Navistar International Corporation recently filed its definitive proxy statement for fiscal 2019, which includes a number of interesting tables and graphics in the Compensation Discussion and Analysis. Two of these, in particular, caught my attention.
The first (on page 44) presents the results from the performance-based restricted cash unit awards granted to the company’s named executive officers in 2017, which were subject to a three-year performance period. Essentially, the award contains two performance components – a portion (weighted at 80%) based on the company’s adjusted EBITDA performance for each of fiscal 2017, 2018, and 2019 (as well as cumulatively over all three years) and subject to a three-year relative total stockholder return (“TSR”) modifier and a portion (weighted at 20%) based on its annual market share goals for each of fiscal 2017, 2018, and 2019 (as well as cumulatively over all three years) and also subject to the same relative TSR modifier.
The relevant graphic provides the key details of these performance awards and the actual amounts earned over the performance period. Structurally, it’s divided into three parts. The first part consists of an illustration of the award formula. The second part shows the threshold, target and maximum performance levels established for each of the two award components. both on a year-by-year and on a cumulative basis, with an overlay of the actual performance results for each measurement period. The final part sets forth the actual weighted results for each of the two components, the application of the TSR multiplier, and the resulting percentage payout for the total award. While it’s a little difficult to explain narratively, it all comes together nicely in the graphic itself and renders the disposition of the awards largely self-explanatory.
The other graphic that I liked is found in the discussion of the company’s compensation peer group (on page 46). For purposes of its fiscal 2019 compensation decisions, the company used a group consisting of 22 comparator companies. To show its positioning relative to these peers, the company uses a series of graphics that reflect the percentile ranking of each peer company (as well as where the company falls) on the basis of three-year average revenues, trailing 12-month assets, and trailing 12-month enterprise value. The graphics are stacked on a single page, making it easy to see how the company compares against the peers on each criterion. From my perspective, it’s an improvement from prior years’ disclosure about the compensation peer group where the comparisons tended to be made through a table simply listing the applicable financial data for each peer company.
Other graphics worth perusing can be found as part of the pay-for-performance discussion, where the company summarizes the long-term incentive awards granted to its named executive officers in each of the last three fiscal years along with the tracking performance for these awards as of the end of fiscal 2019 (beginning at page 32), and in the section describing the design of the long-term incentive awards (both performance-based and time-based) that were granted to the named executive officers in fiscal 2019 (at page 43). If you have some time as you get geared up to draft your own Compensation Discussion and Analysis, they are worth checking out.
-Mark Borges, CompensationStandards.com January 10, 2020
