modifies the Guidelines, Executive Compensation Philosophy, the Code of Conduct and the Financial Officers Code of Ethics regularly.
Our Corporate Social Responsibility Program
As the leader and innovator in healthcare workforce solutions and staffing services, we are committed to supporting a sustainable future and making a positive impact in communities locally and around the world through our business practices and voluntarism with minimal negative impact on the environment. Accordingly, our evolving corporate social responsibility (“CSR”) strategy integrates relevant environmental, social and governance (“ESG”) criteria to better manage risk and generate sustainable, long-term returns for our shareholders while supporting the success and wellbeing of our team members, clients and communities. Our Board recognizes the integral role ESG factors play in the Company’s success, and we believe our ability to proactively manage these risks and opportunities demonstrates the effective leadership and governance principles that responsible investors desire.
Through our engagement with shareholders, we realize investors are becoming increasingly interested in our approach to ESG issues, and we hear you. Beginning this year, we need to change the frequency of the publication of our CSR report from a bi-annual basis to an annual basis. Until our 2018 publication is released, we encourage you to visit www.amnhealthcare.com/csr to learn more about our ESG sustainability efforts.
Our commitment to building an industry-leading CSR program is demonstrated by our overall “AA” ESG rating from MSCI ESG Research, placing us in the top 20% of companies within our industry. With our core values of passion, trust, respect, customer focus, continuous improvement and innovation, we will continue to hold our internal and external operations to the highest standards, while increasingly integrating relevant ESG criteria into our controls that mitigate risk and generate sustainable value for our shareholders, team members, clients and communities.
By taking an integrated approach that focuses on both opportunities and risks, we believe our ESG efforts to date and evolving CSR strategy going forward allow us to proactively address key reputational and operational risks that threaten the sustainability of our business. The illustration below provides a brief summary of some of the CSR efforts we have undertaken to mitigate ESG risks that are relevant to our business.
Our Board’s Role in Risk Oversight
The Board, as a whole, is responsible for overseeing our risk exposure as part of determining a business strategy that generates long-term shareholder value. The Board shapes our enterprise-wide risk capacity, appetite and tolerance levels that provide the foundation for our overall business strategy and direction. The Board recognizes that risk mitigation not only preserves value, but also, when managed appropriately, creates value and opportunity.
Indeed, purposeful and appropriate risk-taking in certain areas is important for us to be competitive and to achieve our long-term goals. Accordingly, the Board has implemented a comprehensive risk governance framework in which it regularly identifies key risks that face our Company and carefully considers our risk appetite for each issue. Through our enterprise risk management program, the Board and Executive Management balance the opportunities and threats to our business and consider the steps we are willing to take to capitalize on any business opportunities while mitigating against the key risks identified. As part of our annual strategic planning process, we maintain an Enterprise Risk Management Committee that assists the Board in identifying key risks. We typically focus on five to seven risks annually, which may relate to, among other things, business operations, competitive landscape, engagement and retention of quality healthcare professionals, talent management, technology systems, security and innovation. The Enterprise Risk Management Committee also assists the Board in determining our risk tolerance in light of our (1) existing risk capacity, (2) appetite, if any, to take on additional risk or lessen our risk, (3) risk velocity and (4) mitigation factors. The Board’s determination of our key risks and our tolerance for each ultimately influence how we operate our business, including how we marshal our resources and make strategic and operational decisions.
With the oversight from our Board, our Executive Management is given responsibility for monitoring and managing the key risks identified by the Board as well as risk generally to agreed upon appetite and tolerance levels. To ensure that the Company operates within its risk appetite, Executive Management and other leaders establish and support a culture of integrity, ethical behavior and risk awareness for our team members. We also have designed and maintain internal processes and an internal control environment that further facilitate the identification and management of risks. Our Board meets with Executive Management at regular Board meetings and, if necessary, at other times to discuss the strategy and success in addressing our identified key risks along with any other risks that we may face.
In addition to the foregoing, each of the Board’s standing committees, as set forth below, focus attention on risk areas implicated by its area of expertise, and report regularly to the Board on its identification and assessment of such risks. All committees play significant roles in carrying out the risk oversight function that typically focus in their areas of expertise.
AUDIT COMMITTEE RISK OVERSIGHT
The Audit Committee assists the Board in fulfilling its oversight responsibilities of our compliance with ethical requirements and certain legal rules and regulations, as well as our processes to manage our business, financial and enterprise risk. Among other things, the Audit Committee’s specific duties include:
- overseeing the work of our independent auditors,
- reviewing and discussing with management the Company’s processes to manage major risk exposures to the Company and the steps management has or plans to take, to monitor, control and manage such exposures, including our risk assessment and risk management guidelines and policies,
- reviewing and discussing with management key technology strategic initiatives and risks, including information security and receives regular reports on significant cybersecurity breach and any disclosure obligations arising from such breach,
- approving procedures for receiving complaints by us regarding accounting, internal accounting controls or auditing matters, reviewing our code of conduct program and reviewing attorneys’ reports containing evidence of material violations of securities laws, breaches of fiduciary duty or other similar violations of state or federal law,
- reviewing and discussing with management, our chief internal auditor, independent auditors or in-house counsel, as appropriate, any legal, regulatory or compliance matters that could have a significant effect on our financial statements,
- reviewing on a regular basis our ethics and compliance and our code of conduct programs, including the regular receipt and review of any events investigated under our compliance and ethics program, and
- reviewing the results of significant investigations, examinations or reviews performed by regulatory authorities and management’s responses.
In 2017, the Company did not identify any significant deficiencies or material weaknesses in our internal controls. In addition, the Audit Committee determined that our processes to manage our enterprise, business and financial risks are effective and comply with legal requirements, our policies and ethics.
COMPENSATION AND STOCK PLAN COMMITTEE OVERSIGHT
The Compensation and Stock Plan Committee (the “Compensation Committee”) is responsible for analyzing the risk associated with our compensation practices. We design our incentive compensation to reward officers and other key employees for committing to and delivering on financial goals that we believe are challenging, yet (i) reasonably achievable, (ii) require meaningful revenue and profitability performance to reach the target level, and (iii) require substantial revenue and profitability performance to reach the maximum level. The financial performance required to reach the maximum level of compensation is developed within the context of budget planning and, while difficult to achieve, is not viewed to be at such an aggressive level that it would induce bonus-eligible employees to take inappropriate risks that could threaten our financial and operating stability.
The Compensation Committee has reviewed our material cash incentive plans, which fall into two types: (1) those for front line sales production employees and (2) those for the sales and corporate leadership. The front line sales incentive plans typically provide incentives based on monthly or quarterly financial or individual and team operational metrics and include monthly or quarterly payouts. Roughly two-thirds of our sales team members participate in one of our approximately 50 sales incentive plan structures. The sales and corporate leadership plans use annual financial targets based on consolidated and/ or division metrics as well as individual leadership and performance considerations with annual payouts. We have internal controls over financial reporting and the measurement and calculation of compensation goals and other financial, operational and compliance policies and practices that are designed to keep these compensation programs from being susceptible to manipulation by any employee, including our named executive officers.
The Compensation Committee considers the risks associated with the compensation plans in light of several factors, including (1) the amount of incentive compensation paid to a particular group as a percentage of total incentive cash paid and as a percentage of division and/or consolidated revenue, gross profit and adjusted EBITDA (“AEBITDA”), (2) the number of plan participants in any particular plan as a percentage of total incentive plan participants, and (3) the amount of target incentive compensation per individual plan participant ranges from 10% to 110% of total compensation (and can range from approximately 56% to 76% of the named executive officers’ total compensation).
The Compensation Committee believes the use of a long-term incentive award program with targets that span a three-year performance period balances risk and reward by discouraging excessive risk that could threaten our long-term value, but at the same time encourages innovation to build our value in the shortand long-term. The Compensation Committee also reviews our program for design features that have been identified by experts as having the potential to encourage excessive risk-taking, such as: (A) too much focus on equity, (B) compensation mix overly weighted toward short-term results, (C) highly leveraged payout curves and steep payout cliffs at specific performance levels that could encourage short-term actions to meet payout thresholds, and (D) unreasonable goals or thresholds. After its consideration of the foregoing factors, the Compensation Committee has determined that our compensation programs and policies do not create risks that are reasonably likely to have a material adverse effect on us.
CORPORATE GOVERNANCE COMMITTEE OVERSIGHT
The Corporate Governance Committee considers the risks associated with our corporate governance practices, leadership succession process and quality programs. The Corporate Governance Committee reviews the company’s practices and approach with respect to corporate governance to ensure that its corporate governance structure provides a foundation for achieving long-term shareholder value. This responsibility goes hand in hand with its oversight of the Company’s leadership succession process to not expose the Company to leadership gaps and the consequences flowing therefrom. The Corporate Governance Committee also reviews and discusses with our management relevant quality metrics, performance improvement, compliance with certification standards and related laws and regulations as well as our enterprise risk management processes relating to the quality of our services. The Corporate Governance Committee believes the Company’s sound corporate governance practices, comprehensive leadership success program and extensive quality programs are designed to shield the Company from risk that is reasonably likely to have a material adverse effect on us.
The Board has adopted categorical standards for director independence, which we set forth in the Guidelines and make available on the our website. Under these standards, a director will not be considered independent if:
- the director does not qualify as independent under Rule 303A.02(b) of the NYSE Listed Company Manual,
- the director or an immediate family member is a partner of, or of counsel to, a law firm that performs substantial legal services for us on a regular basis, or
- the director or an immediate family member is a partner, officer or employee of an investment bank or consulting firm that performs substantial services for us on a regular basis for which it receives compensation.
The Board does not consider the following relationships to be material relationships that would impair a director’s independence:
- the director or an immediate family member is an executive officer of another company that does business with us and the annual sales to, or purchases from, us are less than 1% of the annual revenues of the company for which he or she serves as an executive officer,
- the director or an immediate family member is an executive officer of another company which is indebted to us, or to which we are indebted, and the total amount of either company’s indebtedness to the other is less than 1% of the total consolidated assets of the company for which he or she serves as an executive officer and such indebtedness is not past due, or
- the director or an immediate family member serves as an officer, director or trustee of a charitable organization, and our discretionary charitable contributions to the organization are less than 1% of its total annual charitable receipts.
The Board has determined that director nominees Mark G. Foletta, R. Jeffrey Harris, Dr. Michael M.E. Johns, Martha H. Marsh, Andrew M. Stern, Paul E. Weaver and Douglas D. Wheat meet our categorical standards for director independence and the applicable rules and regulations of the NYSE and federal securities laws regarding director independence. Our CEO is the only member of our Board who the Board has not deemed independent.
Board Leadership Structure
We separate the roles of Chairman of the Board and the Chief Executive Officer. Our CEO, Ms. Salka, is responsible for working with the Board in setting our strategic direction and our day-to-day leadership and performance, while the Chairman of the Board, Mr. Wheat, leads the Board in overseeing our strategy, provides guidance to our CEO and presides over meetings of the Board. At this time the Board believes that having separate roles:
- increases the independent oversight of the Company and enhances the Board’s objective evaluation of our CEO,
- provides our CEO with an experienced sounding board in the Chairman, and
- provides an independent spokesperson for the Company.
Our Board’s Policy on Conflicts of Interest and Related Party Transactions
The Guidelines establish our director’s duties to adhere to our Code of Business Conduct, including our policies on conflicts of interest, and to avoid any action, position or interest that conflicts with an interest of ours or gives the appearance of a conflict. We require directors to report any potential conflicts of interest immediately to the Chairman of the Corporate Governance Committee. We do not, without approval of the Board, permit a director or executive officer, or his or her immediate family member (i.e., spouse, parent, step-parent, child, step-child, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law or anyone (other than a tenant or employee) who shares that person’s home) or any other person meeting the definition of “related person” under Item 404 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (each, a “related person”) to enter into a transaction in which we are a participant if (a) the amount involved exceeds $120,000, and (b) the related person has or will have a direct or indirect material interest. We annually solicit information from directors and executive officers to monitor potential conflicts of interest and comply with SEC requirements regarding approval or disclosure of “related person transactions.” We did not engage in any transaction in 2017 nor is there any currently proposed transaction that exceeds or is expected to exceed $120,000 in which we were or are a participant and in which a related person had or will have a direct or indirect material interest.
Board Meetings and Annual Meeting Attendance by Board Members
We expect each of our directors to attend each meeting of the Board and of the committees on which he or she serves. We also expect our directors to attend our annual meetings. Our Board has an excellent record of attendance and engagement. During 2017, the Board met six times, and took no actions by unanimous written consent. In 2017, no member of the Board attended fewer than 75% of the aggregate of (i) the total number of meetings of the Board (held during the period for which he or she has been a director) and (ii) the number of meetings held by all committees of the Board (during the periods that he or she served on such committees). All of our directors attended our 2017 Annual Meeting of Shareholders.
Committees of the Board
We have standing Audit, Corporate Governance, Compensation and Executive Committees. The Board committees are chaired by independent directors, each of whom report to the Board at meetings on the activities and decisions made by their respective committees. The Board makes committee assignments and designates committee chairs based on a director’s independence, knowledge and areas of expertise. We believe this structure helps facilitate efficient decision-making and communication among our directors and fosters efficient Board functioning at Board meetings.
In line with our value of continuous improvement, the directors conduct an evaluation of the performance of the Board and each of the committees on an annual basis. Additionally, on a bi-annual basis, the Corporate Governance Chairman has individual conversations with the directors specifically regarding their board performance and board composition. We describe the current functions and members of each committee below. A more detailed description of the function, duties and responsibilities of the Audit, Corporate Governance and Compensation Committees is included in each Committee’s charter and available in the link entitled “Corporate Governance” located within the “Investor Relations” tab of our website at www.amnhealthcare.com.
The table below provides current committee memberships and fiscal year 2017 committee meeting information:
|Director||Audit (1)||Compensation (2)||Corporate|
|Mark G. Foletta||Chair|
|R. Jeffrey Harris||Member||Member|
|Michael M.E. Johns, M.D.||Member||Chair|
|Martha H. Marsh||Chair||Member|
|Susan R. Salka||Member|
|Andrew M. Stern||Member||Member|
|Paul E. Weaver||Member||Member|
|Douglas D. Wheat||Chair|
|Committee Meetings and Actions by Written Consent|
|Total Committee Meetings||9||6||5||2|
|Actions by Written Consent||0||2||0||1|
(1) The Board has determined that all Audit Committee members (A) are financially literate, and (B) meet the criteria for independence set forth in Rule 10A-3 under the Exchange Act, and Section 303A of the NYSE Listed Company Manual. The Board has further determined that Mark G. Foletta and Paul E. Weaver are each an “Audit Committee Financial Expert” as defined by SEC Rules and Regulations.
(2) The Board has determined that all members of the Compensation Committee meet the standards for independence required by the NYSE and the independence requirements of Section 162(m) of the Internal Revenue Code (the “Code”).
(3) The Board has determined that all members of the Corporate Governance Committee meet the standards for independence required by the NYSE.
Our Audit Committee Charter, which is reviewed annually and was last amended in September 2016, sets forth the duties of the Audit Committee. Generally, the Audit Committee is responsible for, among other things, overseeing our financial reporting process. In the course of performing its functions, the Audit Committee as provided by our Audit Committee Charter:
- reviews our internal accounting controls and audited financial statements,
- reviews with our independent registered public accounting firm the scope of its audit, its audit report and its recommendations,
- considers the possible effect on the independence of such firm in approving non-audit services requested of it,
- reviews disclosures made by our CEO and CFO in connection with the certification of our periodic reports,
- reviews and discusses with management the Company’s process to manage our major risk exposures and the steps taken to monitor, control and manage such exposures, and
- appoints our independent registered public accounting firm, subject to ratification by our shareholders.
CORPORATE GOVERNANCE COMMITTEE
Our Corporate Governance Committee Charter, last amended in December 2017, sets forth the duties of the Corporate Governance Committee. Generally, the Corporate Governance Committee:
- identifies and recommends qualified individuals with diverse backgrounds and experiences to become members of the Board,
- evaluates periodically the Code of Business Conduct, the Financial Officers Code of Ethics and the Guidelines,
- reviews the Board’s performance on an annual basis,
- reviews and evaluates succession planning for the CEO and other members of our executive management team,
- recommends potential successors to the CEO, oversees our shareholder engagement program as it relates to corporate governance issues and considers feedback provided by our shareholders, and
- reviews and discusses with our executive team relevant quality metrics, compliance with certification standards and related laws and regulations as well as our enterprise risk management process relating to the quality of our services.
With respect to director nominee procedures, the Corporate Governance Committee utilizes a broad approach for identification of director nominees and may seek recommendations from our directors, officers or shareholders or it may choose to engage a search firm. In evaluating and determining whether to ultimately recommend a person as a candidate for election as a director, the Corporate Governance Committee considers the qualifications set forth in our Guidelines, including judgment, business and management experience (including financial literacy), leadership, strategic planning, reputation for honesty and integrity, diversity and independence from management. It also takes into account specific characteristics and expertise that it believes will enhance the diversity of knowledge, expertise, experience, background and personal characteristics of the Board. The Corporate Governance Committee may engage a third party to conduct or assist with the evaluation. Ultimately, the Corporate Governance Committee seeks to recommend to the Board those nominees whose specific qualities, experience and expertise will augment the current Board’s composition and whose past experience evidences that they will (1) dedicate sufficient time, energy and attention to ensure the diligent performance of Board duties, (2) comply with all duties of care, loyalty and confidentiality applicable to them as directors of publicly traded corporations, and (3) adhere to our Code of Conduct and Ethics.
The Corporate Governance Committee considers shareholder recommendations of qualified nominees when such recommendations are submitted in accordance with the procedures described in the Bylaws. To have a nominee considered by the Corporate Governance Committee for election at the 2019 Annual Meeting of Shareholders, a shareholder must submit the recommendation in writing to the attention of our Secretary at our corporate headquarters no later than January 18, 2019 and no sooner than December 19, 2018. Any such recommendation must include the information set forth on Exhibit A to this proxy statement (page A-1). Once we receive the recommendation, we will deliver to the shareholder nominee a questionnaire that requests additional information about his or her independence, qualifications and other matters that would assist the Corporate Governance Committee in evaluating the shareholder nominee, as well as certain information that must be disclosed about him or her in our proxy statement or other regulatory filings, if nominated. Shareholder nominees must complete and return the questionnaire within the time frame provided to be considered for nomination by the Corporate Governance Committee.
The Corporate Governance Committee received no recommendations for a director nominee from any shareholder for the director election to be held at the Annual Meeting.
The Compensation Committee Charter, last amended in April 2017, sets forth the Committee’s duties. Among other things, the Compensation Committee:
- reviews, and, when appropriate, administers and makes recommendations to the Board regarding (A) compensation of our CEO (including employment agreements or severance arrangements, if applicable, and executive supplemental benefits or perquisites, if any), all senior officers that report directly to our CEO and our directors and (B) our incentive compensation plans and equity-based plans,
- prepares the Compensation Committee Report and oversees the preparation of our compensation disclosure and analysis required by the SEC to be included in our annual proxy statement and recommends their inclusion in the annual proxy statement to the Board,
- recommends the proposals on “say-on-pay” and the frequency of the “say-on-pay” vote that are required by SEC rules,
- reviews our incentive compensation arrangements generally to determine whether they encourage excessive risk-taking, and
- evaluates the performance of our CEO. For further information about the responsibilities of the Compensation Committee, please see the Compensation Discussion and Analysis beginning on page 28 below.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee, whose members are Ms. Marsh, Mr. Harris and Dr. Johns, consists exclusively of non-employee, independent directors, none of whom has a business relationship with us, other than in his or her capacity as director, or has any interlocking relationships with us that are subject to disclosure under the rules of the SEC related to proxy statements.
Compensation Committee Consultant Independence
The Compensation Committee retains an independent consultant to assist it in fulfilling its responsibilities. Since 2008, the Compensation Committee has utilized Frederic W. Cook & Co., Inc. as its compensation consultant. Our compensation consultant advises the Compensation Committee on a variety of topics, including, among others, our equity compensation program, the design of our cash incentive program, the evaluation of the alignment of our compensation program with our shareholders’ interests, the risks presented by our executive compensation program structure, the assessment of the program compared to our peers and director and executive compensation trends.
In retaining and utilizing Frederic W. Cook & Co., the Compensation Committee considers (1) our directors’ experience with its employees and representatives while serving on other boards, (2) knowledge and experience in executive compensation program design, corporate finance and legal and regulatory issues, (3) experience providing consultative services to boards, as well as its analysis of our existing program and proposal of key considerations in evaluating and strengthening our program and (4) factors affecting independence, including factors set forth by the NYSE for evaluating the independence of advisors. In connection with its consideration of Frederic W. Cook & Co.’s independence, the Compensation Committee factored in that Frederic W. Cook & Co. does provide consulting services to other companies that have a director who is also a director of ours, but it does not have any other relationship with or provide any other services to us. As a result of the Compensation Committee’s review of the factors affecting independence, it has determined that Frederic W. Cook & Co. is independent and has no conflicts of interest with us.
The Executive Committee exercises the power of the Board in the interval between meetings of the Board.
Executive Sessions of Non-Management Directors
The Board has executive sessions at each regularly scheduled Board meeting during the year, for which our management director, Ms. Salka, is not present.
Communications with the Board of Directors
The Board has established the following procedure for shareholders and other interested parties to communicate with members of the Board, the presiding director, or the Independent directors as a group. All such communications should be addressed to the attention of our Corporate Secretary at our offices located at 12400 High Bluff Drive, Suite 100, San Diego, California 92130. The Corporate Secretary collects and maintains a log of each such communication and forwards any that the Corporate Secretary believes requires immediate attention to the appropriate members of the Board, who then determine how such communication should be addressed.