SYSCO CORPORATION DEF - 14A

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

 

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SYSCO CORPORATION

 

 

 

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Sysco Corporation

2018 Proxy Statement

 

 
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Table of Contents

 

LETTER FROM OUR CEO AND CHAIRMAN 4
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS 5
 
PROXY SUMMARY 6
 
QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING 10
 
CORPORATE GOVERNANCE 15
Board Leadership Structure 15
Board Refreshment 16
CEO Succession Plan 16
Stockholder Engagement 16
Board Meetings and Committees 17
Annual Board Self-Evaluation 18
Director Independence 19
Certain Relationships and Related Person Transactions 20
Risk Oversight 21
Code of Conduct 21
Compensation Consultants 22
 
BOARD OF DIRECTORS MATTERS 23
Election of Directors at 2018 Annual Meeting (Item 1) 23
Board Composition 27
 
DIRECTOR COMPENSATION 33
Overview of Non-Employee Director Compensation 33
Directors Deferred Compensation Plan 33
Equity-Based Awards to Non-Employee Directors 34
 
EXECUTIVE OFFICERS 36
Management Development and Succession Planning 37
 
STOCK OWNERSHIP 38
Security Ownership of Officers and Directors 38
Security Ownership of Certain Beneficial Owners 39
Stock Ownership Guidelines 39
Stock Trading Restrictions 40
 
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 40
 
EQUITY COMPENSATION PLAN INFORMATION 40
 
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COMPENSATION DISCUSSION AND ANALYSIS 41
Executive Summary 41
Philosophy of Executive Compensation Program 45
How Executive Pay is Established 47
What We Paid and Why – Compensation for NEOs 50
Executive Compensation Governance and Other Information 57
 
REPORT OF THE COMPENSATION COMMITTEE 58
 
EXECUTIVE COMPENSATION 59
Summary Compensation Table 59
Grants of Plan-Based Awards 61
Annual Incentive Awards 62
Long-Term Incentive Awards 65
CEO Succession Compensation Arrangements 67
Outstanding Equity Awards at Year-End 68
Option Exercises and Stock Vested 70
Fiscal 2018 Nonqualified Deferred Compensation 71
Pension Benefits 73
CEO Pay Ratio 76
Quantification of Termination/Change in Control Payments 77
Compensation Risk Analysis 80
 
VOTE TO APPROVE THE ADOPTION OF THE SYSCO CORPORATION 2018 OMNIBUS INCENTIVE PLAN (ITEM 2) 81
The Sysco Corporation 2018 Omnibus Incentive Plan 82
 
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (ITEM 3) 90
 
REPORT OF THE AUDIT COMMITTEE 91
 
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 92
 
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (ITEM 4) 93
 
STOCKHOLDER PROPOSAL (ITEM 5) 94
 
BOARD OF DIRECTORS’ STATEMENT IN OPPOSITION OF THE PROPOSAL 94
 
STOCKHOLDER PROPOSALS 96
Presenting Business/Nominating Directors for Election 96
Meeting Date Changes 96
 
ANNEX I – NON-GAAP RECONCILIATIONS 97
 
ANNEX II – SYSCO CORPORATION 2018 OMNIBUS INCENTIVE PLAN 102
 
APPENDIX I – FRENCH SUB-PLAN 112
 
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LETTER FROM OUR CEO AND CHAIRMAN

 

Dear Sysco Stockholder,

 

We are pleased to invite you to attend our 2018 Annual Meeting of Stockholders on Friday, November 16, 2018, at 10:00 a.m. Central Time. The Meeting will be held at the Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas 77024.

 

Our stockholder meeting is an opportunity for our Board of Directors and senior leadership to provide an update on key developments at Sysco over the past year and respond directly to your questions. By participating in our stockholder meeting, you play an active role in the future of your company. We encourage you to vote by telephone, internet, or by signing and mailing the attached proxy card.

 

In fiscal 2018, the solid execution of our customer-first strategy helped us deliver excellent financial results. Sales grew 6.1% to $58.7 billion. Gross profit dollar growth outpaced adjusted operating expense growth, and we grew operating income by 13.4 percent to $2.3 billion.

 

Our performance in fiscal 2018 contributed to the successful delivery of our 2016-2018 three-year plan financial objectives, including exceeding our target for operating income improvement. Additionally, we built a strong foundation to help us achieve our current 2018-2020 plan goals. We recognize that in order to build upon our recent strong financial performance, we must continue to evolve our business. We recently outlined four strategic priorities, which we believe will serve as the roadmap for additional value creation and acceleration of the current growth of the company.

 

1. Enriching the customer experience – Creating the right solutions and services to help our customers be successful and drive additional customer loyalty
   
2. Delivering operational excellence – Leveraging our size and scale to increase levels of productivity across the enterprise
   
3. Optimizing the business – The “Sysco Way” mindset; how we are structuring our work to bring incremental value to our customers with a different way of thinking
   
4. Activating the power of our people – Improving upon our strong performance culture to enable our 67,000 associates, who help us win in the marketplace each and every day

 

Sysco lives “At the Heart of Food and Service,” with passion and innovation. We look forward to fiscal 2019 and remain committed to meeting and exceeding our customers’ expectations, while creating value for our shareholders.

 

On behalf of our Board of Directors and all of our associates, thank you for your continued trust and support in Sysco.

 

 
   
Tom Bené, President and Chief Executive Officer Jackie Ward, Chairman of the Board
   

 

SYSCO CORPORATION - 2018 Proxy Statement    4

 
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1390 Enclave Parkway
Houston, Texas 77077-2099

 

Notice of Annual Meeting of Stockholders

 

November 16, 2018

10:00 a.m.

The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas 77024

 

The Annual Meeting of Stockholders of Sysco Corporation, a Delaware corporation, will be held on Friday, November 16, 2018, at 10:00 a.m. at The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas 77024, for the following purposes:

 

  1. To elect as directors the twelve nominees named in the attached proxy statement to serve until the Annual Meeting of Stockholders in 2019;  
  2. To approve the adoption of the Sysco Corporation 2018 Omnibus Incentive Plan;  
  3. To hold an advisory vote to approve the compensation paid to Sysco’s named executive officers, as disclosed in this proxy statement;  
  4. To ratify the appointment of Ernst & Young LLP as Sysco’s independent registered public accounting firm for fiscal 2019;  
  5. To consider a stockholder proposal, if properly presented at the meeting, regarding a policy limiting accelerated vesting of equity awards upon a change in control; and  
  6. To transact any other business as may properly be brought before the meeting or any adjournment thereof.  

 

Only stockholders of record at the close of business on September 17, 2018, will be entitled to receive notice of and to vote at the Annual Meeting. For instructions on voting, please refer to the notice you received in the mail or, if you requested a hard copy of the proxy statement, on your enclosed proxy card. You may inspect a list of stockholders of record at the company’s headquarters during regular business hours during the 10-day period before the Annual Meeting. You may also inspect this list at the Annual Meeting.

 

October 5, 2018

Houston, Texas

 

By Order of the Board of Directors

Russell T. Libby

Executive Vice President, Administration
and Corporate Secretary

 

SYSCO CORPORATION - 2018 Proxy Statement    5

 
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Proxy Summary

 

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting. Page references (“XX”) are supplied to help you find further information in this proxy statement.

 

2018 Annual Meeting of Stockholders

 

Date and Time: Friday, November 16, 2018 at 10:00 a.m.
Location: The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas 77024
Record Date: September 17, 2018

 

Voting Matters and Board Recommendations

 

    Our Board Vote Recommendation
Election of Twelve Director Nominees (page 23)   FOR each Director Nominee
Approve the Adoption of the Sysco Corporation 2018 Omnibus Incentive Plan (page 81)   FOR
Advisory Vote on Executive Compensation (page 90)   FOR
Ratification of Independent Registered Public Accounting Firm (page 93)   FOR
Stockholder Proposal (page 94)   AGAINST

 

Business Highlights

 

For more detail please see our Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”). Our discussion below of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Any non-GAAP financial measures will be denoted as adjusted measures and exclude the impact from: (1) expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we incurred costs to convert to a modernized version of our established platform as opposed to completing the implementation of an Enterprise Resource Planning (ERP) system; (2) professional fees related to our three-year strategic plans; (3) restructuring expenses within our Brakes Group operations; (4) severance charges related to restructuring; and (5) foreign non-income based taxes. In addition, fiscal 2018 results of operations are impacted by business technology transformation initiative costs, facility closure charges, multiemployer pension (MEPP) withdrawal charges and debt extinguishment charges, which are also excluded from our non-GAAP financial measures.

 

The non-GAAP financial measures presented also exclude the impact of the following acquisition-related items: (1) intangible amortization expense and (2) integration costs. All acquisition-related costs in fiscal 2018 and 2017 that have been excluded relate to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition), discussed in Note 4, “Acquisitions.” The Brakes Acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs.

 

The non-GAAP financial measures presented further exclude certain impacts of the Tax Cuts and Jobs Act of 2017 (the Tax Act) enacted on December 22, 2017. The impact for fiscal 2018 includes: a provisional estimate of a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries and a net benefit from remeasuring Sysco’s accrued income taxes, deferred tax liabilities and deferred tax assets due to the changes in tax rates. Other tax-related items impacting results of operations include foreign withholding taxes on repatriated earnings, net of foreign tax credits, and a benefit from contributions made to fund Sysco’s tax-qualified United States (U.S.) pension plan (the U.S. Retirement Plan).

 

The fiscal 2018 and fiscal 2017 items described above and excluded from our non-GAAP measures are collectively referred to as “Certain Items.” In addition, our adjusted return on invested capital performance targets, as measured for purposes of our performance share units and cash performance units, were established prior to the Brakes Acquisition. Accordingly, the results used for determining payouts excluded the Brakes Acquisition to adjust for the accumulation of debt incurred for the Brakes Acquisition that would not have been borrowed absent this acquisition.

 

More information on the rationale for the use of these measures can be found in our Form 10-K on pages 27-33 and reconciliations to GAAP numbers can be found in Annex I - Non-GAAP Reconciliations.

 

The overall macroeconomic trends continue to be positive in the U.S., and the underlying economic picture remains encouraging, including a strong employment market. This has resulted in a healthy consumer that is helping to drive a positive trend in restaurant sales. We also see continued growth with local customers, as they increase their reach through flexible menus, innovative concepts and additional delivery options to reach consumers. The U.K market continues to experience acute product inflation in the mid-to-high single digits. Throughout fiscal 2018, we improved our customer experience through enhanced service levels, improved sales retention and higher customer loyalty, enhanced associate engagement through improved workplace safety and improved associate retention through attractive career growth opportunities. These were all key targeted steps towards achieving our initial three-year plan financial objectives.

 

Comparison of our results from fiscal 2018 to fiscal 2017:

 

Sales increased 6.1%, or $3.4 billion, to $58.7 billion;
Operating income increased 13.4%, or $275.8 million, to $2.3 billion; adjusted* operating income increased 8.4%, or $196.5 million, to $2.5 billion;
Net earnings increased 25.2%, or $288.3 million, to $1.4 billion; adjusted* net earnings increased 22.1%, or $300.8 million, to $1.7 billion;
Basic earnings per share increased 30.5%, or $0.64, to $2.74 from the comparable prior year amount of $2.10 per share; and
Diluted earnings per share increased 29.8%, or $0.62, to $2.70 from the comparable prior year amount of $2.08 per share; adjusted* diluted earnings per share were $3.14 in fiscal 2018, a 26.6% increase from the comparable prior year amount of $2.48 per share.

 

* See Annex I - “Non-GAAP Reconciliations” for an explanation of these non-GAAP financial measures.

 

SYSCO CORPORATION - 2018 Proxy Statement    6

 
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Governance Highlights (page 15)

BOARD COMPOSITION AND ACCOUNTABILITY:

     
Board Leadership  

   Our independent Chairman of the Board, Ms. Ward, will retire from the Board on the date of the Annual Meeting

   In September 2018, our Board elected Mr. Bené as the Company’s Chairman of the Board, President and Chief Executive Officer, succeeding Ms. Ward as Chairman of the Board, effective upon the adjournment of the Annual Meeting

   Prior to the Annual Meeting, the independent directors intend to elect an independent Lead Director, effective concurrently with Mr. Bené’s succession as Chairman

   Each Board committee is chaired by an independent director

 

Board Refreshment & Director Tenure Policy  

   Established 15-year limit on director tenure

   Elected to the Board five new independent directors – Messrs. Brutto, Halverson and Shirley (in September 2016), Ms. Talton (in September 2017) and Mr. Hinshaw (in April 2018)

   Ms. Ward and Mr. Tilghman are not standing for re-election at the Annual Meeting, and we expect Mr. Cassaday to retire in 2019

 

CEO Succession      In January 2018, Mr. Bené succeeded Mr. DeLaney as CEO
Board Evaluations  

   Annual board and committee self-evaluations that aim to increase board effectiveness and inform future board refreshment efforts

   360-degree individual director performance evaluations of selected directors for fiscal 2018

 

Director Independence  

   At least a majority of our directors must meet the NYSE criteria for independence, as well as the additional criteria set forth in the Corporate Governance Guidelines

   All members of the Audit, Compensation and Corporate Governance and Nominating Committees must be independent under the applicable NYSE and SEC standards

   All director nominees, other than the CEO, are independent under these standards (representing 92%)

 

Annual Elections      All of our directors are elected annually
Director Overboarding Policy      Non-employee directors should generally not serve on more than four (4) additional public-company boards of directors
Change in Occupation      Director who materially changes principal occupation or business association is required to tender offer to resign to Chairman of the Board and Chairman of the Corporate Governance and Nominating Committee
Risk Oversight      Board works through senior management and its committees to exercise oversight of the enterprise risk management process
 
STOCKHOLDER RIGHTS:
 
Proxy Access      Stockholders who have beneficially owned 3% or more of our outstanding common stock continuously for at least 3 years (as of the time of submission of the nomination) may nominate a number of director nominees equal to the greater of 2 or 20% (rounded down) of the total number of directors constituting our Board, subject to applicable limitations and procedural requirements
Right to Call Special Meeting      Stockholders holding at least 25% of our outstanding common stock have the right to call a special meeting of stockholders, subject to applicable limitations and procedural requirements
Action by Written Consent      Stockholders having at least the minimum voting power required to take a corporate action may do so by a written consent in lieu of calling a stockholders meeting
Majority Voting Standard  

   Each of our directors is elected by a majority of votes cast in an uncontested election

   Any incumbent director failing to receive more “for” than “against” votes is required to tender his or her offer to resign to the Board

 

Single Voting Class      We have only one class of stock, common stock, that is entitled to vote on the election of directors and other matters submitted to a vote of stockholders
Stockholder Engagement  

   Regular engagement with our stockholders regarding matters of corporate governance

   Participation by Ms. Ward, our Chairman of the Board, and Mr. Glasscock, the Chair of our Corporate Governance and Nominating Committee

 

No Poison Pill      We do not have a poison pill or similar stockholder rights plan

 

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Important Dates for 2018 Annual Meeting of Stockholders (page 96)

 

If you would like to present a proposal under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), at our 2019 Annual Meeting of Stockholders, send the proposal in time for us to receive it no later than June 7, 2019. If the date of our 2019 Annual Meeting is subsequently changed by more than 30 days from the date of this year’s Annual Meeting, we will inform you of the change and the date by which we must receive proposals.
If you want to present business at our 2019 Annual Meeting outside of the stockholder proposal rules of Rule 14a-8 of the Exchange Act and, instead, pursuant to Article I, Section 8 of the Company’s Bylaws, the Corporate Secretary must receive notice of your proposal by August 18, 2019, but not before July 9, 2019, and you must be a stockholder of record on the date you provide notice of your proposal to the Company and on the record date for determining stockholders entitled to notice of the meeting and to vote.

 

Current Members of Our Board of Directors and Board Nominees (page 27)

 

Name   Age   Director since   Experience   Independent   Committee
Memberships(1)
  Other Public
Company Boards
Thomas L. Bené   56   January 2018   President and Chief Executive Officer   No   Executive    
Daniel J. Brutto   62   September 2016   Former President, UPS International and Senior Vice President, United Parcel Service, Inc.   Yes   Compensation
CSR*
Executive
     Illinois Tool Works Inc.
John M. Cassaday   65   November 2004   Former President, CEO and director of Corus Entertainment Inc.   Yes   Compensation*
CG&N
Executive
 

   Manulife Financial Corporation

   Sleep Country Canada Holdings Inc.

Joshua D. Frank   39   August 2015   Partner of Trian Fund Management L.P.   Yes   Audit
Compensation
   
Larry C. Glasscock   70   September 2010   Former Chairman of the Board of Directors, CEO and President of WellPoint, Inc.   Yes   Compensation
CG&N*
Executive
 

   Simon Property Group, Inc.

   Zimmer Biomet Holdings, Inc.

Bradley M. Halverson   58   September 2016   Former Group President, Financial Products and Corporate Services and Chief Financial Officer of Caterpillar Inc.   Yes   Audit
Compensation
   
John M. Hinshaw   48   April 2018   Former Executive Vice President, Technology and Operations of Hewlett Packard Enterprises   Yes   Audit  

   The Bank of New York Mellon Corporation

   DocuSign, Inc.

Hans-Joachim Koerber   72   January 2008   Former chairman and CEO of METRO Group (Germany)   Yes   Audit
CSR
     Eurocash SA
Nancy S. Newcomb   73   February 2006   Former Senior Corporate Officer, Risk Management, of Citigroup   Yes   Audit
CSR
   
Nelson Peltz   76   August 2015   Chief Executive Officer and a Founding Partner of Trian Fund Management L.P.   Yes   CG&N  

   The Madison Square Garden Company

   Procter & Gamble

   The Wendy’s Company

Edward D. Shirley   61   September 2016   Former President and Chief Executive Officer of Bacardi Limited   Yes   Audit
CG&N
   
Sheila G. Talton   65   September 2017   President and Chief Executive Officer of Gray Matter Analytics   Yes   CSR
CG&N
 

   Deere & Company

   OGE Energy Corp.

   Wintrust Financial Corporation

Richard G. Tilghman(2)   78   November 2002   Former Vice Chairman and Director of SunTrust Banks   Yes   Audit*
Executive
   
Jackie M. Ward(2)(3)   80   September 2001   Former Chairman, President and CEO of Computer Generation Incorporated   Yes   Compensation
CG&N
Executive*
     Sanmina-SCI Corporation
(1) Full committee names are as follows:     
  Audit – Audit Committee CG&N – Corporate Governance and Nominating Committee Executive – Executive Committee
  Compensation – Compensation Committee CSR – Corporate Social Responsibility Committee * Denotes committee chairperson
(2) Mr. Tilghman and Ms. Ward are not standing for re-election.    
(3) Ms. Ward currently serves as the Chairman of the Board. For more details see page 15.  

 

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Executive Compensation

 

Philosophy and Principles (page 45)

 

Our executive compensation plans directly link a substantial portion of annual pay to Sysco’s performance. These plans are designed to deliver highly competitive compensation for superior company performance. Likewise, when company performance falls short of expectations, our variable incentive programs deliver lower levels of compensation. However, the Committee tries to balance pay-for-performance objectives with retention considerations, so that, even during temporary downturns in the economy and the foodservice industry, the programs continue to ensure that qualified, successful, performance-driven employees stay committed to increasing Sysco’s long-term value. Furthermore, to attract and retain highly skilled management, our compensation program must remain competitive with those of comparable employers who compete with us for talent.

 

We use the following key principles as the cornerstone of Sysco’s executive compensation philosophy to attract, develop and retain business leaders to drive financial and strategic growth and build long-term stockholder value:

 

Pay for Performance: Provide base salaries that reflect each NEO’s background, experience and performance, combined with variable incentive compensation that rewards executives at higher levels than at peer companies when superior performance is achieved, while below median performance results in compensation that is below the median pay of peer companies;
Competitiveness and Retention: Provide a competitive pay opportunity that attracts and retains the highest quality professionals;
Accountability for Short- and Long-Term Performance: Strike an appropriate balance between achieving both short-term and long-term interests of the business through short-term and long-term compensation; and
Alignment with Stockholders’ Interests: Link the interests of our executive officers with those of our stockholders through significant at-risk, equity-based compensation.

 

Target Pay Mix (page 43)

 

The information in the charts below should be read in connection with the explanatory information contained on pages 43-44, and is qualified in its entirety by reference to such explanatory information.

 

TARGET COMPENSATION MIX - FY 2018

(consisting of base salary, annual incentive award & long-term incentives)

 

 

1 Represents a one-time, promotional long-term incentive award of time-based restricted stock units to Mr. Bené in February 2018 in connection with his promotion to President and CEO. For discussion of the compensation adjustments for Mr. Bené in connection with the transition and appointment to CEO, see “Executive Compensation – CEO Succession Compensation Arrangements – Compensation Adjustments for Mr. Bené.”

 

 

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Sysco Corporation
1390 Enclave Parkway
Houston, Texas 77077-2099
October 5, 2018

 

PROXY STATEMENT

 

We are providing you with a Notice of Internet Availability of Proxy Materials and access to these proxy materials, which include this 2018 Proxy Statement, the proxy card for the 2018 Annual Meeting of Stockholders (the “Annual Meeting”) and our Annual Report on Form 10-K for fiscal 2018, because our Board of Directors is soliciting your proxy to vote your shares at the Annual Meeting. Unless the context otherwise requires, the terms “we,” “our,” “us,” the “Company” or “Sysco,” as used in this proxy statement, refer to Sysco Corporation. Our Annual Meeting will be held on Friday, November 16, 2018, at 10:00 a.m. at The Houstonian Hotel located at 111 North Post Oak Lane, Houston, Texas 77024.

 

At the close of business on September 17, 2018, there were 520,689,279 shares of Sysco Corporation common stock (“Common Stock”) outstanding and entitled to vote at the Annual Meeting. All of our current directors and executive officers (23 persons) beneficially owned, directly or indirectly, an aggregate of 41,009,622 shares, which was approximately 7.88% of our outstanding Common Stock as of September 17, 2018.

 

Only owners of record of shares of Common Stock as of the close of business on the record date, September 17, 2018, are entitled to notice of, and to vote at the Annual Meeting or at any adjournments or postponements of the Annual Meeting. Each owner of record is entitled to one vote for each share owned on the record date on each matter presented at the Annual Meeting.

 

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

 

1. What is a proxy statement and what is a proxy?

 

A proxy statement is a document that Securities and Exchange Commission (the “SEC”) regulations require us to give you when we ask you to sign a proxy designating individuals to vote on your behalf. A proxy is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. We have designated three of our officers as proxies for the 2018 Annual Meeting of Stockholders. These three officers are Thomas L. Bené, Joel T. Grade and Russell T. Libby.

 

2. Why did I receive a one-page notice (the “E-Proxy Notice”) in the mail regarding the Internet availability of proxy materials instead of a full printed set of proxy materials?

 

In accordance with rules and regulations adopted by the SEC, instead of mailing a printed copy of our proxy materials, including our annual report to stockholders, to each stockholder of record, we now generally furnish proxy materials, including our annual report to stockholders, to our stockholders on the Internet. Unless you have previously signed up to receive your materials in paper, you will receive a document entitled Notice of Internet Availability of Proxy Materials (which we refer to as the “E-Proxy Notice”) and will not receive a printed copy of the proxy materials or the annual report to stockholders (unless you specifically request them). Instead, the E-Proxy Notice will instruct you as to how you may use the Internet to access and review all of the important information contained in the proxy materials, including our annual report to stockholders.

 

The E-Proxy Notice also instructs you as to how you may submit your proxy on the Internet. Instructions for requesting printed proxy materials are included in the E-Proxy Notice. E-Proxy Notices are distributed by mail, unless you previously signed up to receive your proxy materials electronically, in which case it will be emailed to you. Set forth below is a summary of delivery methods.

 

Stockholders who previously signed up to Receive Proxy Materials Electronically: If you previously signed up to receive proxy materials electronically, we will send the E-Proxy Notice to you via e-mail, to the last e-mail address you have supplied to us. We will e-mail electronic E-Proxy Notices on or about October 5, 2018.

 

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Stockholders who previously signed up to Receive Future Proxy Materials in Printed Format by Mail: If you previously submitted a valid election to receive all proxy materials in printed format, then we will send you a full set of printed proxy materials, including our annual report to stockholders. We will begin mailing these materials on or about October 5, 2018.
All other Stockholders: If you have not submitted any elections, we will send you a printed E-Proxy Notice by mail. We will begin mailing E-Proxy Notices on or about October 5, 2018.

 

Receiving Future Proxy Materials Electronically and Receiving the E-Proxy Notice by e-mail: If you previously elected to receive your proxy materials in printed format, but would like to receive an E-Proxy Notice only and use the Internet to access proxy materials, please visit http://enroll.icsdelivery.com/syy for additional information. This would significantly reduce our printing and postage costs and eliminate bulky paper documents from your personal files. To receive your E-Proxy Notice by e-mail, please visit http://enroll.icsdelivery.com/syy for additional information.

 

3. What is the difference between holding shares as a stockholder of record and as a beneficial stockholder?

 

These terms describe the manner in which your shares are held. If your shares are registered directly in your name with the Company’s registrar and transfer agent, Broadridge Corporate Issuer Solutions, Inc., you are considered a “stockholder of record” with respect to those shares.

 

If your shares are held through a brokerage account, bank, trust or other nominee as custodian on your behalf, you are considered the “beneficial owner” or “street name holder” of those shares. See questions 5, 6 and 9 below for important information for beneficial owners.

 

4. How do I vote?

 

You may vote your shares as follows:

 

In person at the Annual Meeting. All stockholders of record may vote in person at the meeting. Beneficial owners may vote in person at the meeting if they have a legal proxy, as described in the response to question 6 below.
By telephone or Internet (see the instructions at www.ProxyVote.com). All stockholders of record may also vote by touchtone telephone from the U.S., Puerto Rico and Canada, using the toll-free telephone number on the proxy card, or through the Internet, using the procedures and instructions described on the proxy card. Beneficial owners may vote by telephone or Internet if their bank or broker makes those methods available, in which case the bank or broker will include the instructions with the proxy materials. Stockholders of record may also vote through the Internet via our stockholders forum located at www.ProxyVote.com. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to vote their shares and to confirm that their instructions have been recorded properly.
By Written Proxy. All stockholders of record can vote by written proxy card. If you received a printed copy of these proxy materials by mail, you may vote by signing, dating and mailing the enclosed proxy card. If you received an E-Proxy Notice, see question 2 above for instructions on obtaining a printed copy of these proxy materials, including a proxy card. If you are a beneficial owner, you may request a written proxy card or a voting instruction form from your bank, broker or other intermediary.

 

5. How do I attend the meeting in person? What do I need to bring?

 

You need to bring documentation showing that you owned Common Stock on the record date, September 17, 2018. You also will need to bring a photo ID to gain admission. Please note that cameras, sound or video recording equipment or other similar equipment, large bags, briefcases or packages may not be allowed in the meeting room. If you are a beneficial owner, bring the notice or voting instruction form you received from your bank, brokerage firm or other nominee for admission to the meeting. You also may bring your brokerage statement reflecting your ownership of Common Stock as of September 17, 2018 with you to the meeting. Please note that you will not be able to vote your shares at the meeting without a legal proxy, as described in the response to question 6 below.

 

6. How can I vote at the meeting if I am a beneficial owner?

 

You will need to ask your broker, bank or other intermediary to furnish you with a legal proxy. You will need to bring the legal proxy with you to the meeting and hand it in with a signed ballot that will be provided to you at the meeting. You will not be able to vote your shares at the meeting without a legal proxy. If you do not receive the legal proxy in time, you can follow the procedures described in the response to question 5 above to gain admission to the meeting. However, you will not be able to vote your shares at the meeting. Accordingly, we encourage you to vote your shares in advance, even if you intend to attend the meeting. Please note that, if you request a legal proxy, any previously executed proxy will be revoked and your vote will not be counted unless you appear at the meeting and vote in person or legally appoint another proxy to vote on your behalf.

 

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7. What are my voting choices for each of the proposals to be voted on at the Annual Meeting?

 

Proposal   Voting Choices and Board Recommendation
Item 1:   vote in favor of all nominees;
Election of Twelve Director Nominees   vote against all nominees;
    vote for or against specific nominees;
    abstain from voting with respect to all nominees; or
    abstain from voting with respect to specific nominees.
    The Board recommends a vote FOR each of the nominees.
Item 2:   vote in favor of the Sysco Corporation 2018 Omnibus Incentive Plan;
Approve the Adoption of the Sysco Corporation 2018 Omnibus Incentive Plan  

vote against the Sysco Corporation 2018 Omnibus Incentive Plan; or

abstain from voting on the proposal.

The Board recommends a vote FOR the approval of the adoption of the Sysco Corporation 2018 Omnibus Incentive Plan.

Item 3:   vote in favor of the advisory proposal;
Advisory Proposal to Approve Executive Compensation  

vote against the advisory proposal; or

abstain from voting on the advisory proposal.

    The Board recommends a vote FOR the advisory proposal to approve executive compensation.
Item 4:   vote in favor of the ratification;
Ratification of the Appointment of Ernst & Young LLP as Independent Registered Public Accounting Firm  

vote against the ratification; or

abstain from voting on the ratification.

The Board recommends a vote FOR the ratification.

Item 5:   vote in favor of the stockholder proposal;
Stockholder proposal, if properly presented at the meeting, regarding a policy limiting accelerated vesting of equity awards upon a change in control  

vote against the stockholder proposal; or

abstain from voting on the stockholder proposal.

The Board recommends a vote AGAINST the stockholder proposal.

 

 

8. What if I am a stockholder of record and do not specify a choice for a matter when returning a proxy?

 

Stockholders should specify their choices for each matter on the proxy card. If you vote by proxy, the individuals named on the proxy card (your proxies) will vote your shares in the manner you indicate. If no specific instructions are given, proxies that are signed and returned will be voted:

 

FOR the election of the twelve nominees for director;
FOR the approval of the adoption of the Sysco Corporation 2018 Omnibus Incentive Plan;
FOR the approval of the compensation paid to Sysco’s named executive officers, as disclosed in this proxy statement;
FOR the ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm for fiscal 2019; and
AGAINST the stockholder proposal regarding a policy limiting accelerated vesting of equity awards upon a change in control.

 

Proxies will be voted in the discretion of the proxy holders on any other matter that may properly come before the Annual Meeting.

 

9. What if I am a beneficial owner and do not give voting instructions to my broker?

 

As a beneficial owner, in order to ensure your shares are voted in the way you would like, you must provide voting instructions to your bank, broker or other nominee by the deadline provided in the materials you receive from your bank, broker or other nominee. If you do not provide voting instructions to your bank, broker or other nominee, whether your shares can be voted by such person depends on the type of item being considered for vote.

 

Non-Discretionary Items. The election of directors, the proposal to approve the adoption of the Sysco Corporation 2018 Omnibus Incentive Plan, the advisory proposal to approve executive compensation and the stockholder proposal are non-discretionary items and may not be voted on by brokers, banks or other nominees who have not received specific voting instructions from the beneficial owners.

 

Discretionary Items. The ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm is a discretionary item. Generally, brokers, banks and other nominees that do not receive voting instructions from beneficial owners may vote on this proposal in their discretion.

 

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10. What can I do if I want to revoke or change my vote?

 

You may revoke or change your proxy at any time prior to the completion of voting at the Annual Meeting by:

 

delivering written notice of revocation to Sysco’s Corporate Secretary in time for him to receive it before the Annual Meeting;
voting again by telephone, Internet or mail (provided that such new vote is received in a timely manner pursuant to the instructions above); or
voting in person at the Annual Meeting.

 

The last vote that we receive from you will be the vote that is counted.

 

11. Is there a quorum requirement?

 

A quorum is necessary to hold a valid meeting. A quorum will exist if the holders of at least 35% of all the shares entitled to vote at the meeting are present in person or by proxy. All shares voted by proxy are counted as present for purposes of establishing a quorum, including those that abstain or as to which the proxies contain broker non-votes as to one or more items.

 

12. What votes are necessary for action to be taken?

 

Sysco’s Bylaws and Corporate Governance Guidelines include a majority vote standard for uncontested director elections. Since the number of nominees timely nominated for the Annual Meeting does not exceed the number of directors to be elected, each director to be elected shall be elected if the number of votes cast “for” election of the director exceeds those cast “against.” Any incumbent director who is not re-elected will be required to tender his or her resignation promptly following certification of the stockholders’ vote. The Corporate Governance and Nominating Committee will consider the tendered resignation and recommend to the Board of Directors whether to accept or reject the resignation offer, or whether other action should be taken. The Board will act on the recommendation within 120 days following certification of the stockholders’ vote and will promptly make a public disclosure of its decision regarding whether to accept the director’s resignation offer.

 

Pursuant to Sysco’s Bylaws, the affirmative vote of a majority of the votes cast, either for or against, is required for the approval of:

 

the proposal to approve the adoption of the Sysco Corporation 2018 Omnibus Incentive Plan;
the non-binding, advisory proposal to approve the compensation paid to Sysco’s named executive officers, as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K;
the ratification of the appointment of the independent registered public accounting firm; and
the stockholder proposal, if properly presented at the meeting, regarding a policy limiting accelerated vesting of equity awards upon a change in control.

 

As an advisory vote, the proposal to approve executive compensation (Item 3) is not binding upon the Company. However, the Compensation Committee, which is responsible for designing and administering the Company’s executive compensation program, values the opinions expressed by stockholders and will consider the outcome of the vote when making future compensation decisions.

 

In light of the stockholder recommendation at Sysco’s 2017 Annual Meeting of Stockholders regarding the frequency of the stockholder advisory votes on executive compensation, it is the current intention of the Sysco Board of Directors to conduct an annual stockholder advisory vote on executive compensation until the next required vote on the frequency of stockholder advisory votes on executive compensation that will occur at our 2023 Annual Meeting of Stockholders.

 

Broker non-votes will be disregarded with respect to the election of directors and each of the other proposals. Abstentions will be disregarded with respect to the election of directors and all of the other proposals, except the proposal to approve the adoption of the Sysco Corporation 2018 Omnibus Incentive Plan. NYSE rules require that the proposal to approve the adoption of the Sysco Corporation 2018 Omnibus Incentive Plan receive a majority of the votes cast, including shares voted “for” and “against” and abstentions. Accordingly, abstentions will count as votes “against” with respect to this proposal.

 

13. Who will count votes?

 

We will appoint one or more Inspectors of Election who will determine the number of shares outstanding, the voting power of each, the number of shares represented at the Annual Meeting, the existence of a quorum and whether or not the proxies and ballots are valid and effective.

 

The Inspector(s) of Election will determine, and retain for a reasonable period, a record of the disposition of any challenges and questions arising in connection with the right to vote, and will count all votes and ballots cast for and against and any abstentions or broker non-votes with respect to all proposals and will determine the results of each vote.

 

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14. How are abstentions and broker non-votes counted?

 

Abstentions and broker non-votes are included in determining whether a quorum is present. A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting authority and has not received voting instructions from the beneficial owner. Broker non-votes will be disregarded with respect to the election of directors and each of the other proposals, and abstentions will be disregarded with respect to the election of directors and all other proposals, except the proposal to approve the adoption of the Sysco Corporation 2018 Omnibus Incentive Plan, with respect to which abstentions will count as votes “against” the proposal, as described in the response to question 12 above.

 

15. How are proxies solicited and what are the costs of proxy solicitation?

 

We will pay all of the cost of solicitation of proxies including preparing, printing and mailing this proxy statement and the E-Proxy Notice. Solicitation may be made personally or by mail, telephone or electronic data transfer by officers, directors and employees of the Company (who will not receive any additional compensation for any solicitation of proxies).

 

We will also authorize banks, brokerage houses and other custodians, nominees and fiduciaries to forward copies of proxy materials and will reimburse them for their costs in sending the materials. We have retained Georgeson Shareholder Communications to help us solicit proxies from these entities and certain other stockholders, in writing or by telephone, at an estimated fee of $12,000 plus reimbursement for their out-of-pocket expenses.

 

16. Will any other matters be presented at the Annual Meeting?

 

We do not know of any matter that will be presented at the Annual Meeting other than the election of directors and the other proposals discussed in this proxy statement. However, if any other matter is properly presented at the Annual Meeting, your proxies will vote on such matter in their best judgment.

 

17. Where can I access the Annual Report?

 

We will furnish additional copies of our annual report to stockholders, which includes our Annual Report on Form 10-K, without exhibits, for the year ended June 30, 2018, as filed with the Securities and Exchange Commission (the “Form 10-K”), for no charge, upon your written request if you are a record or beneficial owner of Sysco Corporation Common Stock whose proxy we are soliciting in connection with the Annual Meeting.

 

Please address requests for a copy of the Form 10-K to the Investor Relations Department, Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077-2099. The Form 10-K is also available on our website under “Investors— SEC Filings – Annual Reports” at www.sysco.com.

 

18. What is Householding and where can I get additional copies of proxy materials?

 

If you share the same last name and address with another Sysco stockholder, you and the other stockholders at your address may receive only one copy of the E-Proxy Notice and any other proxy materials we choose to mail, unless contrary instructions are provided from any stockholder at that address. This is referred to as “householding.” If you prefer to receive multiple copies of the E-Proxy Notice and any other proxy materials that we mail, at the same address, additional copies will be provided to you promptly upon written or oral request, and if you are receiving multiple copies of the E-Proxy Notice and other proxy materials, you may request that you receive only one copy. Please address requests for a copy of the E-Proxy Notice and other proxy materials to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York, 11717, or call Broadridge at (866) 540-7095.

 

19. Will the Company announce the voting results?

 

We will announce the preliminary voting results at the Annual Meeting. The Company will report the final results on our website and in a Current Report on Form 8-K filed with the SEC within four business days following the Annual Meeting.

 

20. Does the Company have a policy about Directors’ attendance at the Annual Meeting of Stockholders?

 

It is the Board’s policy that Directors attend the Annual Meeting, to the extent practicable. All Directors who were in office at that time, attended the annual meeting of stockholders held in November 2017.

 

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CORPORATE GOVERNANCE

 

We believe good corporate governance is critical to achieving business success. The Board has adopted certain documents, referred to herein as our Governance Documents, to provide a general framework for the Company and reflect our commitment to sound governance practices, including:

 

Sysco’s bylaws;
the Corporate Governance Guidelines;
the Charters of the Board’s committees; and
the Global Code of Conduct.

 

These Governance Documents outline the functions of the Board, each of the Board’s committees, director responsibilities, and various processes and procedures designed to ensure effective and responsive governance.

 

The Corporate Governance Guidelines comply with the listing standards of the NYSE and include guidelines for determining director independence and qualifications. These guidelines define qualities and characteristics utilized in evaluating if an existing Board member or candidate meets the qualifications for service as a Sysco Board member. Additionally, diversity, skills, experience and time available for service (including consideration of other board service) are all important considerations. The Corporate Governance and Nominating Committee regularly reviews the Governance Documents and recommends revisions to the Board from time to time to reflect developments in the law and corporate governance practices.

 

Copies of the Governance Documents can be accessed from the corporate governance section of the Company’s website at “Investors—Corporate Governance” at www.sysco.com. These documents will also be provided without charge to any stockholder upon written request to the Corporate Secretary at Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077.

 

Board Leadership Structure

 

In accordance with our Director Tenure Policy, Ms. Ward and Mr. Tilghman are not standing for re-election as members of the Board at the Annual Meeting and will retire from the Board on such date. As a result, the number of directors constituting the Board will be reduced from 14 to 12, effective upon the election of the directors at the Annual Meeting. Ms. Ward will continue to serve as Chairman of the Board until the adjournment of the Annual Meeting.

 

On September 13, 2018, our Board elected Mr. Bené as the Company’s Chairman of the Board, President and Chief Executive Officer, succeeding Ms. Ward as Chairman of the Board, effective upon Ms. Ward’s retirement on November 16, 2018, at which time the roles of Chairman and CEO will be combined. With respect to the roles of Chairman and CEO, the Corporate Governance Guidelines provide that the roles may be separated or combined, and the Board exercises its discretion in combining or separating these positions as it deems appropriate in light of prevailing circumstances. The Board believes that combining the roles of Chairman and CEO following Ms. Ward’s retirement from the Board, together with a separate, strong independent Lead Director, which the independent members of the Board intend to appoint prior to the Annual Meeting, is in the best interest of Sysco and its stockholders and the most effective leadership structure for our more than 67,000 associates. Since the Company was founded in 1969, the Board has combined the Chairman and CEO roles on multiple occasions, including four separate combined Chairmen/CEOs in the period from 1985 to 2009.

 

In light of Mr. Bené’s extensive knowledge and experience at Sysco, along with his outside experience in a variety of areas, including foodservice operations, sales and marketing, leadership development, and corporate strategy, we believe that he is an ideal candidate for the combined Chairman and CEO role. This knowledge and experience will provide Mr. Bené with the insight necessary to work closely with the Board in developing Sysco’s strategic priorities, while effectively leading the management team in executing the Company’s day-to-day operations.

 

Although the Board believes that combining the CEO and Chairman roles is appropriate, it also recognizes the importance of maintaining independent oversight of the Board. Accordingly, the independent members of the Board intend to appoint an independent Lead Director pursuant to our Corporate Governance Guidelines prior to the Annual Meeting. The Lead Director will have the following duties and responsibilities, as well as such other duties and responsibilities as are assigned from time to time by the independent directors:

 

serving as the primary liaison between the independent directors and the Chairman of the Board, President and CEO;

reviewing with the Chairman of the Board, President and CEO, and approving, meeting agendas and schedules for meetings of the Board;

overseeing and approving information and materials sent to the Board;

presiding at all meetings of the Board at which the Chairman of the Board is not present;

establishing the agenda for, calling and presiding at all executive sessions of the independent directors;

upon request by major stockholders, the Chairman of the Board or a majority of the Company’s independent directors, being available for consultation and director communication;

reviewing with the Chairman of the Board the nature and content of director communications in response to inquiries from outside parties; and

in consultation with the Chairman of the Board, reviewing written communications between directors and officers or employees of the Company.

 

The independent directors meet regularly in executive session without the CEO or any other member of management present, and in fiscal 2018 met four times. Ms. Ward, as Chairman of the Board, presided over the sessions of the independent directors in fiscal 2018, and the independent Lead Director will preside over these independent director sessions at future meetings.

 

 

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Board Refreshment

 

Our Board recognizes the importance of consistent, deliberate Board refreshment and succession planning to ensure that the directors possess a composite set of skills, experience and qualifications necessary for the Board to successfully establish and oversee management’s execution of the Company’s strategic priorities (see “Director Qualifications” below for a discussion of the key qualifications considered by the Corporate Governance and Nominating Committee in evaluating candidates). In order to promote thoughtful Board refreshment, in 2016 our Board adopted a Board refreshment plan, pursuant to which the Board has elected an additional five independent, non-employee directors to the Board, as discussed below.

 

Director Tenure Policy. In July 2016, our Board, upon the recommendation of our Corporate Governance and Nominating Committee, established our director tenure policy, which provides that no individual who, as of the date of the election to which any nomination relates, will have served as a non-employee director for 15 years will be eligible to be nominated for election or re-election to the Board.

 

Director Recruitment. Since the adoption of our Board refreshment plan in 2016, our Board has periodically engaged the services of a search firm to assist with identifying and recruiting appropriate director candidates. Several director candidates have been referred by our then current directors and identified by our search firm, and our Board evaluated the skills, experience and qualifications of each candidate in the context of the Board’s composition and the Company’s strategic priorities. Following consideration of each of these candidates, and in each case upon the unanimous recommendation of our Corporate Governance and Nominating Committee, the Board expanded the size of the Board and elected a total of five new independent, non-employee directors: Messrs. Brutto, Halverson and Shirley (in September 2016), Ms. Talton (in September 2017) and Mr. Hinshaw (in April 2018).

 

In accordance with the director tenure policy, Ms. Jackie M. Ward and Mr. Richard G. Tilghman are not standing for re-election at the Annual Meeting, and we expect Mr. Cassaday to retire from the Board at the time of the 2019 annual meeting. As our longest-tenured directors retire from the Board, we will continue our director recruitment efforts to help ensure that the size of the Board remains at an appropriate level.

 

CEO Succession Plan

 

Effective January 1, 2018, pursuant to our previously announced CEO succession plan, Thomas L. Bené, our then current President and Chief Operating Officer, succeeded William J. DeLaney as President and CEO and became a member of our Board, filling the vacancy resulting from Mr. DeLaney’s transition out of those roles effective December 31, 2017. For discussion of the Transition and Retirement Agreement with Mr. DeLaney, see “Executive Compensation – CEO Succession Compensation Arrangements – Transition and Retirement Agreement with Mr. DeLaney,” and for discussion of the compensation adjustments for Mr. Bené in connection with his transition and appointment to President and CEO, see “Executive Compensation – CEO Succession Compensation Arrangements – Compensation Adjustments for Mr. Bené.”

 

Stockholder Engagement

 

Communicating with stakeholders, whether customers, suppliers, employees or stockholders, has always been an important part of how Sysco does business. Beginning in 2015, in furtherance of these efforts, we began a more formal engagement process with our stockholders regarding matters of corporate governance. This engagement process is incremental to our customary participation at industry and investment community conferences, investor road shows and analyst meetings.

 

At the direction of our Corporate Governance and Nominating Committee, senior leaders and subject matter experts from the Company met with representatives at many of our top institutional stockholders to discuss Sysco’s governance practices, executive compensation, compliance programs, and other environmental, social, and governance related matters. Management reported regularly to the Board and the Corporate Governance and Nominating Committee concerning these meetings, including feedback on the concerns and issues raised by our stockholders.

 

Beginning in fiscal 2016, this engagement program was expanded to include Ms. Ward and Mr. Glasscock, who have each participated in meetings with many of our top institutional stockholders to discuss the same governance and compensation matters described above. Insight gained from engagement discussions remains a key consideration for the Board as it continues to evaluate our corporate governance and executive compensation practices for potential refinement.

 

We look forward to gaining further insight from our stockholders during future engagements.

 

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Communicating with the Board

 

Interested parties, including, but not limited to, our stockholders, may communicate with the Chairman of the Board, the independent directors as a group and the individual members of the Board by confidential web submission or by mail. All such correspondence will be delivered to the parties to whom they are addressed. The Board requests that items unrelated to the duties and responsibilities of the Board not be submitted, such as product inquiries and complaints, job inquiries, business solicitations and junk mail. You may access the form to communicate by confidential web submission in the corporate governance section of Sysco’s website under “Investors — Corporate Governance—Contact the Board” at www.sysco.com. You can contact any of our directors by mail in care of the Corporate Secretary, Sysco Corporation, 1390 Enclave Parkway, Houston, Texas 77077.

 

Board Meetings and Committees

 

During fiscal 2018, the Board held nine meetings, including four regular meetings and five special meetings, and committees of the Board held a total of 27 meetings. Overall attendance at such meetings was approximately 97%. Each director attended 75% or more of the aggregate of all meetings of the Board and the committees on which he or she served during fiscal 2018. The Board has an Audit Committee, a Compensation Committee, a Corporate Governance and Nominating Committee, a Corporate Social Responsibility Committee, and an Executive Committee. Current copies of the written charters for the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee, the Corporate Social Responsibility Committee and the Executive Committee are published on our website under “Investors — Corporate Governance” at www.sysco.com. The current membership and primary responsibilities of the committees are summarized in the following table.

 

Committee Name
& Current Members
Primary Responsibilities Fiscal 2018
Meetings

Audit(1)(2)

Mr. Tilghman (Chair)

Mr. Frank

Mr. Halverson

Mr. Hinshaw

Dr. Koerber

Ms. Newcomb

Mr. Shirley

Oversees and reports to the Board with respect to various auditing and accounting matters, including the selection of the independent public accountants, the scope of audit procedures, the nature of all audit and non-audit services to be performed by the independent public accountants, the fees to be paid to the independent public accountants, and the performance of the independent public accountants

Oversees and reports to the Board with respect to Sysco’s accounting practices and policies

Responsible for assisting the Board with its oversight and monitoring of the Company’s risk assessment and risk management policies and processes

Oversees and reports to the Board with respect to compliance with legal and regulatory requirements, corporate accounting, reporting practices and the integrity of the financial statements of the Company

10

Compensation(3)(4)

Mr. Cassaday (Chair)

Mr. Brutto

Mr. Frank

Mr. Halverson

Mr. Glasscock

Ms. Ward

Establishes compensation policies that effectively attract, retain and incentivize executive officers

Establishes and approves all compensation of the CEO and the other senior officers, including the named executive officers

Responsible for the appointment, compensation and oversight of the work of each of the committee’s compensation consultants, counsel or other advisers

Oversees the administration of Sysco’s qualified and nonqualified benefit plans, incentive compensation plans, equity-based plans and Sysco’s group benefit medical plan

Appropriately delegates and oversees compensation and granting authority, except for decisions that impact the compensation of Sysco’s CEO and executive officers

Oversees administrative committees or individuals delegated oversight of employee and executive benefit plans

Amends, establishes or terminates any benefit plan that is maintained primarily for the benefit of Sysco’s senior officers

Resolves claims under any benefit plan with respect to any senior officer

7

Corporate Governance and Nominating(3)

Mr. Glasscock (Chair)

Mr. Cassaday

Mr. Peltz

Mr. Shirley

Ms. Talton

Ms. Ward

Proposes directors, committee members and officers to the Board for election or reelection

Oversees the evaluation of management, including the CEO

Reviews the performance of the members of the Board and its committees

Recommends to the Board the annual compensation of non-employee directors

Reviews related party transactions

Reviews and makes recommendations regarding the organization and effectiveness of the Board and its committees, the establishment of corporate governance principles, the conduct of meetings, succession planning and Sysco’s Governing Documents

Reviews and makes recommendations regarding changes to Sysco’s Global Code of Conduct, periodically reviews overall compliance with the Code and approves any waivers to the Code given to Sysco’s executive officers and directors

Monitors compliance with and approves waivers to Sysco’s Policy on Trading in Company Securities

7

 

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Committee Name
& Current Members
Primary Responsibilities Fiscal 2018
Meetings

Corporate Social Responsibility

Mr. Brutto (Chair)

Dr. Koerber

Ms. Newcomb

Ms. Talton

Reviews and acts in an advisory capacity to the Board and management with respect to policies and strategies that affect Sysco’s role as a socially responsible organization, as well as Sysco’s long-term sustainability

Reviews, evaluates, and provides input on the development and implementation of Sysco’s Corporate Social Responsibility Strategy, which focuses on three pillars: People, Products and Planet

Reviews philanthropic giving, agriculture programs, and warehouse and transportation initiatives designed to improve the environmental impact of the Company

3

Executive

Ms. Ward (Chair)

Mr. Bené

Mr. Brutto

Mr. Cassaday

Mr. Glasscock

Mr. Tilghman

Exercises all of the powers of the Board when necessary, to the extent permitted by applicable law

0
(1) Each member of the Audit Committee has been determined by the Board to be independent, as defined in the NYSE’s listing standards, Section 10A of the Exchange Act and the Company’s Corporate Governance Guidelines. Each member of the Audit Committee is financially literate and the Board has determined that Messrs. Halverson and Tilghman and Ms. Newcomb each meet the definition of an audit committee financial expert as promulgated by the Securities and Exchange Commission. No Audit Committee member serves on the audit committees of more than two other public companies.
(2) Mr. Tilghman is not standing for reelection at the Annual Meeting, and will retire from the Board effective November 16, 2018. The Board currently intends to appoint a successor Chairman of the Audit Committee on or before the date of the Annual Meeting.
(3) Each member of the Compensation Committee and the Corporate Governance and Nominating Committee has been determined by the Board to be independent, as defined in the NYSE’s listing standards and the Company’s Corporate Governance Guidelines.
(4) Except for decisions that impact the compensation of Sysco’s CEO, the Compensation Committee is generally authorized to delegate any decisions it deems appropriate to a subcommittee. In such a case, the subcommittee must promptly make a report of any action that it takes to the full Compensation Committee. In addition, the Compensation Committee may delegate to any one or more members of the Board its full equity grant authority with respect to any equity-based grants (other than grants made to officers that are subject to reporting obligations under Section 16 of the Exchange Act); and the Compensation Committee has delegated such authority to Mr. Bené with respect to certain non-executive employees, subject to specified limitations. In carrying out its duties, the Compensation Committee may also delegate its oversight of Sysco’s employee and executive benefit plans to any administrative committees of the respective plans or to such officers or employees of Sysco as the Compensation Committee deems appropriate, except that it may not delegate its powers to amend, establish or terminate any benefit plan that is maintained primarily for the benefit of Sysco’s senior officers, resolve claims under a benefit plan with respect to any senior officer, or modify the compensation of any senior officer as provided under any nonqualified or executive incentive compensation plan. For a detailed description of the Compensation Committee’s processes and procedures for consideration and determination of executive compensation, including the role of executive officers and compensation consultants in recommending the amount and form of executive compensation, see “— Compensation Consultants,” and “Compensation Discussion and Analysis.”

 

Annual Board Self-Evaluation

 

The Board conducts an annual self-evaluation to determine whether the Board and its committees are functioning effectively. As part of the evaluation process, each director completes a Board self-evaluation questionnaire developed by the Corporate Governance and Nominating Committee. The questionnaire responses are compiled and reviewed by outside legal counsel, which provides a summary of the responses, without attribution to any individual director, to the Chairman of the Board and the Chairman of the Corporate Governance and Nominating Committee. In selected years, the outside legal counsel will also conduct interviews with each director individually. The results of the questionnaires and, if applicable, the interview process are subsequently discussed by the Corporate Governance and Nominating Committee and are then presented to the full Board for review and discussion.

 

In addition, each Board committee conducts a similar self-evaluation of its performance focused on the committee’s key responsibilities. Feedback from the committees’ self-evaluations is reviewed by the applicable committee and also presented to the full Board for review and discussion. Key learnings from these Board and committee self-evaluations play an important role in informing the Board’s approach to refreshment and succession planning.

 

Beginning in fiscal 2017, the Board’s self-evaluation process was enhanced to include “360 degree” individual director performance reviews, which involved a confidential evaluation of the performance of selected directors by each of his or her fellow directors, key members of senior management and representatives of certain independent, third-party firms that routinely interact with the directors assessed. The feedback from these reviews for fiscal 2018 was compiled and communicated to the directors assessed by the Board’s independent, outside legal counsel.

 

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Director Independence

 

Our Corporate Governance Guidelines require that at least a majority of our directors meet the criteria for independence that the New York Stock Exchange has established for continued listing, as well as the additional criteria set forth in the Guidelines. Additionally, we require that all members of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee be independent, that all members of the Audit Committee satisfy the additional requirements of the New York Stock Exchange and applicable rules promulgated under the Exchange Act, and that all members of the Compensation Committee satisfy the additional requirements of the New York Stock Exchange.

 

Under New York Stock Exchange listing standards, to consider a director to be independent, our Board must determine that he or she has no material relationship with Sysco other than as a director. The standards specify the criteria by which the Board must determine whether directors are independent, and contain guidelines for directors and their immediate family members with respect to employment or affiliation with Sysco or its independent registered public accounting firm.

 

In addition to the NYSE’s standards for independence, our Corporate Governance Guidelines contain categorical standards that provide that the following relationships will not impair a director’s independence:

 

if a Sysco director is an executive officer of another company that does business with Sysco and the annual sales to, or purchases from, Sysco are less than two percent of the annual revenues of the company for which he or she serves as an executive officer;
if a Sysco director is an executive officer of another company which is indebted to Sysco, or to which Sysco is indebted, and the total amount of either company’s indebtedness to the other is less than two percent of the total consolidated assets of the company for which he or she serves as an executive officer, so long as payments made or received by Sysco as a result of such indebtedness do not exceed the two percent thresholds provided above with respect to sales and purchases; and
if a Sysco director serves as an officer, director or trustee of a tax-exempt charitable organization, and Sysco’s discretionary charitable contributions to the organization are less than two percent of that organization’s total annual charitable receipts; Sysco’s automatic matching of employee charitable contributions will not be included in the amount of Sysco’s contributions for this purpose.

 

The Board of Directors has reviewed all relevant relationships between those individuals who served as a director at any time during fiscal 2018 (and/or who are nominated for election at the Annual Meeting) and Sysco. The relationships reviewed included those described under “Certain Relationships and Related Person Transactions,” and several relationships that did not automatically make the individual non-independent under the NYSE standards or our Corporate Governance Guidelines, either because of the type of affiliation between the director and the other entity or because the amounts involved did not meet the applicable thresholds.

 

These additional relationships include the following (for purposes of this section, “Sysco”, “we,” “us” and “our” include our operating companies):

 

Mr. Cassaday serves as a director of one of our suppliers;
Former director Dr. Judith B. Craven, who retired from the Board effective November 17, 2017, serves as a director of one of our suppliers;
Mr. Frank is a Partner of Trian Fund Management, L.P., which owns approximately 7.2% of Sysco’s outstanding common stock;
Mr. Halverson serves as Treasurer of a charitable organization that is one of our customers; in addition, Mr. Halverson’s former employer purchased foodservice products from Sysco in fiscal 2018 for one of its employee cafeterias;
Mr. Hinshaw serves as a director of one of our suppliers;
Mr. Peltz is Chief Executive Officer and a Founding Partner of Trian Fund Management, L.P., which owns approximately 7.2% of Sysco’s outstanding common stock; he also serves as a director of three Sysco customers and, during fiscal 2018, served as a director of a customer of and supplier to Sysco; and
An immediate family member of Ms. Talton is an employee of a Sysco service provider who did not work on any Sysco-related matters during fiscal 2018.

 

After reviewing such information, the Board has determined that each of Mr. Brutto, Mr. Cassaday, Dr. Craven, Mr. Frank, Mr. Glasscock, Mr. Halverson, Mr. Hinshaw, Dr. Koerber, Ms. Newcomb, Mr. Peltz, Mr. Shirley, Ms. Talton, Mr. Tilghman and Ms. Ward has no material relationship with Sysco and is independent under the NYSE standards and the categorical standards set forth in the Corporate Governance Guidelines and described above.

 

The Board also determined that each of Mr. DeLaney and Mr. Bené, who served as an executive officer of the Company during fiscal 2018, is not independent pursuant to the NYSE independence standards due to such service, and that former director Mr. Jonathan Golden, who retired from the Board effective November 17, 2017, is not independent due to his relationship to Arnall Golden Gregory LLP. See “Transactions with Related Persons” below for further discussion.

 

The Board has also determined that each member of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee is independent. Our Corporate Governance Guidelines also provide that no independent director who is a member of the Audit, Compensation or Corporate Governance and Nominating Committees may receive any compensation from Sysco, other than in his or her capacity as a non-employee director or committee member. The Board has determined that no non-employee director received any compensation from Sysco at any time since the beginning of fiscal 2018, other than in his or her capacity as a non-employee director, committee member, committee chairman or Chairman of the Board.

 

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Certain Relationships and Related Person Transactions

 

Related Person Transactions Policies and Procedures

 

The Board has adopted written policies and procedures for review and approval or ratification of transactions with related persons. We subject the following related persons to these policies: directors, director nominees, executive officers, beneficial owners of more than five percent of our stock and any immediate family members of these persons.

 

We follow the policies and procedures below for any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which Sysco was or is to be a participant, the amount involved exceeds $100,000, and in which any related person had or will have a direct or indirect material interest. These policies specifically apply without limitation to purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, and employment by Sysco of a related person. The Board of Directors has determined that the following do not create a material direct or indirect interest on behalf of the related person, and are, therefore, not related person transactions to which these policies and procedures apply:

 

Interests arising only from the related person’s position as a director of another corporation or organization that is a party to the transaction;
Interests arising only from the direct or indirect ownership by the related person and all other related persons in the aggregate of less than a 10% equity interest, other than a general partnership interest, in another entity which is a party to the transaction;
Interests arising from both the position and ownership level described in the two bullet points above;
Interests arising solely from the ownership of a class of Sysco’s equity securities if all holders of that class of equity securities receive the same benefit on a pro rata basis, such as dividends;
A transaction that involves compensation to an executive officer if the compensation has been approved by the Compensation Committee, the Board of Directors or a group of independent directors of Sysco performing a similar function; or
A transaction that involves compensation to a director for services as a director of Sysco if such compensation will be reported pursuant to Item 402(k) of Regulation S-K.

 

Any of our employees, officers or directors who have knowledge of a proposed related person transaction must report the transaction to our chief legal officer. Whenever practicable, before the transaction goes effective or becomes consummated, the Corporate Governance and Nominating Committee of the Board of Directors will review and approve the proposed transaction in accordance with the terms of this policy. If the chief legal officer determines that it is not practicable to obtain advance approval of the transaction under the circumstances, the Committee will review and, in its discretion may ratify, the transaction at its next meeting. In addition, the Board of Directors has delegated to the Chair of the Committee the authority to pre-approve or ratify, as applicable, any related person transaction in which the aggregate amount involved is expected to be less than $500,000.

 

In addition, if a related person transaction is ongoing in nature and the Committee has previously approved it, or the transaction otherwise already exists, the Committee will review the transaction during its first meeting of each fiscal year to:

 

ensure that such transaction has been conducted in accordance with the previous approval granted by the Committee, if any;
ensure that Sysco makes all required disclosures regarding the transaction; and
determine if Sysco should continue, modify or terminate the transaction.

 

We will consider a related person transaction approved or ratified if the transaction is authorized by the Corporate Governance and Nominating Committee or the Chair, as applicable, in accordance with the standards described below, after full disclosure of the related person’s interests in the transaction. As appropriate for the circumstances, the Committee will review and consider such of the following as it deems necessary or appropriate:

 

the related person’s interest in the transaction;
the approximate dollar value of the amount involved in the transaction;
the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss;
whether the transaction was undertaken in Sysco’s ordinary course of business;
whether the transaction with the related person is proposed to be, or was, entered into on terms no less favorable to Sysco than terms that could have been reached with an unrelated third party;
the purpose of, and the potential benefits to Sysco of, the transaction; and
any other information regarding the transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.

 

The Committee will review such additional information about the transaction as it in its sole discretion shall deem relevant. The Committee may approve or ratify the transaction only if the Committee determines that, based on its review, the transaction is in, or is not inconsistent with, the best interests of Sysco. The Committee may, in its sole discretion, impose such conditions as it deems appropriate on Sysco or the related person when approving a transaction. If the Committee or the Chair, as applicable, does not ratify a related person transaction, we will either rescind or modify the transaction, as the Committee or the Chair, as applicable, directs, as soon as practicable following the failure to ratify the transaction. The Chair will report to the Committee at its next regularly scheduled meeting any action that he or she has taken under the authority delegated pursuant to this policy. If any director has an interest in a related person transaction, he or she is not allowed to participate in any discussion or approval of the transaction, except that the director is required to provide all material information concerning the transaction to the Committee.

 

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Transactions with Related Persons

 

Mr. Golden, one of our former directors who retired on November 17, 2017, is the sole stockholder of Jonathan Golden, P.C., a partner in the law firm of Arnall Golden Gregory LLP, Atlanta, Georgia, which provided legal services to Sysco during fiscal 2018 and continues to do so. During fiscal 2018, Sysco incurred approximately $1.8 million in legal fees and disbursements related to these services. We believe the amounts were fair and reasonable in view of the level and extent of services rendered. Due to this relationship, Mr. Golden was not considered to be an independent director under the NYSE standards or the categorical standards set forth in Sysco’s Corporate Governance Guidelines.

 

Ms. Twila Day is the wife of William Day, our former Executive Vice President, Merchandising, who retired on August 1, 2017. Ms. Day previously served as Sysco’s Vice President and Chief Information Officer from December 2005 until January 2010, when she was promoted to Senior Vice President and Chief Information Officer, and served in this position until her departure from Sysco effective June 29, 2013. Following her departure from Sysco, Ms. Day accepted a position as a managing director of the consulting firm Alvarez & Marsal, which has provided consulting services to Sysco since 2004. Sysco and its affiliates purchased approximately $11.7 million in consulting services from this firm in fiscal 2018, although Ms. Day did not personally provide any services to Sysco, nor did she receive any compensation as a result of these services.

 

The Corporate Governance and Nominating Committee has approved each of the above transactions in accordance with the disclosed policies and procedures.

 

Risk Oversight

 

One of the primary oversight functions of the Board is to ensure that Sysco has an appropriate enterprise risk management process in place that is consistent with both the short and long-term goals of the Company. In order to effectively fulfill this oversight role, the Board relies on various individuals and committees within management and among our Board members. See “Board of Directors Matters—Election of Directors at 2018 Annual Meeting (Item 1) —Director Qualifications and Board Succession” and “Board of Directors Matters—Board Composition” below for a description of individual director qualifications, including risk management experience.

 

Management is responsible for identifying, managing and mitigating enterprise risks, and reports directly to the Audit Committee and the Board on a regular basis with respect to enterprise risk management. As discussed above under “Board Meetings and Committees of the Board,” the Audit Committee reviews Sysco’s process by which management assesses and manages the Company’s exposure to enterprise risk. The Audit Committee also makes recommendations to the Board with respect to the process by which members of the Board and relevant committees will be made aware of the Company’s significant risks, including recommendations regarding what committee of the Board would be most appropriate to take responsibility for oversight of management with respect to the most material risks faced by the Company. On an annual basis, management reviews with the Board the key enterprise risks identified in the process, such as strategic, operational, financial, compliance and reputation risks, as well as management’s process for addressing and mitigating the potential effects of such risks. Sysco has developed an enhanced enterprise risk management process that includes frequent discussion and prioritization of key risk issues by the executive management team, a deep dive approach to fully understand the risks, creation of an enterprise risk management plan in support of lowering the risk’s exposure to the level of management’s preferred tolerance, and tracking and monitoring of risk information and management’s execution of the plan, all within a governance and reporting cadence.

 

The Board’s committees help oversee the enterprise risk management process within the respective areas of the committees’ delegated oversight authority. The Audit Committee is primarily responsible for hiring and evaluating our independent registered public accounting firm, reviewing our internal controls, overseeing our internal audit function, overseeing customer credit risk, reviewing contingent liabilities that may be material to the Company and various regulatory and compliance oversight functions. The Compensation Committee is responsible for ensuring that our executive compensation policies and practices do not incentivize excessive or inappropriate risk-taking by employees. The Corporate Governance and Nominating Committee monitors risk by ensuring that proper corporate governance standards are maintained, that the Board is comprised of qualified directors, and that qualified individuals are chosen as senior officers. The Chairman of the Board coordinates the flow of information regarding enterprise risk oversight from each respective committee to the independent directors and participates in the review of the agenda for each Board and Committee meeting. As the areas of oversight among committees sometimes overlap, committees may hold joint meetings when appropriate and address certain enterprise risk oversight issues at the full Board level. The Board considers enterprise risk in evaluating the Company’s strategy, including specific strategic and emerging risks, and annually reviews and approves corporate goals and capital budgets. The Board also monitors any specific enterprise risks for which it has chosen to retain oversight rather than delegating oversight to one of its committees, such as risks related to cyber-security and succession planning.

 

Code of Conduct

 

Our Global Code of Conduct is guided by our values and expectations that we believe are important to delivering exceptional service with the highest degree of integrity. We require all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, to understand and abide by the Code, as it represents our commitment to continuously deliver excellence with integrity by conducting our business in accordance with the highest standards of moral and ethical behavior.

 

Our Global Code of Conduct addresses the following, among other topics:

 

human rights;
diversity and inclusion;

 

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workplace safety;
antitrust;
competition and fair dealing;
professional conduct, including customer relationships, equal opportunity, payment of gratuities and receipt of payments or gifts;
anti-corruption and anti-bribery;
political contributions;
conflicts of interest;
insider trading;
export/import laws and trade sanctions;
financial disclosure;
intellectual property; and
confidential information.

 

Our Code, which is reviewed annually by our Corporate Governance and Nominating Committee, requires strict adherence to all laws and regulations applicable to our business and requires employees to report any violations or suspected violations of the Code. We have published the Global Code of Conduct on our website under “Investors— Corporate Governance” at www.sysco.com. We intend to disclose any future amendments to or waivers of our Code on our website at www.sysco.com under the heading “Investors— Corporate Governance.”

 

Reporting a Concern or Violation

 

Our Code explains that there are multiple channels for an employee to report a concern, including to his or her manager, a human resource professional, our legal or ethics and compliance department, or to the Sysco Ethics Line. Our Ethics Line is available 24 hours a day, seven days a week, 365 days a year, worldwide, to receive calls or web submissions from anyone wishing to report a concern or complaint, anonymous or otherwise. Our Ethics Line contact information can be found on our website at www.sysco.com under the heading “About Sysco – The Sysco Story – Code of Conduct.”

 

Any report to any one of our multiple channels for reporting concerns that raises a concern or allegation of impropriety relating to our accounting, internal controls or other financial or audit matters is immediately forwarded to our Executive Vice President, Administration and Corporate Secretary, who is then responsible for reporting such matters, unfiltered, to the Chair of our Audit Committee. All such matters are investigated and responded to in accordance with the procedures established by the Audit Committee to ensure compliance with the Sarbanes-Oxley Act of 2002.

 

Compensation Consultants

 

In November 2016, the Compensation Committee retained Semler Brossy Consulting Group, LLC (“Semler Brossy”) as its executive compensation consultant. Retained by and reporting directly to the Compensation Committee, Semler Brossy provided the Committee with assistance in evaluating Sysco’s executive compensation programs and policies, and, where appropriate, assisted with the redesign and enhancement of elements of the programs. The scope of Semler Brossy’s assignments with regard to fiscal 2018 and 2019 executive compensation included:

 

Assisting the Committee in identifying potential companies for removal from and addition to the peer group;
Preparing executive compensation studies for the Committee, in May 2017 and May 2018, which included a comparison of base salaries and estimation of total cash compensation and total direct compensation, inclusive of annual and long-term incentive opportunities for each of the NEOs relative to market;
Conducting a pay for performance analysis, comparing the relationship between actual realizable pay for the NEOs and the Company’s total shareholder return to that of the applicable peer group;
Comparing Sysco’s aggregate equity usage to the applicable peer group;
Consulting with the Committee with regard to all executive compensation decisions made for fiscal 2018 and fiscal 2019, including base salary determinations and annual and long-term incentive awards;
Working with the Committee to develop appropriate pay arrangements for Mr. DeLaney and Mr. Bené for fiscal 2018 and 2019 in connection with the CEO succession process in fiscal 2018; and
Other periodic compensation consulting at the request of the Compensation Committee and management.

 

Semler Brossy also advised the Corporate Governance and Nominating Committee with respect to non-employee director compensation. At the Corporate Governance and Nominating Committee’s request, Semler Brossy provided data regarding the amounts and types of compensation paid to non-employee directors at the companies in Sysco’s peer group, and also identified trends in director compensation. All decisions regarding non-employee director compensation are recommended by the Corporate Governance and Nominating Committee and approved by the Board. In addition to providing background information and written materials, Semler Brossy representatives attended meetings at which the Committee Chairmen believed that their expertise would be beneficial to the Committees’ discussions. Neither Semler Brossy nor any of its affiliates provided any additional services to Sysco and its affiliates in fiscal 2018, or any such services in fiscal 2019 through the date of the proxy statement, and Sysco does not expect Semler Brossy to provide any such services to Sysco in the future. The Compensation Committee has determined that Semler Brossy is independent from the Company and that no conflicts of interest exist related to Semler Brossy’s services provided to the Compensation Committee. See “Compensation Discussion and Analysis–How Executive Pay is Established—Committee Oversight.”

 

For a discussion of the role of the CEO and other executive officers in determining or recommending NEO compensation, see “Compensation Discussion and Analysis – How Executive Pay is Established – Role of CEO and/or Other Executive Officers in Determining NEO Compensation.”

 

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BOARD OF DIRECTORS MATTERS

 

Election of Directors at 2018 Annual Meeting (Item 1)

 

Election Process

 

The company’s bylaws provide for majority voting in uncontested director elections. Majority voting means that directors are elected by a majority of the votes cast—that is, the number of shares voted “for” a director must exceed the number of shares voted “against” that director. Any incumbent director who is not re-elected in an election in which majority voting applies shall tender his or her resignation promptly following certification of the stockholders’ vote. The Corporate Governance and Nominating Committee shall consider the tendered resignation and recommend to the Board whether to accept or reject the resignation offer, or whether other action should be taken. The director who tenders his or her resignation shall not participate in the recommendation of the committee or the decision of the Board with respect to his or her resignation. The Board shall act on the recommendation within 120 days following certification of the stockholders’ vote and shall promptly disclose its decision regarding whether to accept the director’s resignation offer. In contested elections, where there are more nominees than seats on the Board as of the record date of the meeting at which the election will take place, directors are elected by a plurality vote. This means that the nominees who receive the most votes of all the votes cast for directors will be elected.

 

Nomination Process

 

The Corporate Governance and Nominating Committee, which we refer to in this section below as the “Committee,” is responsible for identifying and evaluating candidates for election to Sysco’s Board of Directors.

 

Director Candidates Identified by the Board and Management

 

In identifying candidates for election to the Board, the Committee will determine which of the incumbent directors has an interest in being nominated for re-election at the next meeting of stockholders. The Committee will also identify and evaluate new candidates for election to the Board for the purpose of filling vacancies. The Committee will solicit recommendations for nominees from persons that the Committee believes are likely to be familiar with qualified candidates, including current members of the Board and Sysco’s management. The Committee may also determine to engage a professional search firm to assist in identifying qualified candidates. When such a search firm is engaged, the Committee shall set its fees and scope of engagement.

 

During 2018, in connection with the Board refreshment efforts described above, the Board engaged the services of a search firm to assist with identifying and recruiting appropriate director candidates. Following consideration of director candidates referred by our then-current directors and identified by our search firm, upon the recommendation of our Corporate Governance and Nominating Committee, in April 2018 our Board unanimously expanded the size of the Board from 13 to 14 directors and elected one new independent, non-employee director: Mr. Hinshaw. The size of the Board will be reduced from 14 to 12 directors, effective at the time of the Annual Meeting, in connection with the expiration of Ms. Ward’s and Mr. Tilghman’s terms. As our longest-tenured directors retire from the Board pursuant to the director tenure policy, we will continue our director recruitment efforts to help ensure that the size of the Board may be maintained at an appropriate level.

 

Director Candidates Recommended by Stockholders

 

The Committee will also consider candidates recommended by stockholders. The Committee will evaluate such recommendations using the same criteria that it uses to evaluate other director candidates. Stockholders can recommend candidates for consideration by the Committee by writing to the Corporate Secretary, 1390 Enclave Parkway, Houston, Texas 77077, and including the following information:

 

the name and address of the stockholder;
the name and address of the person to be nominated;
a representation that the stockholder is a holder of the Sysco stock entitled to vote at the meeting to which the director recommendation relates;
a statement in support of the stockholder’s recommendation, including a description of the candidate’s qualifications;
information regarding the candidate as would be required to be included in a proxy statement filed in accordance with the rules of the Securities and Exchange Commission; and
the candidate’s written, signed consent to serve if elected.

 

The Committee will consider, in advance of Sysco’s next annual meeting of stockholders, those director candidate recommendations that the Committee receives by May 1, 2019.

 

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In addition, if we receive by June 7, 2019, a recommendation of a director candidate from one or more stockholders who have beneficially owned at least five percent of our outstanding common stock for at least one year as of the date the stockholder makes the recommendation, then we will disclose in our next proxy materials relating to the election of directors the identity of the candidate, the identity of the nominating stockholder(s) and whether the Committee determined to nominate such candidate for election to the Board. However, we will not provide this disclosure without first obtaining written consent of such disclosure from both the nominating stockholder and the candidate it is planning to recommend. The Committee will maintain appropriate records regarding its process of identifying and evaluating candidates for election to the Board. The Committee has not received any recommendations for director nominees for election at the 2018 annual stockholders meeting from any Sysco stockholders beneficially owning more than five percent of Sysco’s outstanding common stock.

 

Proxy Access Director Candidates

 

Our “proxy access” bylaw provisions permit an eligible stockholder (or a group of up to 20 eligible stockholders), who have continuously owned for a period of three years at least 3% of the aggregate of our outstanding common stock, to nominate a number of director nominees equal to 20% (rounded down) of the total number of directors constituting our Board (provided that, if the total number of directors is less than 10, an eligible stockholder or group may nominate up to 2 persons), which nominees will be included in our proxy statement for the relevant annual stockholders meeting if the nominating stockholder(s) and the respective nominee(s) comply with all applicable eligibility, procedural and disclosure requirements set forth in our bylaws.

 

Evaluation of Director Candidates

 

In evaluating all incumbent and new director candidates that the Committee determines merit consideration, the Committee will:

 

cause to be assembled information concerning the background and qualifications of the candidate, including information required to be disclosed in a proxy statement under the rules of the SEC or any other regulatory agency or exchange or trading system on which Sysco’s securities are listed, and any relationship between the candidate and the person or persons recommending the candidate;
determine if the candidate demonstrates the characteristics described below, including the highest personal and professional ethics, integrity and values;
consider the candidate’s skills, experience and qualifications in the context of the composition of the Board as a whole and the Company’s strategic priorities (see “Director Qualifications and Board Succession” below for a discussion of the key qualifications considered by the Committee in evaluating candidates);
consider the absence or presence of material relationships with Sysco that might impact independence;
consider the contribution that the candidate can be expected to make to the overall functioning of the Board;
consider the candidate’s capacity to be an effective director in light of the time required by the candidate’s primary occupation and service on other boards;
consider the extent to which the membership of the candidate on the Board will promote diversity among the directors; and
consider, with respect to an incumbent director, whether the director satisfactorily performed his or her duties as a director during the preceding term, including attendance and participation at Board and Committee meetings, and other contributions as a director.

 

In its discretion, the Committee may designate one or more of its members, or the entire Committee, to interview any proposed candidate. Based on all available information and relevant considerations, the Committee will recommend to the full Board for nomination those candidates who, in the judgment of the Committee, are most appropriate for membership on the Board based on each candidate’s characteristics, skills and qualifications.

 

Diversity

 

As a matter of practice, the Board looks for diversity in nominees such that the individuals possess enhanced perspective and experience through diversity in race, gender, ethnicity, cultural background, age, geographic origin, education, and professional and life experiences. Because we value gender and racial diversity among our Board members, two of our Board nominees are women, including one African American, and two of our Board nominees are from outside the United States.

 

Director Qualifications and Board Succession

 

Our Corporate Governance Guidelines provide that the Corporate Governance and Nominating Committee is responsible for reviewing with the Board, on an annual basis, the requisite characteristics, skills and qualifications that directors and director candidates should possess individually and in the broader context of the Board’s overall composition and the Company’s business and structure. This review includes consideration of diversity, skills, experience, time available and the number of other boards for which the individual serves as a director, and such other criteria as the Committee shall determine to be relevant at the time. The Committee is responsible for developing a succession plan for the Board and making recommendations to the Board regarding director succession.

 

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Key Characteristics of All Nominees

 

Each director nominee should demonstrate and possess all of the following characteristics:

 

Integrity and Accountability: Directors must have demonstrated high ethical standards and integrity in their personal and professional dealings, and must be willing to act on – and remain accountable for – their boardroom decisions.
Intelligence, Wisdom and Judgment: Directors must be able to provide wise, thoughtful counsel on a broad range of issues and possess high intelligence, practical wisdom and mature judgment.
Financial Literacy: Directors must be financially literate and capable of understanding a balance sheet, an income statement and a cash flow statement, and capable of using financial ratios and other indices to evaluate a company’s financial performance.
Teamwork: Directors must possess a willingness to challenge management and other directors while working collaboratively as part of a team in an environment that encourages open, candid discussion.
Diversity: A director’s membership on the Board must promote diversity among the directors, including diversity of experience, views, gender, race, ethnicity and age.
High Performance Standards: Directors must have achieved prominence in their respective business, governmental, or professional activities, including a history of achievements reflecting high standards of performance.
Representing Stockholder Interests: Directors must have demonstrated their willingness and ability to effectively, consistently and appropriately represent the best interests of the Company’s stockholders.
Commitment: Directors must have the ability and willingness, in light of their principal occupation and other board service, to commit the time and energy necessary to be fully prepared for, and to participate in, meetings and consultations on Company matters.
Conflicts: Directors must not have an interest in any agreement, arrangement or understanding with any person or entity that might limit or interfere with their ability to comply with their fiduciary duties to the Company and its stockholders.
Company Policies: Directors must recognize and affirm their obligation to comply with the Company’s Code of Conduct, Corporate Governance Guidelines and other policies and guidelines of the Company applicable to them.

 

Director Qualifications

 

In fiscal 2018, the Corporate Governance and Nominating Committee surveyed director qualifications, as recently disclosed by the Fortune 100 companies, to validate its previously compiled list of key qualification categories. Subsequently, each director was requested to review this list of qualification categories to identify the relative significance of each category to the ability of the Board, as a whole, to guide management in the achievement of the Company’s strategic priorities. The feedback from each of the individual directors was collected, analyzed and reported to the Committee, which utilized this feedback to identify the director qualifications that the Committee has endorsed as most significant for the Board to possess, collectively, and which are described below.

 

Accounting/Audit/Financial Reporting — An understanding of accounting, audit and financial reporting processes is important for our directors to establish appropriate financial performance objectives for the Company and senior management in the context of Sysco’s strategic priorities, and to evaluate financial performance as compared to those objectives.
Business Operations — Directors who have served in leadership positions with responsibility for managing or overseeing the operations of a company or business unit gain extensive experience in maximizing productivity and efficiency while managing expenses, which is valuable to Sysco’s operating plan and strategy. In particular, such directors can provide guidance and oversight to management in connection with its efforts under the three-year strategic plan to reduce administrative costs and leverage supply chain costs.
Distribution/Supply Chain — Directors who have experience in distribution logistics and supply chain management, including experience in the design, planning, execution, control and monitoring of supply chain activities, are capable of providing guidance and oversight to management in connection with its efforts to maximize the efficiencies and reduce the costs associated with Sysco’s acquisition of products and services from suppliers in furtherance of the three-year strategic plan.
Executive Leadership/Management — Experience as a senior executive in a large and complex public, private, government or academic organization enables a director to better oversee the management of the Company. Such individuals also bring perspective in analyzing, shaping and overseeing the execution of important operational and policy issues at a senior level, and tend to demonstrate a practical understanding of organizations, strategy, risk management and methods to drive change and growth. Finally, directors with experience in significant leadership positions generally possess the ability to identify and develop leadership qualities in others, including members of our management team.
Finance — Directors with an understanding of financial markets and financing and funding operations can provide valuable advice and insights to the Board with respect to the establishment of a successful capital strategy for the Company and the evaluation of proposed capital transactions in light of that strategy.
Foodservice Industry Experience — Experience serving as an executive, director or in another leadership position with a company in the foodservice industry enables a director to oversee more effectively our operations and to provide advice and guidance on issues impacting our business. In addition, as the foodservice market continues to mature, directors with industry experience can provide valuable insights as we focus on ways in which Sysco can grow organically by identifying and developing new markets.
HR/Talent Management/Large Workforce — Directors with human resources experience can offer guidance on Sysco’s talent management strategy, particularly in connection with recruiting, assessing, incentivizing and rewarding corporate executives and other senior leadership.
International/Global — Sysco continues to pursue opportunities to grow our global capabilities in, and source products directly from, international markets. We benefit from the experience and insight of directors with a global business perspective, as we identify the best strategic manner in which to continue to expand our operations outside of North America. As Sysco’s reach becomes increasingly global, directors with international business experience can assist us in navigating the business, political, and regulatory environments in countries in which Sysco does, or seeks to do, business.
Mergers and Acquisitions/Integration — Sysco continues to pursue opportunities to expand our business through acquisitions. Directors with a background in managing significant acquisitions or other business combinations can provide valuable guidance on how to develop and

 

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  implement strategies for growing our business. Relevant experience includes assessing “build or buy” decisions, analyzing the “fit” of a proposed acquisition target with a company’s strategy and culture, accurately valuing transactions and evaluating operational integration plans.
Public Company Board Service — Directors who have served on other public company boards can offer advice and insights with regard to the dynamics and operation of the Board, board practices of other public companies and the relationship between the Board and the management team. Most public company directors also have corporate governance experience to support our goals of Board and management accountability, greater transparency, legal and regulatory compliance and the protection of stockholder interests. Many of our directors currently serve, or have previously served, on the boards of directors of other public companies and served in leadership positions on those boards.
Risk Oversight/Risk Management — The Board oversees management’s efforts to understand and evaluate the types of risks facing Sysco and its business, evaluate the magnitude of the exposure, and enhance risk management practices. Directors with risk management experience can provide valuable insights as Sysco seeks to strike an appropriate balance between enhancing profits and managing risk.
Strategy Development — Directors who have served as a senior executive for large and complex public, private, governmental or academic organizations with responsibility for strategic planning and development are particularly well suited to advise and oversee management in establishing and executing the Company’s key strategic initiatives, as well as in evaluating the success of those initiatives.
Technology/e-Commerce — We use technology in substantially all aspects of our business operations, and we are continuing to implement business technology initiatives in furtherance of our objectives under our three-year strategic plan and our strategic priorities generally. Directors with experience in technology and e-Commerce are well suited to oversee management’s execution of these business technology initiatives and the Company’s approach to privacy issues and cyber security risks.

 

In selecting the director nominees, the Corporate Governance and Nominating Committee and the Board reviewed each of the incumbent directors in light of these qualifications and the Company’s strategic priorities, and it concluded that each of the nominees contributed significantly to the Board’s collective portfolio of requisite skills, characteristics and qualifications and to the Board’s overall composition. The Committee and the Board expect to continue to utilize these qualification criteria in connection with their ongoing Board refreshment efforts to identify additional candidates for future Board service.

 

The priorities and emphasis of the Corporate Governance and Nominating Committee and of the Board with regard to these qualifications will change from time to time as the Company’s strategic priorities and the composition of the Board evolve. Included in the individual biographies below is a discussion of the most significant aspects of each director’s background that strengthen the Board’s collective qualifications, skills and experience and that the Committee and the Board considered in reaching their conclusion that he or she should continue to serve as a director of Sysco.

 

Nominees for Election as Directors at the 2018 Annual Meeting

 

The Board of Directors has nominated the following twelve persons for election as directors to serve for one-year terms or until their successors are elected and qualified:

 

Thomas L. Bené
Daniel J. Brutto
John M. Cassaday
Joshua D. Frank
Larry C. Glasscock
Bradley M. Halverson
John M. Hinshaw
Hans-Joachim Koerber
Nancy S. Newcomb
Nelson Peltz
Edward D. Shirley
Sheila G. Talton

 

Ms. Jackie M. Ward and Mr. Richard G. Tilghman are not standing for re-election, and their terms will expire at the Annual Meeting. Each of the nominees is currently serving as a director of Sysco. Each of the nominees has consented to serve if elected. Although management does not contemplate the possibility, in the event that any nominee is not a candidate or is unable to serve as a director at the time of the election, the proxies will vote for any nominee who is designated by the present Board to fill the vacancy.

 

The Board believes that the combination of the various qualifications, skills and experiences of the nominees for election as directors at the Annual Meeting will contribute to an effective and well-functioning Board. Set forth below is biographical information for each of the nominees for election as a director at the Annual Meeting. Unless otherwise noted, the persons named below have been engaged in the principal occupations shown for the past five years or longer. In addition to the information described below, many of our directors serve as trustees, directors or officers of various non-profit, educational, charitable and philanthropic organizations.

 

The Board of Directors unanimously recommends a vote “FOR” each of the nominees listed above.

 

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Board Composition

 

Nominees for Election as Directors at the Annual Meeting:

 

THOMAS L. BENÉ

 

Age 56
Director
since:
January
2018

 

Key Director Qualifications:

Mr. Bené earned a Bachelor of Science degree in Business Administration from the University of Kansas. Mr. Bené has served as Sysco’s President and Chief Executive Officer since January 2018. Previously, he served as Sysco’s President and Chief Operating Officer from January 2016 to December 2017, Executive Vice President and President, Foodservice Operations from January 2015 to December 2015, Executive Vice President and Chief Commercial Officer from September 2013 to December 2014 and as Executive Vice President, Chief Merchandising Officer from May 2013 to September 2013. Prior to joining Sysco, Mr. Bené served as President of PepsiCo Foodservice from 2011 until 2013. During his 23 year career with PepsiCo, Mr. Bené held various senior roles with PepsiCo, including President, Pepsi-Cola North American Beverages; SVP, Sales and Franchise Development; President, PepsiCo Foods & Beverages, Canada; and Chief Operating Officer, South Beach Beverage Co. Mr. Bené joined PepsiCo in 1989 after working for American Hospital Supply. Through these various operations and management positions within PepsiCo and Sysco, Mr. Bené has gained valuable insight into the foodservice industry and has acquired significant experience and knowledge in the areas of foodservice operations, leadership and management development, corporate strategy development, merchandising, sales, marketing, revenue management, shared services and distribution and supply chain management. In light of these qualifications, and its continuing view that it is appropriate and beneficial to Sysco to have its CEO serve as management’s voice on the Board, in July 2017 the Board determined that Mr. Bené would be appointed to the Board on January 1, 2018, following Mr. DeLaney’s transition off of the Board. See “Corporate Governance – CEO Succession Plan” above for further discussion. Further, the Corporate Governance & Nominating and the Board believe that it is appropriate and beneficial to Sysco to have its Chief Executive Officer serve as management’s voice on the Board.

 

Committee:

Executive Committee

Primary Occupation:

Mr. Bené has served as Sysco’s President and Chief Executive Officer since January 2018.

 

DANIEL J. BRUTTO

 

 

Age 62
Director
since:
September
2016

 

Key Director Qualifications:

Mr. Brutto earned a Bachelor of Business Administration in Accounting degree from Loyola University in 1978, followed by a Master of Business Administration degree from Keller Graduate School of Management in 1982. Mr. Brutto served as President of UPS International and Senior Vice President of UPS, a global package delivery, supply chain management and freight forwarding company, from January 2008 until his retirement in June 2013. Previously, he served as President, Global Freight Forwarding, for UPS from 2006 to 2007, and corporate controller from 2004 to 2006. Mr. Brutto’s more than 38-year career at UPS, during which he served in various capacities with increasing levels of responsibility, provided him with extensive experience in the following areas: executive leadership/management, strategy development, business operations, finance, information systems, mergers & acquisitions, marketing and international/global. He also has public company board experience, having served as a director of Illinois Tool Works Inc. since February 2012. Additionally, Mr. Brutto served as Executive Chairman of Radial from 2016-2017, a privately held global fulfillment, customer care and technology company, and he has served on the board of UNICEF since 2009. In the past, he has served on the board of the US-China Business Council, the Guangdong Economic Council, and the Turkey Economic Advisory Council. He was also a delegate to the World Economic Forum, Davos, Switzerland, from 2009 to 2013.

 

Committees:

Compensation Committee


Corporate Social Responsibility Committee (Chair)


Executive Committee

Primary Occupation:

Mr. Brutto served as President of UPS International and Senior Vice President of United Parcel Service, Inc. (“UPS”) from January 2008 until his retirement in June 2013.

 

Other Boards:

Mr. Brutto has served as a director of Illinois Tool Works Inc. since February 2012.

 

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JOHN M. CASSADAY

 

 

Age 65
Director
since:
November
2004

 

Key Director Qualifications:

Mr. Cassaday earned a Bachelor of Arts degree from the University of Western Ontario and a Master of Business Administration Degree with honors from the University of Toronto’s Rotman School of Management. Prior to his more than 15 years of service as President and Chief Executive Officer of Corus Entertainment Inc., a Canadian leader in radio and cable television, Mr. Cassaday served as President and CEO of CTV Television Network Ltd. Mr. Cassaday’s career prior to broadcasting included executive positions in a number of leading packaged goods companies, including RJR-Macdonald, Inc., General Foods Corporation and Campbell Soup Company, where he gained food processing and food safety experience while advancing through positions in sales, marketing, and strategic planning in Canada, the United States, and the United Kingdom. His career at Campbell’s culminated in service as President of Campbell Soup Company’s operations in Canada and then the United Kingdom. Mr. Cassaday gained additional foodservice experience through his service as a director of Loblaw Companies Limited, Canada’s largest food retailer, and of J.M. Schnieder, a meat processing company. This background has provided Mr. Cassaday with extensive experience and knowledge in the areas of leadership, corporate strategy and development, the foodservice industry, distribution and supply chains, marketing, international operations, accounting, finance and financial reporting. In addition, Mr. Cassaday’s service on the Board of Directors of Manulife Financial Corporation has provided a greater understanding of risk management and global compensation considerations. Mr. Cassaday has received many business, industry and charitable honors, including designation as the most distinguished alumnus of the University of Toronto’s Rotman School of Management in 1998, receipt of the Gold Medal from the Association of Canadian Advertisers in 2004 (which recognizes individuals who have made an outstanding contribution to the advancement of marketing communications in Canada), induction in the Marketing Hall of Legends of Canada in 2006 and induction into the Canadian Broadcast and Music Hall of Fame in 2015. In 2013, Mr. Cassaday was inducted into the Order of Canada, Canada’s highest civilian honor. In 2017, Mr. Cassaday was presented with a degree of Director of Laws, honoris causa from the University of Toronto.

 

Committees:

Compensation Committee (Chair)


Corporate Governance and Nominating Committee


Executive Committee

Primary Occupation:

Mr. Cassaday served as President and Chief Executive Officer of Corus Entertainment Inc. from September 1999 until his retirement in March 2015.

 

Other Boards:

Mr. Cassaday is a director of Manulife Financial Corporation, where he is currently the chairman of the board, and Sleep Country Canada Holdings Inc. and a director of one privately held company: Irving Oil Limited.

 

JOSHUA D. FRANK

 

Age 39
Director
since:
August
2015

 

Key Director Qualifications:

Mr. Frank graduated cum laude from Yale University with a B.A. in Economics. Mr. Frank has played a leading role in many of Trian’s investments in the consumer sector, including investments in Mondelēz International, Inc., H.J. Heinz Company and PepsiCo, Inc., as well as numerous investments across other industries. As a senior member of the Trian investment team, he sources new investment ideas, leads due diligence on potential investments and focuses on portfolio construction and corporate governance matters. Mr. Frank was previously an Associate, Corporate Development, of Triarc Companies, Inc. (now known as The Wendy’s Company) (“Triarc”). Prior to joining Triarc in 2003, Mr. Frank worked at Credit Suisse First Boston from 2001 to 2003, where he spent time in both the mergers & acquisitions and healthcare investment banking groups. Throughout his career, Mr. Frank has developed experience and knowledge in the areas of corporate strategy development, finance, accounting, corporate governance, mergers and acquisitions, foodservice and the broader consumer sector.

 

Committees:

Audit Committee


Compensation Committee

Primary Occupation:

Mr. Frank is a Partner at Trian Fund Management, L.P. and has been a member of the Trian investment team since Trian’s formation in 2005.

 

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LARRY C. GLASSCOCK

 

 

Age 70
Director
since:
September
2010

 

Key Director Qualifications:

Mr. Glasscock attended Cleveland State University, where he received a bachelor’s degree in business administration. He later studied at the School of International Banking, participated in the American Bankers Association Conference of Executive Officers, and completed the Commercial Bank Management Program at Columbia University. Mr. Glasscock has developed significant leadership and corporate strategy expertise through over 30 years of business experience, including former service as Chairman of WellPoint, Inc. (now Anthem, Inc.), a healthcare insurance company, from 2005 to March 2010, President and CEO of WellPoint, Inc. (2004 – 2007), Chairman, President and CEO of Anthem, Inc. (2003 – 2004), and President and CEO of Anthem, Inc. (2001 – 2003), as well as his service as COO of CareFirst, Inc., President and CEO of Group Hospitalization and Medical Services, Inc., President and COO of First American Bank, N.A., and President and CEO of Essex Holdings, Inc. During his tenure at WellPoint, Inc. (now Anthem, Inc.), he played a major role in transforming the company from a regional health insurer into a national healthcare leader and championed company efforts to improve quality and customer service. Throughout his career, Mr. Glasscock has developed expertise in the successful completion and integration of mergers, utilization of technology to improve productivity and customer service, and team building and human capital development. Mr. Glasscock’s expertise in the utilization of technology to improve productivity will be valuable to Sysco as we continue to implement technological solutions in connection with our strategic priorities. His knowledge and experience in team building and human capital development are also extremely valuable to Sysco, as management development and succession planning remain top priorities of executive management and the Board during fiscal 2019. Mr. Glasscock also has considerable financial experience, as he has supervised the chief financial officers of major corporations. Earlier in his career he served as a bank officer lending to major corporations and supervised assessments of companies’ creditworthiness. Mr. Glasscock also has significant experience as a public company director and as a member of various committees related to important board functions, including audit, finance, governance and compensation.

 

Committees:

Corporate Governance and Nominating Committee (Chair)


Compensation Committee


Executive Committee

Primary Occupation:

In March 2010, Mr. Glasscock retired from his position as Chairman of the Board of Directors of WellPoint, Inc. (now Anthem, Inc.) after serving in the role since November 2005.

 

Other Boards:

Mr. Glasscock has served as a director of Simon Property Group, Inc. since March 2010, where he is currently the lead independent director, and as a director of Zimmer Biomet Holdings, Inc. since August 2001, where he is currently the non-executive chairman of the board.

 

BRADLEY M. HALVERSON

 

Age 58
Director
since:
September
2016

 

Key Director Qualifications:

Mr. Halverson attended the University of Illinois, where he received a Bachelor of Science degree in Accounting in 1982 and an Executive Master of Business Administration degree in 1996. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants. Mr. Halverson served as Group President, Financial Products and Corporate Services and Chief Financial Officer of Caterpillar, the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel - electric locomotives until his retirement in May 2018. He was responsible for Caterpillar’s Finance Services Division, Human Services Division, Global Information Services Division, Financial Products Division, as well as Corporate Auditing. He joined Caterpillar in 1988, serving in budgeting, forecasting and financial analysis roles of increasing responsibility. In 1993, Mr. Halverson moved to Geneva, Switzerland, to become a strategy and planning consultant with Caterpillar Overseas, S.A. He went on to become controller in Europe, responsible for Caterpillar’s financial reporting in Europe, Africa and the Middle East, returning to the U.S. in 1996 to manage general accounting and financial systems. From 1998 until 2012, Mr. Halverson served in various leadership roles at Caterpillar, including Corporate Controller (2007-2010) and Vice President, Financial Services Division (2010-2012). During the course of his nearly 30 year career with Caterpillar, together with his prior service with PricewaterhouseCoopers LLP, Mr. Halverson has developed deep expertise in accounting, financial reporting and corporate finance, and has leadership experience in the areas of executive leadership and management, corporate strategy development, mergers and acquisitions, risk management, information technology systems oversight and international business. Mr. Halverson serves on the OSF St. Francis Medical Center Community Foundation Board and is Immediate Past Chairman of the Easter Seals Central Illinois Board of Directors and Treasurer of the Easter Seals Foundation of Central Illinois Board of Trustees. He is also a board member of Custom Truck One source, a privately held company, and is a past member of the Executive Committee of the U.S. Chamber of Commerce.

 

Committees:

Audit Committee


Compensation Committee

Primary Occupation:

Mr. Halverson served as the Group President, Financial Products and Corporate Services and Chief Financial Officer of Caterpillar Inc. (“Caterpillar”) from January 2013 to May 2018.

 

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JOHN M. HINSHAW

 

 

Age 48
Director
since:
April 2018

 

Key Director Qualifications:

Mr. Hinshaw attended James Madison University where he earned a B.B.A. in Computer Information Systems and Decision Support Sciences in 1992. Mr. Hinshaw served as the Executive Vice President, Technology and Operations, of Hewlett Packard Company (an industry leading technology company) from November 2011 to November 2015, at which time he joined Hewlett Packard Enterprise Company (spun-off from Hewlett Packard) as the Executive Vice President, Technology and Operations and Chief Customer Officer, serving in such capacity until October 2016. Prior to joining Hewlett-Packard Company, Mr. Hinshaw served as Vice President and General Manager for Boeing Information Solutions at The Boeing Company (one of the world’s major aerospace firms) from 2010 to 2011. Before that, he served as Boeing’s Chief Information Officer from 2007 to 2010, leading Boeing’s companywide corporate initiative on information management and information security. Mr. Hinshaw also spent 14 years at Verizon Communications (one of the world’s leading providers of communications, information and entertainment products and services) where, among several senior roles of increasing responsibility, he served as Senior Vice President and Chief Information Officer of Verizon Wireless, overseeing the IT function of the wireless carrier. Mr. Hinshaw’s service in these leadership roles with significant public companies in a variety of different industries deeply rooted in technology provided him experience in the operations of large, complex organizations and expertise in both information technology and management, enabling him to effectively oversee Sysco management, especially with regard to the execution of business technology initiatives. Mr. Hinshaw also gained extensive public company board experience in enterprise risk management and information technology through his service as a member of the board of directors of The Bank of New York Mellon Corporation since September 2014. Mr. Hinshaw is also a board member of DocuSign, Inc., a provider of electronic signature transaction management, and NAF, an educational non-profit organization.

 

Committee:

Audit Committee

Primary Occupation:

Mr. Hinshaw served as Executive Vice President, Technology and Operations of Hewlett Packard from November 2011 to November 2015, and as Executive Vice President, Technology and Operations of Hewlett Packard Enterprises from November 2015 until his retirement in October 2016.

 

Other Boards:

Mr. Hinshaw is a director of The Bank of New York Mellon Corporation and DocuSign, Inc.

 

HANS-JOACHIM KOERBER

 

 

Age 72
Director
since:
January
2008

 

Key Director Qualifications:

Dr. Koerber earned a degree as a Master Brewer in Brewing Technology and a Ph.D. in Business Management from the Technical University of Berlin. Dr. Koerber began his career in the beverage industry, including management positions in which he was responsible for finance and accounting, information technology, purchasing and personnel. He first became involved with the company that would eventually become METRO when he joined the predecessor company’s cash-and-carry, self-service wholesale company in charge of finance and accounting, controlling, logistics and information technology. His responsibilities continued to expand to include international cash-and-carry activities in six countries. When METRO AG was formed in 1996, Dr. Koerber became part of the METRO management board. His responsibilities included corporate development, corporate communications and investor relations and he became chairman and chief executive officer in 1999. Dr. Koerber introduced a new management style, streamlined the company to focus on four of the original 16 business divisions in order to remain competitive and achieve profitability, adopted international accounting standards and rapidly developed METRO’s international presence, including hands-on experience in expanding METRO into Eastern Europe and Asia, including China and India. These efforts helped make METRO Germany’s largest retailer, operating wholesale cash & carry stores, supermarkets, hypermarkets, department stores and consumer electronics shops throughout the world. Throughout his career, Dr. Koerber developed experience and qualifications in the areas of leadership, corporate strategy and development, the foodservice industry, distribution and supply chains, marketing and risk management. Dr. Koerber’s insights on running and expanding a foodservice business with international operations have been, and will continue to be, particularly helpful to Sysco. Dr. Koerber’s career at METRO AG, combined with his 10 years of service on the Board of Skandinaviska Enskilda Banken AB (the parent company of the SEB Group, a North European banking concern catering to corporations, institutions, and private individuals) and the Board of Directors of several other international companies, has provided him with financial expertise, particularly with regard to international financial accounting standards. His service on the Board of Air Berlin PLC (Germany’s second largest airline) has deepened his experience in marketing.

 

Committees:

Audit Committee


Corporate Social Responsibility Committee

Primary Occupation:

Dr. Koerber served as the chairman and chief executive officer of METRO Group from 1999 until his retirement in October 2007.

 

Other Boards:

Dr. Koerber is a director of Eurocash SA, as well as a director of several private European companies, including Klüh Service management GmbH, WEPA Industrieholding SE and DAW SE.

 

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NANCY S. NEWCOMB

 

Age 73
Director
since:
February
2006

 

Key Director Qualifications:

Ms. Newcomb is a graduate of Connecticut College and received a Master’s Degree in Economics from Boston University. She also graduated from Harvard Business School’s Program for Management Development. Ms. Newcomb served as Senior Corporate Officer, Risk Management, of Citigroup (May 1998 – April 2004), Customer Group Executive of Citicorp (the predecessor corporation of Citigroup) (December 1995 – April 1998), Division Executive, Latin America of Citicorp (September 1993 – December 1995) and Principal Financial Officer, Citicorp (January 1988 – August 1993), responsible for liquidity, funding and capital management. Ms. Newcomb’s 35-year career with Citigroup, a major international financial services company, and its predecessors Citicorp and Citibank, provided her with experience in the areas of leadership, corporate strategy and development, finance, risk management and international operations. Ms. Newcomb developed extensive risk management experience throughout her career, including holding the position of Citigroup’s Senior Corporate Officer of Risk Management for the last six years of her career. In the area of Finance and International Operations, Ms. Newcomb served as Citigroup’s Principal Financial Officer, responsible for liquidity, funding and capital management. She has had extensive international experience as head of worldwide treasury operations in over 100 countries, and co-head of Citigroup’s global, multinational customer business.

 

Committees:

Audit Committee


Corporate Social Responsibility Committee

Primary Occupation:

Ms. Newcomb served as Senior Corporate Officer, Risk Management, of Citigroup from May 1998 until her retirement in 2004.

 

NELSON PELTZ

 

 

Age 76
Director
since:
August
2015

 

Key Director Qualifications:

Mr. Peltz attended The Wharton School of the University of Pennsylvania. Mr. Peltz has more than 40 years of business and investment experience and over 20 years of service as the Chairman and Chief Executive Officer of public companies. Mr. Peltz has developed extensive experience working with management teams and boards of directors, and in acquiring, investing in and building companies and implementing operational improvements at the companies with which he has been involved. As a result, he has strong operating experience and strategic planning skills and has strong relationships with institutional investors, investment banking and capital markets advisors and others that can be drawn upon for the Company’s benefit. Mr. Peltz has also gained extensive experience in the foodservice industry through his service on the boards of directors of H.J. Heinz Company, Mondelēz International, Inc. and The Wendy’s Company. Mr. Peltz was recognized by The National Association of Corporate Directors in 2010, 2011 and 2012 as among the most influential people in the global corporate governance arena.

 

Committee:

Corporate Governance and Nominating Committee

Primary Occupation:

Mr. Peltz has served as the Chief Executive Officer and a Founding Partner of Trian Fund Management, L.P. since its formation in 2005. From April 1993 through June 2007, Mr. Peltz served as Chairman and Chief Executive Officer of Triarc Companies, Inc. (now known as The Wendy’s Company).

 

Other Boards:

Mr. Peltz has served as a director of The Procter & Gamble Company since March 2018 and as a director and non-executive Chairman of The Wendy’s Company since June 2007. He has also served as a director of The Madison Square Garden Company since it was separated from MSG Networks Inc. (formerly, The Madison Square Garden Company) in September 2015, and prior to that, as a director of MSG Networks Inc. since December 2014. Mr. Peltz previously served as a director of Mondele - z International, Inc. from January 2014 to February 2018 and Legg Mason, Inc. from October 2009 to December 2014, Ingersoll-Rand plc from August 2012 to June 2014 and H.J. Heinz Company from September 2006 to June 2013.

 

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EDWARD D. SHIRLEY

 

 

Age 61
Director
since:
September
2016

 

Key Director Qualifications:

Mr. Shirley attended the University of Massachusetts, where he received a Bachelor of Business Administration, Accounting degree in 1978. Mr. Shirley served as the President and Chief Executive Officer of Bacardi Limited, a global beverage and spirits company, from March 2012 to April 2014. Prior to that, he served as Vice Chairman of Global Beauty and Grooming, a business unit of The Procter & Gamble Company (“Procter & Gamble”), a consumer goods company, from July 2008 through June 2011, and as Vice Chair on Special Assignment from July 2011 through December 2011. Prior to that, he served as Group President, North America of Procter & Gamble from April 2006 and held several senior executive positions during his 27 years with The Gillette Company, a consumer goods company that was acquired by Procter & Gamble in 2005. Mr. Shirley has substantial experience in the areas of executive leadership, strategy development, marketing/brand development and business operations developed in his various senior executive positions with large consumer products companies, including during more than 30 years as a senior executive at global personal care companies like Procter & Gamble and The Gillette Company. He also has public company board experience, having served as a member of the Elizabeth Arden, Inc. board of directors since December 2015, including as Chair of its Compensation Committee, and as a member of the board of directors of Time Warner Cable Inc. from 2009 to 2016. Mr. Shirley is currently a director of New York Life Insurance Company and serves on the Audit and Insurance & Operations Committees. He is also a partner in PTW Capital, a recently formed consumer goods private equity firm.

 

Committees:

Audit Committee


Corporate Governance and Nominating Committee

Primary Occupation:

Mr. Shirley served as President and Chief Executive Officer of Bacardi Limited from March 2012 until his retirement in April 2014.

 

Other Boards:

In the last five years, Mr. Shirley served as a director of Elizabeth Arden, Inc. and Time Warner Cable Inc.

 

SHEILA G. TALTON

 

 

Age 65
Director
since:
September
2017

 

Key Director Qualifications:

Ms. Talton attended Northern Illinois University, where she earned a Bachelor of Science degree in Marketing and Speech Communication in 1980, and Harvard Business School’s Executive Program. Ms. Talton currently serves as the President and Chief Executive Officer of Gray Matter Analytics, a firm focused on data analytics consulting services in the healthcare industry. Previously, she served as President and Chief Executive Officer of SGT Ltd., a firm that provides strategy and technology consulting services in the financial services, healthcare and technology business sectors, from 2011 to 2013. From 2008 to 2011, Ms. Talton served as Vice President, Office of Globalization, for Cisco Systems, Inc., a leading global manufacturer of networking, switching and server/virtualization technology products related to the communication and information technology industries. Prior to that time, she held other leadership positions at Cisco Systems, Inc., Electronic Data Systems Corporation and Ernst & Young, LLP. Ms. Talton’s service in leadership roles with a variety of global technology and consulting firms provided her with extensive knowledge of and experience in information technology systems and Cybersecurity, enabling her to effectively oversee management’s execution of Sysco’s business technology initiatives and its approach to privacy and cyber security risks. Ms. Talton has also gained extensive public company board experience in compensation, corporate governance, risk management and audit/finance issues through her service on the boards of directors of Deere & Company since 2015 (member of audit review and finance committees), OGE Energy Corp. since 2013 (member of compensation and governance committees) and Wintrust Financial Corporation since 2012 (member of IT/security and risk management committees), including service as chair of the Information Technology and Security Committee of the Wintrust board of directors. From 2010 to 2015, she also served on the board of directors of ACCO Brands Corporation. Ms. Talton has been a Congressional appointee on the U.S. White House Women’s Business Council. She also has been recognized as one of the “Top 10 Women in Technology” by Enterprising Women and as “Entrepreneur of the Year” by the National Federation of Black Women Business Owners. She serves on the boards of several nonprofit organizations, including Chicago’s Northwestern Hospital Foundation, the Chicago Shakespeare Theater and the Chicago Urban League.

 

Committees:

Corporate Governance and Nominating Committee


Corporate Social Responsibility Committee

Primary Occupation:

Ms. Talton has served as President and Chief Executive Officer of Gray Matter Analytics since March 2013.

 

Other Boards:

Ms. Talton is a director of Deere & Company, OGE Energy Corp. and Wintrust Financial Corporation. In the last five years, Ms. Talton served as a director of ACCO Brands Corporation.

 

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DIRECTOR COMPENSATION

 

Overview of Non-Employee Director Compensation

 

The Company uses a combination of cash and stock-based compensation to attract and retain qualified candidates to serve on the Board, as described below. Members of the Board who are employees of the Company are not compensated for services on the Board or any of its Committees. We currently pay each non-employee director a base retainer of $100,000 per year. Non-employee directors who serve as committee chairpersons receive annual additional amounts as follows:

 

Audit Committee Chair— $25,000
Compensation Committee Chair— $20,000
Corporate Governance and Nominating Committee Chair— $20,000
Corporate Social Responsibility Committee Chair— $15,000

 

Ms. Ward, who will retire as the Chairman of the Board and as a director on the date of the Annual Meeting, received an additional annual retainer of $475,000 for her service as Chairman of the Board, due to her incremental responsibilities, which included:

 

Engaging frequently with management on significant transformational issues;
Serving as a chief advisor to the Company’s information technology group regarding enterprise solutions;
Mentoring and advising the CEO;
Managing the Board refreshment process, which involved the onboarding of five new directors and the retirement of five directors during the two-year period ending with the Annual Meeting;
Participating in regular engagement with Sysco investors regarding matters of corporate governance; and
Managing the CEO transition.

 

Ms. Ward’s additional annual retainer for service as Chairman of the Board was paid quarterly in the form of “elected shares” that were deferred as described below under “—Deferral of Shares.” See footnote 1 to the “Fiscal 2018 Director Compensation” table below for a detailed discussion of the elected shares deferred by Ms. Ward. Mr. Bené, who will succeed Ms. Ward as Chairman of the Board, will not receive additional compensation for his service as Chairman.

 

Each November, the Board grants approximately $160,000 in time vesting equity incentives to each of the non-employee directors in the form of restricted stock awards. For fiscal 2018, the Board granted approximately $160,000 in restricted stock awards that vest in full on the first anniversary of the grant date. See “Equity-Based Awards to Non-Employee Directors” below for a description of the plan under which these awards were granted, the “Fiscal 2018 Director Compensation” table below for detailed compensation information for fiscal 2018 for each of our non-employee directors and “Stock Ownership—Stock Ownership Guidelines” below for a description of the stock ownership requirements applicable to our non-employee directors. In the event that the Sysco Corporation 2018 Omnibus Incentive Plan is approved by stockholders at the Annual Meeting, future grants of equity awards to the non-employee directors, including any restricted stock awards, will be made pursuant to such plan.

 

Reimbursement of Expenses

 

All non-employee directors are entitled to receive reimbursements of expenses for all services as a director, including committee participation or special assignments. Reimbursement for non-employee director travel may include reimbursement of a portion of the cost of travel on private aircraft. Specifically, this includes reimbursement for non-commercial air travel in connection with Sysco business, subject to specified maximums, provided that amounts related to the purchase price of an aircraft or fractional interest in an aircraft are not reimbursable and any portion of the reimbursement that relates to insurance, maintenance and other non-incremental costs is limited to a maximum annual amount. Non-employee directors also receive discounts on products carried by the Company and its subsidiaries comparable to the discounts offered to all company employees.

 

Directors Deferred Compensation Plan

 

Non-employee directors may defer all or a portion of their annual retainer, including additional fees paid to committee chairpersons and the Chairman of the Board’s and/or Lead Director’s annual retainer, under the Directors Deferred Compensation Plan. Non-employee directors may choose from a variety of investment options, including Moody’s Average Corporate Bond Yield plus 1%, with respect to amounts deferred prior to fiscal 2009. This investment option was reduced to Moody’s Average Corporate Bond Yield, without the addition of 1%, for amounts deferred after fiscal 2008. We credit such deferred amounts with investment gains or losses until the non-employee director’s retirement from the Board or until the occurrence of certain other events.

 

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Equity-Based Awards to Non-Employee Directors

 

As of September 17, 2018, the non-employee directors held shares of restricted stock and elected and match shares (as described below), all of which were issued under the 2013 Sysco Corporation Long-Term Incentive Plan, which we refer to as the “2013 Long-Term Incentive Plan.” Below is a description of the 2013 Long-Term Incentive Plan. In the event that the 2018 Omnibus Incentive Plan is approved by stockholders, all equity awards to directors thereafter will be made under that plan.

 

Election to Receive a Portion of the Annual Retainer in Common Stock

 

Under the 2013 Long-Term Incentive Plan, instead of receiving his or her full annual retainer fee in cash, a non-employee director may elect to receive up to 100% of his or her annual retainer fee, including any additional retainer fee paid to the Chairman of the Board and/or Lead Director for his or her service in such capacity and any fees paid to a committee chairman for his or her service in such capacity, in 10% increments, in common stock. If a director makes this election, on the date we make each quarterly payment of the director’s annual retainer fee we credit the director’s stock account with:

 

The number of shares of Sysco common stock that the director could have purchased on that date with the portion of his or her cash retainer that he or she has chosen to receive in stock, assuming a purchase price equal to the last closing price of the common stock on the last business day before that date; we call these shares “elected shares”; and
With respect to up to half of his or her annual retainer fee, excluding any additional retainer fee paid for chairing the Board or one of its committees and/or serving as Lead Director, 50% of the number of elected shares we credited to the director’s account; we call these extra shares “match shares.”

 

The elected shares and match shares vest as soon as we credit the director’s account with them, but we do not issue them until the end of the calendar year. The director may not transfer the match shares, however, until one year after we issue them, or, if deferred, the date that we otherwise would have issued them, provided that certain events will cause this transfer restriction to lapse.

 

The one year transfer restriction on match shares will lapse if:

 

the director dies;
the director leaves the Board:

 

  due to disability;
  after having served out his or her full term; or
  after reaching age 71; or

 

a change in control, as defined in the plan, occurs.

 

Annual Awards of Restricted Stock

 

Pursuant to the 2013 Long-Term Incentive Plan, the Board may grant to non-employee directors, among other things, shares of restricted stock, in the amounts and on such terms as it determines, but no such grant may vest earlier than one year following the grant date. A restricted stock award is denominated in shares of common stock and is subject to transfer restrictions and the possibility of forfeiture. In November 2017, we issued restricted stock awards to non-employee directors under the 2013 Long-Term Incentive Plan.

 

Generally, if a director ceases to serve as a director of Sysco, he or she will forfeit all the unvested restricted stock that he or she holds. However, if the director leaves the board after serving out his or her term, or for any reason after reaching age 71, his or her restricted stock will remain in effect and continue to vest as if the director had remained a director of Sysco. All unvested restricted stock will automatically vest upon the director’s death.

 

Deferral of Shares

 

A non-employee director may elect to defer receipt of all or any portion of any shares of common stock issued under the 2013 Long-Term Incentive Plan, whether such shares are to be issued as a grant of restricted stock, elected shares or match shares. Generally, the receipt of stock may be deferred until the earliest to occur of the death of the non-employee director, the date on which the non-employee director ceases to be a director of the Company, or a change of control of Sysco. All such deferral elections shall be made in accordance with the terms and conditions set forth in Sysco’s 2009 Board of Directors Stock Deferral Plan.

 

Change in Control

 

Under the 2013 Long-Term Incentive Plan and the applicable grant agreements, any unvested awards of restricted stock will vest immediately upon the occurrence of a specified change in control.

 

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Fiscal 2018 Director Compensation

 

The following table provides compensation information for fiscal year 2018 for each of our directors who served for any part of the fiscal year, other than Messrs. DeLaney and Bené, whose compensation for services as an officer is disclosed in the Summary Compensation Table on page 59:

 

Name  Fees Earned or
Paid in Cash
($)(1)
   Stock
Awards
($)(2)(3)(4)
   Non-Qualified Deferred
Compensation Earnings
($)(5)
   Other
Compensation
($)(6)
   Total
($)
Brutto  $109,375   $185,028   $   $   $294,403
Cassaday   120,000    185,028            305,028
Craven(7)   55,625        2,443        58,068
Frank   100,000    185,028            285,028
Glasscock   120,000    185,028            305,028
Golden(7)   50,000        20,685        70,685
Halverson   100,000    185,028            285,028
Hinshaw(8)   25,000                25,000
Koerber   100,000    185,028            285,028
Newcomb   100,000    185,028            285,028
Peltz   100,000    185,028            285,028
Shirley   100,000    185,028            285,028
Talton   75,000    185,028            260,028
Tilghman   125,000    185,028            310,028
Ward   575,000    185,028    9,902        769,930
(1) Includes retainer fees, including any retainer fees for which the non-employee director has elected to receive shares of Sysco common stock in lieu of cash and fees for the fourth quarter of fiscal 2018 that were paid at the beginning of fiscal 2019. Although we credit shares to a director’s account each quarter, the elected shares are not actually issued until the end of the calendar year, unless the director’s service as a member of the Board terminates. The number of shares of stock actually credited to each non-employee director’s account in lieu of cash during fiscal 2018, excluding match shares, which are reported in the column entitled “Stock Awards,” above was as follows: 825 shares for each of Mr. Brutto, Mr. Cassaday, Mr. Frank, Mr. Halverson, Dr. Koerber, Ms. Newcomb, Mr. Peltz, Mr. Shirley, Ms. Talton and Mr. Tilghman; 435 shares for Dr. Craven and Mr. Golden; 364 shares for Mr. Hinshaw; 988 shares for Mr. Glasscock; and 9,508 shares for Ms. Ward. Directors may choose to defer receipt of the elected shares described in this footnote under the Sysco Corporation 2009 Board of Directors Stock Deferral Plan. The number of elected shares of stock deferred by each non-employee director during fiscal 2018 (which are included in the elected shares described above) was as follows: Dr. Craven (435 shares), Mr. Hinshaw (364 shares), Dr. Koerber (825 shares), Mr. Glasscock (988 shares) and Ms. Ward (9,508 shares). To the extent that cash dividends are paid on our common stock, non-employee directors also receive the equivalent amount of the cash dividend credited to their account with respect to all elected shares that are deferred. If the director has chosen to defer the receipt of any shares, they will be credited to the director’s account and issued on the earliest to occur of the “in-service” distribution date elected by the director (which shall be at least one year following the end of the plan year in which the shares would otherwise have been distributed to the director), the death of the director, the date on which the director ceases to be a director of the Company, a change of control of Sysco, or the date on which the director applies and qualifies for a hardship withdrawal.
(2) For fiscal 2018, the Board, upon the recommendation of the Corporate Governance and Nominating Committee, determined that it would grant approximately $160,000 in equity incentives to each of the non-employee directors. Therefore, on November 16, 2017, the Board granted to each of the non-employee directors 2,958 shares of restricted stock valued at $54.10 per share, the closing price of Sysco common stock on the New York Stock Exchange on November 15, 2017. These awards were granted under the 2013 Long Term Incentive Plan and vest in full on the first anniversary of the grant date. The amounts in this column reflect the grant date fair value of the awards computed in accordance with ASC 718, “Compensation — Stock Compensation”. See Note 17 of the consolidated financial statements in Sysco’s Annual Report for the year ended June 30, 2018, regarding assumptions underlying valuation of equity awards. The amounts in this column also reflect the grant date fair value of awards computed in accordance with ASC 718, “Compensation — Stock Compensation” with respect to a 50% stock match for directors who elect to receive a portion of their annual retainer fee in common stock. The value of any “elected” shares is included in the column entitled “Fees Earned or Paid in Cash,” as described in footnote (1) above. See “Directors Stock Plans” above for a more detailed description. Although we credit shares to a director’s account each quarter, the shares are not actually issued until the end of the calendar year, unless the director’s service as a member of the Board of Directors terminates. The number of match shares actually credited to each non-employee director’s account during fiscal 2018 was 412 shares except for Dr. Craven (217 shares), Mr. Golden (217 shares) and Mr. Hinshaw (91 shares). Directors may choose to defer receipt of the restricted stock and the match shares described in this footnote under the Sysco Corporation 2009 Board of Directors Stock Deferral Plan. Each of Mr. Glasscock, Dr. Koerber, Ms. Talton and Ms. Ward deferred receipt of the 2,958 shares of restricted stock and each of the foregoing directors deferred receipt of the 412 match shares described above. None of Dr. Craven or Messrs. Golden or Hinshaw received a restricted stock grant of 2,958 shares, but Dr. Craven and Mr. Hinshaw did defer their respective stock matches as described above. To the extent that cash dividends are paid on our common stock, non-employee directors also receive the equivalent amount of the cash dividend credited to their account with respect to all deferred restricted stock awards and all match shares that are deferred, in the form of stock units. Directors may elect an “in-service” distribution date for deferrals that is at least one year following the end of the plan year in which the shares would otherwise have been distributed to the Director. Otherwise, distributions occur upon the earlier of the death of the director, the date on which the director ceases to be a director of the Company, or a change of control of Sysco, unless the director applies for and qualifies for a hardship withdrawal.
(3) The aggregate number of options and unvested stock awards held by each director listed in the table above, as of June 30, 2018, was as follows:

 

   Aggregate Unvested Stock Awards
Outstanding as of June 30, 2018
   Aggregate Options Outstanding
as of June 30, 2018
Brutto   2,958    
Cassaday   2,958    
Craven(7)       
Frank   2,958    
Glasscock   2,958    
Golden(7)       
Halverson   2,958    
Hinshaw(8)       
Koerber   2,958    
Newcomb   2,958    
Peltz   2,958    
Shirley   2,958    
Talton   2,958    
Tilghman   2,958    
Ward   2,958    

 

The unvested stock awards for each non-employee director listed in the table immediately above relate to restricted stock awards granted in November 2017 that vest in November 2018.

 

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(4) None of the directors shown in the table received option grants during fiscal 2018.
(5) We do not provide a pension plan for the non-employee directors. For each non-employee director, the amounts shown in this column represent above-market earnings on amounts deferred under the Non-Employee Director Deferred Compensation Plan. Directors who do not have any amounts in this column were not eligible to participate in such plan, did not participate in such plan or did not have any above-market earnings.
(6) The total value of all perquisites and personal benefits received by each of the non-employee directors was less than $10,000.
(7) Dr. Craven and Mr. Golden retired from the Board on November 17, 2017.
(8) Mr. Hinshaw was appointed to the Board on April 12, 2018.

 

Mr. DeLaney and Mr. Bené did not receive any compensation for their fiscal 2018 Board service, other than the compensation for services as an employee that is disclosed elsewhere in this proxy statement. See “Executive Compensation – Summary Compensation Table” for details regarding compensation earned by Messrs. DeLaney and Bené for fiscal 2018.

 

EXECUTIVE OFFICERS

 

The following persons currently serve as executive officers of Sysco. Each person listed below, other than Ms. Zielinski, has served as an officer of Sysco and/or its subsidiaries for at least the past five years.

 

Name   Title   Age
Thomas L. Bené*   President and Chief Executive Officer   56
Greg D. Bertrand*   Executive Vice President, U.S. Foodservice Operations   54
R. Scott Charlton   Executive Vice President, Supply Chain   59
William W. Goetz   Senior Vice President, Sales & Marketing   54
Joel T. Grade*   Executive Vice President and Chief Financial Officer   48
Russell T. Libby*   Executive Vice President, Administration and Corporate Secretary   52
Paul T. Moskowitz   Executive Vice President, Human Resources   54
Wayne R. Shurts*   Executive Vice President and Chief Technology Officer   59
Brian R. Todd   Senior Vice President, Merchandising   55
Anita A. Zielinski   Senior Vice President and Chief Accounting Officer   45
* Named Executive Officer.

 

Thomas L. Bené has served as Sysco’s President and Chief Executive Officer since January 2018. Previously, he served as President and Chief Operating Officer from January 2016 to December 2017, Executive Vice President and President, Foodservice Operations from January 2015 to December 2015, Executive Vice President and Chief Commercial Officer from September 2013 to December 2014 and as Executive Vice President, Chief Merchandising Officer from May 2013 to September 2013. Prior to joining Sysco, Mr. Bené served as President of PepsiCo Foodservice from 2011 until 2013. During his 23 year career with PepsiCo, Mr. Bené held various senior roles with PepsiCo, including President, Pepsi-Cola North American Beverages; SVP, Sales and Franchise Development; President, PepsiCo Foods & Beverages, Canada; and Chief Operating Officer, South Beach Beverage Co. Mr. Bené joined PepsiCo in 1989 after working for American Hospital Supply. Through these various operations and management positions within PepsiCo and Sysco, Mr. Bené has gained valuable insight into the foodservice industry and has acquired significant experience and knowledge in the areas of foodservice operations, leadership and management development, corporate strategy development, merchandising, sales, marketing, revenue management, shared services and distribution and supply chain management. In light of these qualifications, and its continuing view that it is appropriate and beneficial to Sysco to have its CEO serve as management’s voice on the Board, in July 2017 the Board determined that Mr. Bené would be appointed to the Board on January 1, 2018, following Mr. DeLaney’s transition off of the Board. See “Corporate Governance – CEO Succession Plan” above for further discussion.

 

Greg D. Bertrand has served as Sysco’s Executive Vice President, U.S. Foodservice Operations since July 2018. Previously, he served as Senior Vice President, U.S. Foodservice Operations from July 2016 to July 2017, Senior Vice President, Foodservice Operations (West) from August 2015 to July 2016, Senior Vice President, Merger Integration Deployment from November 2014 to August 2015, and Senior Vice President, Business Process Integration from March 2014 to November 2014. Mr. Bertrand began his Sysco career in 1991 as a Marketing Associate at Sysco Chicago, where he advanced through several sales leadership positions before becoming Vice President-Sales in 1997 and Senior Vice President-Sales in 1998. He was promoted to Executive Vice President in 1999. In 2005, he was named President-Sysco Eastern Wisconsin. He became President-Sysco Chicago in 2008 and took on the added responsibilities of leading Sysco Eastern Wisconsin and Sysco Baraboo in 2009. He was promoted to Market Vice President-Midwest in 2010 and then to Senior Vice President – Foodservice Operations (West) in July 2012.

 

R. Scott Charlton has served as Sysco’s Executive Vice President, Supply Chain since August 2015, having been promoted from Senior Vice President, Distribution Services, a position he had held since July 2013. Prior to joining Sysco, Mr. Charlton served as Executive Vice President, Operations, at C&S Wholesale from 2007 until June 2013. Between 1980 and 2007, Mr. Charlton served in a variety of manufacturing, operations and quality assurance roles at Publix Super Markets, Inc., culminating with his role as Senior Vice President, Manufacturing and Distribution, from 2005 to 2007.

 

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William W. Goetz has served as Sysco’s Senior Vice President, Sales & Marketing since July 2016. Previously, he served as Senior Vice President and Chief Marketing Officer from October 2013 until July 2016. Mr. Goetz began his career at Sysco Corporation in January 2012 as Senior Vice President, Marketing. Mr. Goetz began his career in 1986 as a management trainee at Cintas Corporation and progressed through a series of sales and marketing roles before being named Vice President-Marketing and Merchandising in 1997. In 2003, he joined ECOLAB Corporate as Vice President-Corporate Marketing, and later was appointed Vice President-International Marketing. In 2006, he returned to Cintas as Vice President and Chief Marketing Officer. In 2008, he assumed the role of President and Chief Operating Officer-Global Accounts and Strategic Markets of Cintas, in which he served until joining Sysco in 2012.

 

Joel T. Grade has served as Sysco’s Executive Vice President and Chief Financial Officer since September 2015, having been promoted from Senior Vice President – Finance and Chief Accounting Officer, a position he had held since February 2014. Mr. Grade began his career at Sysco as a Staff Auditor in 1996. He was promoted to Assistant Manager-Operations Review in 1999. He transferred to Sysco Austin in 2000 as Controller, was appointed Vice President-Finance and CFO of Sysco Chicago in 2002, and became Vice President-Finance and CFO of Sysco Canada in 2007. He was promoted to Vice President, Foodservice Operations of Sysco Corporate and President of Sysco Canada in 2010 and held that position until May 2012, when he was appointed Senior Vice President, Foodservice Operations (North).

 

Russell T. Libby has served as Sysco’s Executive Vice President, Administration and Corporate Secretary since August 2015. Previously, he served as Executive Vice President – Corporate Affairs, Chief Legal Officer and Corporate Secretary from March 2014 to August 2015 following his promotion from Senior Vice President, General Counsel and Corporate Secretary, a position he had held since November 2011. He joined Sysco in October 2007 as Assistant Vice President, Mergers and Acquisitions and Real Estate and was promoted to Vice President and Assistant General Counsel in July 2009 and to Vice President, General Counsel and Corporate Secretary in December 2010. From 1997 through September 2007, Mr. Libby worked for the North America unit of COFRA Holding A.G., a Swiss international conglomerate, in various positions of increasing responsibility, culminating in service as President of COFRA North America and Vice President, Legal for Good Energies, Inc., an affiliated investment advisor.

 

Paul T. Moskowitz has served as Sysco’s Executive Vice President, Human Resources since August 2015, having been promoted from Senior Vice President, Human Resources, a position he had held since January 2011. Prior to joining Sysco, Mr. Moskowitz served as Chief Human Resources Officer of Dean Foods Company, a large dairy processing company from 2007 until 2011. Between 1996 and 2004, he held various senior roles with Yum! Brands. His last position with Yum! Brands was Chief People Officer at Pizza Hut from 2004 to 2007.

 

Wayne R. Shurts has served as Sysco’s Executive Vice President and Chief Technology Officer since October 2012. Prior to joining Sysco, Mr. Shurts served as Executive Vice President of SuperValu Inc. from 2010 until 2013. Between 2006 and 2010, he held various senior roles with Cadbury. His last position with Cadbury was Chief Information Officer from 2008 to 2010. Mr. Shurts served as a member of the board of directors of Con-Way Inc., a freight transportation and logistics services company, from May 2015 until it was acquired by XPO Logistics in October 2015.

 

Brian R. Todd has served as Sysco’s Senior Vice President, Merchandising since August 2017. Previously, he served as Vice President, Operational Merchandising from August 2016 to July 2017, Vice President, Strategic Sourcing and Supplier Partnerships from October 2012 to July 2016, and Vice President, Merchandising from July 2011 to October 2012. Mr. Todd began his Sysco career in 1996 as a Protein Brand Manager at SERCA Ontario (which was acquired by Sysco), advancing through several merchandising leadership positions at Sysco Toronto and Sysco Canada before being promoted to Vice President, Merchandising and Marketing for Sysco Canada in July 2009.

 

Anita A. Zielinski has served as Sysco’s Senior Vice President and Chief Accounting Officer since April 2017. Prior to joining Sysco, Ms. Zielinski served as partner of Ernst & Young LLP, a public accounting firm (“E&Y”), since 2013 and as a member of E&Y’s assurance practice for over 20 years. She has extensive experience working with both large and midcap public registrants on securities law filings, business combinations and complex accounting and financial reporting matters, and is a Certified Public Accountant.

 

Management Development and Succession Planning

 

On an ongoing basis, the Board plans for succession to the position of CEO and other key management positions, and the Corporate Governance and Nominating Committee is responsible for reviewing and recommending to the Board all key management appointments at or above senior vice president. To assist the Board, the CEO periodically provides the Board with an assessment of senior executives and their potential to succeed to the position of CEO. On an annual basis, the Board and its Corporate Social Responsibility Committee have engaged in discussions with management regarding increasing the diversity of Sysco’s executive management team. In addition, the CEO periodically provides the Board with an assessment of potential successors to other key positions.

 

Management development and succession planning remained top priorities of executive management and the Board during fiscal 2018, as evidenced by the CEO succession plan announced in July 2017, pursuant to which Mr. Bené, our then current President and Chief Operating Officer, succeeded Mr. DeLaney as President and CEO and became a member of our Board, filling the vacancy resulting from Mr. DeLaney’s transition out of these roles effective December 31, 2017. CEO succession, together with human capital and succession planning more broadly, were also discussed by Sysco’s Board at its regularly scheduled meeting in May 2018.

 

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STOCK OWNERSHIP

 

Security Ownership of Officers and Directors

 

The following table sets forth certain information with respect to the beneficial ownership of Sysco’s common stock, as of September 17, 2018, by (i) each current director and director nominee, (ii) each named executive officer (as defined under “Compensation Discussion and Analysis”), and (iii) all current directors and executive officers as a group. Unless otherwise indicated, each stockholder identified in the table has sole voting and investment power with respect to his or her shares. Fractional shares have been rounded to the nearest whole share.

 

   Shares of
Common
Stock Owned
Directly
    Shares of
Common
Stock Owned
Indirectly
    Shares of
Common
Stock
Underlying
Options(1)
   Total Shares of
Common Stock
Beneficially
Owned(1)(2) 
    Percent of
Outstanding
Shares(3)
 
Thomas L. Bené   48,153          558,271    606,424     * 
Greg D. Bertrand   25,037          242,269    267,306     * 
Daniel J. Brutto   11,319(4)             11,319     * 
John M. Cassaday   70,760(4)             70,760     * 
William J. DeLaney   9,382     28,235(5)    122,140    159,757     * 
Joshua D. Frank   4,005(4)             4,005     * 
Larry C. Glasscock   58,270(4)             58,270     * 
Joel T. Grade   35,016     257(6)    317,973    353,246     * 
Bradley M. Halverson   8,640(4)             8,640     * 
John M. Hinshaw   485(4)             485     * 
Hans-Joachim Koerber   59,895(4)             59,895     * 
Russell T. Libby   57,362          293,788    351,150     * 
Nancy S. Newcomb   66,252(4)             66,252     * 
Nelson Peltz   4,005(4)    37,652,176(7)        37,656,181     7.23%
Edward D. Shirley   8,640(4)             8,640     * 
Wayne R. Shurts   43,265          478,201    521,466     * 
Sheila G. Talton   4,257(4)             4,257     * 
Richard G. Tilghman   61,137(4)    1,957(8)        63,094     * 
Jackie M. Ward   159,366(4)    61(8)        159,427     * 
All Directors and Executive Officers as a Group (23 Persons)   840,340(9)    37,654,451     2,518,837(10)    41,009,622(9)(10)     7.88% 
(*) Less than 1% of outstanding shares.
(1) Includes shares underlying options that are presently exercisable or will become exercisable within 60 days after September 17, 2018. Shares subject to options that are presently exercisable or will become exercisable within 60 days after September 17, 2018 are deemed outstanding for purposes of computing the percentage ownership of the person holding such options, but are not deemed outstanding for purposes of computing the percentage ownership of any other persons.
(2) Includes shares underlying restricted stock units (RSUs) that will vest and settle within 60 days after September 17, 2018. Shares underlying RSUs that will vest and settle within 60 days after September 17, 2018 are deemed outstanding for purposes of computing the percentage ownership of the person holding such RSUs, but are not deemed outstanding for purposes of computing the percentage ownership of any other persons. It is expected that approximately one-third of the shares underlying these RSUs will be withheld to pay taxes related to the RSUs as they vest and settle.
(3) Applicable percentage of beneficial ownership at September 17, 2018 is based on 520,689,279 shares outstanding.
(4) Includes shares that were elected to be received in lieu of non-employee director retainer fees during the first half of calendar 2018, and related matching shares under the 2009 Non-Employee Directors Stock Plan. For Ms. Ward, this includes 4,497 elected shares and 195 matching shares; for Mr. Glasscock, this includes 467 elected shares and 195 matching shares; for Mr. Hinshaw, this includes 364 elected shares and 91 matching shares; for each of the other non-employee directors, this includes 390 elected shares and 195 matching shares. Unless the director has chosen to defer the shares under the Sysco Corporation 2009 Board of Directors Stock Deferral Plan, these shares will be issued on December 31, 2018 or within 60 days after a non-employee director ceases to be a director, whichever occurs first. Directors may choose to defer receipt of these shares related to director retainer fees, as well as shares awarded pursuant to restricted stock grants, and these deferred amounts are also included in this line item. To the extent cash dividends are paid on our common stock, non-employee directors also receive the equivalent amount of the cash dividend credited to their account with respect to all deferred restricted stock awards, and all elected and matched shares that are deferred. The number of shares in each non-employee director’s deferred stock account, including related dividend equivalents, is as follows: Mr. Brutto (6,129), Mr. Cassaday (none), Mr. Frank (none), Mr. Glasscock (57,566), Mr. Halverson (none), Mr. Hinshaw (none), Dr. Koerber (4,420), Ms. Newcomb (none), Mr. Peltz (none), Mr. Shirley (none), Ms. Talton (3,672), Mr. Tilghman (none) and Ms. Ward (14,316). If the director has chosen to defer the receipt of any shares, he or she will be credited to the director’s account in the 2009 Board of Directors Stock Deferral Plan and issued on the earliest to occur of the “in-service” distribution date elected by the director (which shall be at least one year following the end of the plan year in which the shares would otherwise have been distributed to the director), the death of the director, the date on which the director ceases to be a director of the Company, a change of control of Sysco, or the date on which the director applies and qualifies for a hardship withdrawal. Deferred shares are deemed outstanding for purposes of computing the percentage ownership of the persons holding such shares, but are not deemed outstanding for purposes of computing the percentage ownership of any other persons.
(5) These shares are held by a family limited partnership controlled by Mr. DeLaney and his spouse.
(6) These shares are held in trust for the benefit of Mr. Grade’s son.
(7) 37,648,171 of these shares are owned by Trian Fund Management, L.P. (“Trian”), an institutional investment manager, and certain investment funds and vehicles managed by Trian (the “Trian Funds”). None of such shares are held directly by Mr. Peltz. Of such shares, approximately 29 million shares are currently held in the ordinary course of business with other investment securities owned by the Trian Funds in co-mingled margin accounts with a prime broker, which prime broker may, from time to time, extend margin credit to certain Trian Funds, subject to applicable federal margin regulations, stock exchange rules and credit policies. An additional 4,005 of these shares are held directly by Mr. Frank, over which Trian may be deemed to have beneficial ownership (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by virtue of a director fee agreement between Trian and Mr. Frank that is further described in the Schedule 13D/A filed on June 9, 2016 by Trian and certain of its affiliates. Trian Fund Management GP, LLC, of which Mr. Peltz is a member, is the general partner of Trian, and therefore is in a position to determine the investment and voting decisions made by Trian with respect to all of the shares it may be deemed to beneficially own. Accordingly, Mr. Peltz and Trian may be deemed to indirectly beneficially own the shares that the Trian Funds directly and beneficially own, and the shares that Mr. Frank directly and beneficially owns. See “-Security Ownership of Certain Beneficial Holders” below. Except as described above, Mr. Peltz disclaims beneficial ownership of such shares for all other purposes.

 

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(8) These shares are held by the spouse of the director or executive officer.
(9) Includes an aggregate of 114,474 shares directly owned by the current executive officers other than the named executive officers.
(10) Includes an aggregate of 628,335 shares underlying options that are presently exercisable or will become exercisable within 60 days after September 17, 2018 held by the current executive officers other than the named executive officers.

 

Security Ownership of Certain Beneficial Owners

 

The following table sets forth information concerning beneficial ownership of our common stock by persons or groups known to us to be beneficial owners of more than 5% of Sysco’s common stock outstanding as of September 17, 2018. The applicable percentage of beneficial ownership is based on 520,689,279 shares outstanding as of September 17, 2018.

 

   Total Shares of Common Stock
Beneficially Owned
   Percent of Outstanding Shares 
The Vanguard Group and certain affiliates(1)   38,891,154    7.47%
Trian Fund Management, L.P. and certain affiliates(2)   37,656,181    7.23%
BlackRock, Inc. and certain affiliates(3)   32,300,198    6.20%
(1) This information is based on a Schedule 13G/A filed on February 9, 2018 by The Vanguard Group (“Vanguard”). According to the Schedule 13G/A, Vanguard has sole power to vote, or to direct the vote of, 692,281 shares of common stock, sole power to dispose, or to direct the disposition of, 38,081,659 shares of common stock, shared power to vote, or to direct the vote of, 137,433 shares of common stock, and shared power to dispose, or to direct the disposition of, 809,495 shares of common stock. The address for Vanguard is 100 Vanguard Blvd., Malvern, PA 19355.
(2) This information is based on (i) a Schedule 13D/A filed on September 13, 2018 by Trian and certain of its affiliates, and (ii) information provided to the Company by Trian. Trian has shared power to vote, or to direct the vote of, and shared power to dispose, or to direct the disposition of, these shares of common stock. The address for Trian is Trian Fund Management, L.P., 280 Park Avenue, 41st Floor, New York, NY 10017.
(3) This information is based on a Schedule 13G/A filed on January 23, 2018 by BlackRock, Inc. (“BlackRock”). According to the Schedule 13G/A, BlackRock has the sole power to vote, or to direct the vote of, 27,142,775 shares of common stock, and the sole power to dispose, or to direct the disposition of, 32,300,198 shares of common stock. The address for BlackRock is BlackRock, Inc., 55 East 52nd Street, New York, NY 10055.

 

Stock Ownership Guidelines

 

To align the interests of our management with those of our stockholders, Sysco’s Board of Directors concluded that our senior officers should have a significant financial stake in Sysco stock. To further that goal, for several years we have maintained stock ownership guidelines for our executives.

 

Pursuant to these guidelines, upon the end of the five-year period from the date the officer is hired, promoted or otherwise becomes subject to the guidelines, the following senior officers should own, based on their respective positions, a minimum number of shares equal in value to the multiple of each such officer’s annual base salary as described in the following table.

 

Position   Minimum Ownership Requirement
(Multiple of Base Salary)
CEO   7x
Executive Vice Presidents   4x
Senior Vice Presidents   2x

 

Our senior officers have five years to achieve these ownership requirements. The five-year period begins on the date the officer is hired, promoted or otherwise becomes subject to the guidelines. If an individual is promoted to a position that requires the ownership of a greater amount of stock than his or her prior position, the five-year period pertaining to the new position will begin upon the effective date of the hiring or promotion; provided, further, however, that a promoted individual shall continue to comply with the above ownership requirements applicable to his or her prior position at all times subsequent to the promotion.

 

The shares counted towards these ownership requirements shall include Sysco shares of common stock owned directly by the senior officer, including shares of vested restricted stock held by the officer that may be subject to transfer restrictions or potential clawbacks, shares owned indirectly by the officer through any Sysco employee stock purchase plan, two-thirds of the shares underlying an officer’s unvested restricted stock units, two-thirds of the shares of unvested restricted stock held by the officer, and one-quarter of the shares underlying performance share units held by the officer, rounded down to the nearest whole share and assuming satisfaction of all applicable financial performance criteria at the “target” level, and shall not include shares held through any other form of indirect beneficial ownership or shares underlying unexercised options. Equity-based incentive awards are anticipated to provide all senior officers with the opportunity to satisfy these requirements within the specified time frames.

 

These ownership requirements are set at levels that Sysco believes are reasonable given the senior officers’ respective salaries and responsibility levels. In addition, Semler Brossy has reviewed our ownership guidelines and confirmed that they are consistent with the corresponding practices of our peer group.

 

In connection with the ownership requirements described above, each senior officer of the Company shall retain 25% of the net shares acquired upon exercise of stock options and 100% of the net shares acquired pursuant to the vesting of RSUs and PSUs until the officer’s holdings of Company stock equal or exceed the applicable minimum ownership requirement. For these purposes, “net shares” shall mean the shares remaining after disposition of shares necessary to pay the related tax liability and, if applicable, exercise price.

 

The Corporate Governance Guidelines also provide that, after five years of service as a non-employee director, such individuals are expected to continuously own a minimum of 16,500 shares of Sysco common stock. The shares beneficially owned by Trian, as reported above under ” – Security Ownership of Certain Beneficial Owners,” are credited to Messrs. Frank and Peltz for purposes of our ownership requirements.

 

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We provide the Board of Directors with the status of the officers’ and directors’ stock ownership at all of the regularly-scheduled meetings to ensure compliance with these holding requirements. As of September 17, 2018, each of the named executive officers and directors were in compliance with the applicable stock ownership guidelines.

 

Stock Trading Restrictions

 

Directors and executive officers may only purchase and sell Sysco common stock and exercise stock options pursuant to a 10b5-1 trading plan adopted during an approved quarterly trading window, subject to limited exceptions, including “net exercises” of stock options that do not involve an open market sale of shares and hardship exemptions. Quarterly trading windows generally open two business days after Sysco issues its quarterly earnings release and typically close around seven weeks after the opening of the window.

 

The adoption of a 10b5-1 trading plan or other transaction in Sysco stock by such directors and executive officers must be pre-approved by a committee that includes the Chairman of the Board, the Chair of the Corporate Governance and Nominating Committee, the Chief Executive Officer and the Company’s chief legal officer, following their review of the amount and timing of the proposed transaction and their confirmation that the individual in question does not possess any material inside information about the Company. Trades under a 10b5-1 trading plan may not commence until 30 days after adoption of the plan.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Pursuant to Section 16(a) of the Exchange Act and the rules issued thereunder, our executive officers and directors and any persons holding more than ten percent (10%) of our common stock are required to file with the Securities and Exchange Commission and the New York Stock Exchange reports of initial ownership of our common stock and changes in ownership of such common stock. To our knowledge, no person beneficially owns more than 10% of our common stock. Copies of the Section 16 reports filed by our directors and executive officers are required to be furnished to us. Based solely on our review of the copies of the reports furnished to us, or written representations that no reports were required, we believe that, during fiscal 2018, all of our executive officers and directors complied with the Section 16(a) requirements.

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following table sets forth certain information regarding equity compensation plans as of June 30, 2018.

 

Plan Category  Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
   Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
   Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding Securities
Reflected in First Column)
 
Equity compensation plans approved by security holders   18,391,610   $43.92    34,522,535(1) 
Equity compensation plans not approved by security holders            
TOTAL   18,391,610   $43.92    34,522,535(1) 
(1) Includes 27,297,349 shares issuable pursuant to our 2013 Long-Term Incentive Plan, of which 11,197,918 shares are eligible to be granted as full value awards, and 7,225,186 shares issuable pursuant to our Employee Stock Purchase Plan as of June 30, 2018. The amount does not reflect the issuance of 227,012 shares in June 2018 pursuant to the completion of the quarterly purchase under our Employee Stock Purchase Plan.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

In this section, we provide an overview of our philosophy and objectives of our executive compensation program and describe the material components of our executive compensation program for our fiscal 2018 named executive officers, or “NEOs,” whose compensation is set forth in the 2018 Summary Compensation Table and other compensation tables contained in this proxy statement:

 

Thomas L. Bené, our President and Chief Executive Officer;
William J. DeLaney, our former Chief Executive Officer;
Joel T. Grade, our Executive Vice President and Chief Financial Officer;
Greg D. Bertrand, our Executive Vice President, U.S. Foodservice Operations;
Russell T. Libby, our Executive Vice President, Administration and Corporate Secretary; and
Wayne R. Shurts, our Executive Vice President and Chief Technology Officer.

 

As explained in further detail below, Mr. DeLaney transitioned out of his roles as CEO and a member of the Board effective December 31, 2017. Since that date, Mr. DeLaney has continued full-time employment with the Company as a consultant and mentor to our current CEO, Mr. Bené, and this transitional period continues through December 31, 2018. For purposes of this Compensation Discussion and Analysis and the related disclosures that follow under the heading “Executive Compensation” below, the term “Current NEOs” excludes Mr. DeLaney. Except as otherwise noted, the guiding principles, decision-making methodologies, objectives and rationales described in this section applied to Mr. DeLaney’s fiscal 2018 compensation as CEO until he transitioned out of that role on December 31, 2017. For information regarding Mr. DeLaney’s compensation during the transitional period, see “Executive Compensation – CEO Succession Compensation Arrangements – Transition and Retirement Agreement with Mr. DeLaney.”

 

Executive Summary

 

Sysco is the global leader in selling, marketing and distributing food products, equipment and supplies to the foodservice industry. As such, our long-term success depends on our ability to attract, engage, incentivize and retain highly talented individuals who are committed to Sysco’s vision and strategy. One of the key objectives of our executive compensation program is to link executives’ pay to their performance and their advancement of Sysco’s overall annual and long-term performance and business strategies. Other objectives include aligning the executives’ interests with those of stockholders and encouraging high-performing executives to remain with Sysco over the course of their careers. We believe that Sysco’s compensation strategies have been effective in attracting executive talent and promoting performance and retention. We also believe that the amount of compensation for each NEO reflects his extensive management experience, high performance and exceptional service to Sysco and our stockholders.

 

Business Highlights

 

For more detail please see our Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”). Our discussion below of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Any non-GAAP financial measures will be denoted as adjusted measures and exclude the impact from: (1) expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we incurred costs to convert to a modernized version of our established platform as opposed to completing the implementation of an Enterprise Resource Planning (ERP) system; (2) professional fees related to our three-year strategic plans; (3) restructuring expenses within our Brakes Group operations; (4) severance charges related to restructuring; and (5) foreign non-income based taxes. In addition, fiscal 2018 results of operations are impacted by business technology transformation initiative costs, facility closure charges, multiemployer pension (MEPP) withdrawal charges and debt extinguishment charges, which are also excluded from our non-GAAP financial measures.

 

The non-GAAP financial measures presented also exclude the impact of the following acquisition-related items: (1) intangible amortization expense and (2) integration costs. All acquisition-related costs in fiscal 2018 and 2017 that have been excluded relate to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition), discussed in Note 4, “Acquisitions.” The Brakes Acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs.

 

The non-GAAP financial measures presented further exclude certain impacts of the Tax Cuts and Jobs Act of 2017 (the Tax Act) enacted on December 22, 2017. The impact for fiscal 2018 includes: a provisional estimate of a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries and a net benefit from remeasuring Sysco’s accrued income taxes, deferred tax liabilities and deferred tax assets due to the changes in tax rates. Other tax-related items impacting results of operations include foreign withholding taxes on repatriated earnings, net of foreign tax credits, and a benefit from contributions made to fund Sysco’s tax-qualified United States (U.S.) pension plan (the U.S. Retirement Plan).

 

The fiscal 2018 and fiscal 2017 items described above and excluded from our non-GAAP measures are collectively referred to as “Certain Items.” In addition, our adjusted return on invested capital performance targets, as measured for purposes of our performance share units and cash performance units, were established prior to the Brakes Acquisition. Accordingly, the results used for determining payouts excluded the Brakes Acquisition to adjust for the accumulation of debt incurred for the Brakes Acquisition that would not have been borrowed absent this acquisition.

 

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 More information on the rationale for the use of these measures can be found in our Form 10-K on pages 27-33 and reconciliations to GAAP numbers can be found in Annex I - Non-GAAP Reconciliations.

 

The overall macroeconomic trends continue to be positive in the U.S., and the underlying economic picture remains encouraging, including a strong employment market. This has resulted in a healthy consumer that is helping to drive a positive trend in restaurant sales. We also see continued growth with local customers, as they increase their reach through flexible menus, innovative concepts and additional delivery options to reach consumers. The U.K market continues to experience acute product inflation in the mid-to-high single digits. Throughout fiscal 2018, we improved our customer experience through enhanced service levels, improved sales retention and higher customer loyalty, enhanced associate engagement through improved workplace safety and improved associate retention through attractive career growth opportunities. These were all key targeted steps towards achieving our initial three-year plan financial objectives.

 

Comparison of our results from fiscal 2018 to fiscal 2017:

 

Sales increased 6.1%, or $3.4 billion, to $58.7 billion;
Operating income increased 13.4%, or $275.8 million, to $2.3 billion; adjusted* operating income increased 8.4%, or $196.5 million, to $2.5 billion;
Net earnings increased 25.2%, or $288.3 million, to $1.4 billion; adjusted* net earnings increased 22.1%, or $300.8 million, to $1.7 billion;
Basic earnings per share increased 30.5%, or $0.64, to $2.74 from the comparable prior year amount of $2.10 per share; and
Diluted earnings per share increased 29.8%, or $0.62, to $2.70 from the comparable prior year amount of $2.08 per share; adjusted* diluted earnings per share were $3.14 in fiscal 2018, a 26.6% increase from the comparable prior year amount of $2.48 per share.
* See Annex I - “Non-GAAP Reconciliations” for an explanation of these non-GAAP financial measures.

 

Say on Pay – Stockholder Feedback

 

At last year’s Annual Meeting, 96.5% of the shares that were voted with respect to the Company’s “Say on Pay” proposal (excluding abstentions) voted “FOR” the proposal. At the same meeting, 91.1% of shares voted indicated a preference for annual Say on Pay advisory votes. In light of these voting results, the Board has decided to include the advisory stockholder vote on executive compensation in its proxy materials on an annual basis until the next required advisory vote on the frequency of the advisory stockholder vote on compensation paid to the Company’s NEOs. Further, during the past year, we continued to engage in dialogue with some of our largest stockholders to solicit their feedback and gather information on their views and opinions on various operations and governance issues, including executive compensation practices. After considering the results of the fiscal 2017 “Say on Pay” advisory vote, the Compensation Committee, which we refer to below as the “Committee,” determined to continue the emphasis on performance-based compensation for fiscal 2019. The Committee carefully considers feedback from our stockholders regarding our executive compensation program. In addition to the annual “Say on Pay” advisory vote on NEO compensation and the Company’s stockholder engagement efforts, stockholders are invited to express their views to the Committee as described under the heading “Corporate Governance–Communicating with the Board.”

 

Our Practices

 

Below we highlight certain executive compensation practices applicable to our NEOs that we have implemented to drive performance and support the best standards in corporate governance, as well as practices we have not implemented because we do not believe that they would serve our stockholders’ long-term interests.

 

What We Do

 

Pay for Performance – We link pay to Sysco and individual performance. We retrospectively review the pay and performance relationship of our executive pay on an annual basis. By aligning annual and long-term incentive (“LTI”) opportunities with Sysco’s annual operating plan and three-year strategic plans, compensation is tightly aligned with stockholder interests.
Value Stockholders’ Input – We regularly communicate with several of our larger stockholders and consider their input when designing and implementing compensation programs.
Mitigate Undue Risk – We mitigate undue risk associated with compensation, including utilizing a mix of elements, caps on potential payments, clawback provisions, multiple performance targets and robust Board and management processes to identify risk. We also utilize post-employment covenants designed to protect competitive information of Sysco. We do not believe any of Sysco’s compensation programs creates risks that are reasonably likely to have a material adverse impact on Sysco, which we validate through our compensation risk analysis each year.
Align Target Compensation with Our Peers – We generally position the target total direct compensation levels for our Current NEOs at the median of our peer companies for median performance. The variable, performance-linked components of total direct compensation are structured to reward our Current NEOs at higher levels than the median of our peer companies when superior performance is achieved, while below median performance results in compensation that is below the median pay of our peer companies.
Independent Compensation Consulting Firm – The Committee seeks counsel from an independent compensation consulting firm that does not provide any other services to Sysco.
Executive Compensation Clawback Policy – The Committee has the authority to recoup compensation if there is (i) a restatement of our financial results, other than a restatement due to a change in accounting policy, within 36 months of the payment of the award and (ii) the restatement would result in the payment of a reduced award if the award were recalculated.
Reasonable Change in Control Provisions for Equity Awards – We believe we have reasonable change in control provisions that generally apply to executive officers in the same manner as the applicable broader employee population, including use of double-trigger vesting for stock options, performance share units (“PSUs”) and restricted stock units (“RSUs”) awarded since November 2013. We do not provide for separate cash severance payments if a Current NEO is terminated following a change in control.

 

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Significant Stock Ownership Guidelines – We have adopted stringent stock ownership guidelines for our directors and senior officers, including a stock holding requirement. We review and adjust these guidelines when appropriate.
Modest Perquisites – We provide only modest perquisites that have a sound benefit to Sysco’s business. We do not allow personal use of private aircraft provided by Sysco or other egregious perquisites.
Regular Review of Share Utilization – We evaluate share utilization by reviewing overhang levels (i.e., dilutive impact of equity compensation on our stockholders) and annual run rates (i.e., the aggregate shares awarded as a percentage of total outstanding shares).
Limited Trading Windows – We require our directors and executive officers to conduct all transactions in Sysco common stock through pre-approved 10b5-1 trading plans established during open trading windows and subject to a 30-day waiting period before trades may commence. Further information about our trading restrictions is available under “Stock Ownership – Stock Trading Restrictions” above.

 

What We Don’t Do

 

No employment contracts or guaranteed severance for our Current NEOs.
No stock option reloading.
No repricing of underwater stock options.
No tax gross-ups for financial planning or loss on sale of home in connection with a relocation.
No separate change in control agreements.
No excise tax gross-ups upon a change in control.
No hedging – Our insider trading policy prohibits executive officers and directors from using strategies or products (such as derivative securities or short-selling techniques) to hedge against the potential decrease in the market value of Sysco common stock.

 

How Pay is Tied to Performance

 

Sysco’s executive compensation program directly links the significant majority of an executive’s compensation opportunity to Sysco’s financial performance through annual and long-term incentives. The Target Compensation Mix charts below describe each of the principal non-retirement compensation elements for the CEO and the other Current NEOs for fiscal 2018 as a percent of total target direct compensation, including base salary with respect to fiscal 2018 and award opportunities related to annual and LTI compensation granted in fiscal 2018 and valued at target levels, and excluding (i) any amounts paid with respect to prior years’ incentive award grants or (ii) the value of any retirement benefits. Target compensation set forth for Mr. Bené in the chart below includes the one-time award of RSUs granted in February 2018 in connection with his promotion to Chief Executive Officer. See “ – What We Paid and Why – Compensation for NEOs – Long-Term Incentives” below.

 

TARGET COMPENSATION MIX - FY 2018

(consisting of base salary, annual incentive award & long-term incentives)

 

 

1 Represents a one-time, promotional long-term incentive award of time-based restricted stock units to Mr. Bené in February 2018 in connection with his promotion to President and CEO. For discussion of the compensation adjustments for Mr. Bené in connection with the transition and appointment to CEO, see “Executive Compensation – CEO Succession Compensation Arrangements – Compensation Adjustments for Mr. Bené.”

 

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The Committee has not historically used an exact formula for allocating between fixed and variable, cash and non-cash, or short-term and long-term compensation, allowing it to incorporate flexibility into our annual and long-term compensation programs and adjust for the evolving business environment.

 

The value of Sysco’s stock options, PSUs and RSUs is directly linked to Sysco’s stock performance. How we derive the values of the components of Sysco’s long-term incentives is discussed under “— How Executive Pay is Established” below. Including the annual incentive award, payment of which is largely dependent on Sysco’s financial performance, these performance-linked components constituted approximately 87% and 80%, respectively, of the total target direct compensation of our CEO and the Current NEOs (on average) for the period presented.

 

Recent Highlights of Our Executive Compensation Program

 

Sysco is committed to providing and maintaining a competitive executive compensation program. In addition, we continue to address ways in which our pay can be appropriately linked to Company performance. Highlights of Sysco’s executive compensation program for fiscal 2018, as established by the Committee, are set forth in the table below. The fiscal 2019 executive compensation program design is substantially consistent with the fiscal 2018 program, excluding (i) the one-time promotional LTI award for Mr. Bené and (ii) the fiscal 2018 Section 162(m) umbrella bonus pool, which imposed maximums on the amounts of the annual incentive awards and which was eliminated for fiscal 2019, as discussed below under “ – What We Paid and Why – Compensation for NEOs – Annual Incentive Award – Detailed Information – Limit on Fiscal 2018 Maximum Annual Incentive Award Payments.”

 

Fiscal 2018 Design Highlights:

 

Component:   Key Design Features:   Objectives:
Annual Incentive Award   Aligned performance goal setting and core financial objectives with Sysco’s fiscal 2018 annual operating plan and the initial three-year strategic plan. Adjusted operating income, gross profit dollar growth and broadline case growth, critical performance measures, remained the primary metrics in assessing performance.  

Ensure that the goals reflect market conditions, operating expectations and other relevant factors as reflected in Sysco’s annual operating plan and three-year strategic plan. 

Reinforce accountability for and reward the achievement of annual operating plan goals.

Annual Incentive Award – NEO Individual Objectives   Established individualized strategic bonus objectives (“SBOs”) to increase the focus on quantifiable, near- term strategic objectives over which the recipient of the opportunity has some direct responsibility.  

SBOs provide additional focus on critical strategic objectives that support both financial and non-financial goals. Individualized SBOs are tailored to each participant’s line-of-sight influence.

Long-Term Incentives  

Continued use of PSUs and stock options as part of the NEO’s annual LTI grants. PSUs continue to represent 60% of the LTI opportunity for our NEOs, with stock options representing the remaining 40% of the LTI opportunity.

 

For the PSUs, 2/3rds of the opportunity is based on earnings per share compound annual growth rate during the three-year performance period, with the remaining 1/3rd based on average annual return on invested capital over such performance period.

 

Strengthen alignment with shareholders by linking key performance objectives and the compensation opportunity for each Current NEO, including significant compensation at risk.

Strike an appropriate balance between long-term strategic financial goals and relative shareholder returns.

Maintain market competitiveness and an appropriate balance between long-term and short-term orientation to the business, with a continued focus on pay for performance.

One-time, Promotional LTI Award for CEO   In addition to the aforementioned annual and long-term incentives, Mr. Bené received in February 2018 a one-time, promotional LTI award in the form of RSUs.  

Appropriately adjust Mr. Bené’s compensation in recognition of his additional responsibilities following his promotion to President and CEO.

Increase Mr. Bené’s stake in the success of the Company and enhance the alignment of his interests with those of shareholders.

Align Mr. Bené’s stock holdings with the heightened CEO ownership requirements within the designated transition period.

 

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Philosophy of Executive Compensation Program

 

Our executive compensation plans directly link a substantial portion of annual executive compensation to Sysco’s performance. These plans are designed to deliver highly competitive compensation for superior company performance. Likewise, when Company performance falls short of expectations, our variable incentive programs deliver lower levels of compensation. However, the Committee tries to balance pay-for-performance objectives with retention considerations, so that, even during temporary downturns in the economy and the foodservice industry, the programs continue to ensure that qualified, successful, performance-driven employees stay committed to increasing Sysco’s long-term value. Furthermore, to attract and retain highly skilled management, our compensation program must remain competitive with those of comparable employers who compete with us for talent.

 

Core Principles

 

We use the following key principles as the cornerstone of Sysco’s executive compensation philosophy to attract, develop and retain business leaders to drive financial and strategic growth and build long-term stockholder value:

 

Pay for Performance: Provide base salaries that reflect each NEO’s background, experience and performance, combined with variable incentive compensation that rewards executives at higher levels than at peer companies when superior performance is achieved, while below median performance results in compensation that is below the median pay of peer companies;
Competitiveness and Retention: Provide a competitive pay opportunity that attracts and retains the highest quality professionals;
Accountability for Short- and Long-Term Performance: Strike an appropriate balance between achieving both short-term and long-term interests of the business through short-term and long-term compensation; and
Alignment with Stockholders’ Interests: Link the interests of our executive officers with those of our stockholders through significant at-risk, equity-based compensation.

 

Components and Objectives of Executive Compensation Program

 

The Committee has built the executive compensation program upon a framework that includes the following components and objectives, each of which is described in greater detail later in this Compensation Discussion and Analysis. The Committee routinely reviews each component of the executive compensation program to see how it affects target total pay levels and generally positions the target total direct compensation levels for our Current NEOs at the median of our peer companies for median performance. The variable, performance-linked components of total direct compensation are structured to reward our Current NEOs at higher levels than the median of our peer companies when superior performance is achieved, while below median performance results in compensation that is below that of the median of our peer companies.

 

    Component   Description:   Objective of Element:
Annual Compensation   Base Salary   The Committee generally sets base salaries at or below market competitive levels to provide a fixed, competitive base of cash compensation and to provide enhanced weighting to the incentive- based components of the overall pay program. The Committee then may adjust the base salaries based on a number of factors, which may include merit increases, the executive’s unique job responsibilities, management experience, individual contributions, number of years in his or her position and market position of current salary, as described under “What We Paid and Why” below.  

Create a competitive pay mix with an appropriate balance between fixed and variable and short- and long-term pay components.

Generally targeted at or below the median of the salary ranges for similar executive positions among companies in our peer group.

    Annual Incentive Award  

The annual incentive award is designed to offer opportunities for cash compensation tied directly to Company performance. We pay the annual incentive award in cash in the first quarter of the fiscal year for performance in the prior fiscal year. Payment of the annual incentive award is based on satisfaction of performance criteria that the Committee believes ultimately create stockholder value. Performance metrics for the annual incentive are, in part, based on position and area of responsibility. For fiscal 2018 the NEOs (other than Mr. Bertrand) had targets established based on performance of the Company on a consolidated basis. Metrics for Mr. Bertrand included a performance component based on overall Company performance, as well as a performance component based on the performance of the U.S. Foodservice Operations segment. In addition, for fiscal 2018, 25% of the annual incentive opportunity for each of the NEOs was based on his performance with respect to his SBOs.

 

For a discussion of the threshold requirements for payment of each component of the annual incentive award for each of the NEOs, see “Executive Compensation – Annual Incentive Awards – Fiscal 2018 MIP Annual Incentive Awards” below.

 

Pay annual cash incentive bonuses based on Sysco performance on key metrics that support the Company’s annual operating plan and three-year strategic plan.

Promote pay for performance in a competitive way.

Generally targeted at or above the median annual incentive ranges among companies in our peer group based upon achieving specified performance goals.

 

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    Component   Description:   Objective of Element:
Core Long-Term Incentives   Performance Share Units (“PSUs”)   Each NEO has had an opportunity to earn shares of Sysco common stock and dividend equivalents (if applicable) based on Sysco’s performance over a three-year period. The compensation opportunity under the PSUs for the performance period commencing in fiscal 2018 is based on the Company’s (i) adjusted earnings per share compound annual growth rate and (ii) average adjusted return on invested capital over such performance period, each as compared to the Company’s pre-established performance targets. See “– Long-Term Incentives – Detailed Information – Stock Options and Performance Share Units” below for a description of the PSU program.  

Strengthen alignment with stockholders.

Enhance performance and compensation alignment by increasing performance based contingencies for payment.

    Stock Options   For fiscal 2018, 40% of the target LTI opportunity was in the form of stock options that vest one-third per year beginning one year from the grant date, which awards were valued using a Black-Scholes valuation model.  

Closely align the executives’ interests with those of our stockholders, with realized value based on post-grant share price appreciation.

Other Long-Term Incentives   Cash Performance Units (“CPUs”)  

Beginning in fiscal 2017, the Committee determined that shifting away from the use of RSUs and CPUs in favor of a mix of stock options and PSUs was an appropriate evolution of the Company’s incentive programs in light of shifting competitive market practices. Under the final award of CPUs, which were granted in fiscal 2016 preceding the transition to PSUs, each NEO had an opportunity to earn incentive payments based on Sysco’s average return on invested capital (“ROIC”) over a three-year performance period, subject to adjustment based on the Company’s total shareholder return for the period relative to the S&P 500. CPU payments earned in fiscal 2018 were made with respect to the CPUs issued in fiscal 2016 under the prior CPU program. See “Executive Compensation – Long-Term Incentive Awards” below for a description of the fiscal 2016 CPUs.

 

CPUs were previously awarded by the Committee to:

Incentivize executive officers to achieve specified longer-term goals over three-year performance periods.

Align pay with the creation of stockholder value, as compared to the S&P 500 companies over the applicable performance period.

    Restricted Stock Units (“RSUs”)  

RSUs, when awarded to NEOs vest one-third per year beginning  the first day of the month following the first anniversary of the grant date. If applicable, dividend equivalents are paid in cash, if and when the underlying RSUs vest. Beginning in fiscal 2017, the Committee determined that, for annual LTI awards for NEOs, shifting away from the use of RSUs and CPUs in favor of a mix of stock options and PSUs was an appropriate evolution of the Company’s incentive programs in light of shifting competitive market practices.

 

Other than the one-time, promotional grant made to Mr. Bené, no NEO has received an award of RSUs since fiscal 2016. See “Executive Compensation – Outstanding Equity Awards at Fiscal Year-End” below for a description of outstanding RSU grants and  – Recent Highlights of Our Executive Compensation Program – Fiscal 2018 Design Highlights” above for discussion of the objectives of the one-time, promotional RSU award made to Mr. Bené.

 

RSUs were previously awarded by the Committee to:

Focus executives on multi-year activities that increase stockholder value.

Foster retention through time vesting requirements.

Retirement, Other Benefit Programs and Perquisites   Non-Qualified Retirement Benefits and Deferred Compensation Plan   The Management Savings Plan (the “MSP”) is a non-qualified, deferred compensation plan. The MSP allows participants to defer current cash compensation and employer contributions, plus applicable earnings, for payment on specified dates or upon certain specified events. Certain NEOs also participate in legacy plans, such as the SERP and EDCP.  

Support executive performance and retention through vesting requirement and forfeiture provisions applicable to company contributions.

Complement the Sysco 401(k) Plan to serve as the primary retirement savings vehicles for executives.

Provide a market competitive retirement savings opportunity for executives.

    Other
Benefits and Perquisites
  The NEOs are eligible to participate in the same benefit programs that are offered to other salaried employees. Limited perquisites are provided to NEOs, including payment of life and accidental death and dismemberment insurance coverage, long-term care insurance coverage, reimbursement of costs for annual medical exams, payment of long-term disability coverage, payment of fees related to the preparation of foreign tax returns where warranted due to company business, and certain expenses related to spousal travel in connection with business events. See “— Executive Perquisites & Other Benefits – Detailed Information” below.  

Provide limited market competitive benefits to protect employees’ and their covered dependents’ health and welfare.

Facilitate strong job performance and enhance productivity.

 

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How Executive Pay is Established

 

The Committee, in consultation with management and the Committee’s independent compensation consultant, continues to focus on ensuring that our executive compensation programs reinforce our pay for performance philosophy and enhance stockholder value. During fiscal 2018, the Committee utilized Semler Brossy Consulting Group LLC, referred to herein as “Semler Brossy,” as its independent compensation consultant. For fiscal 2018, Semler Brossy assisted the Committee in conducting an annual assessment of Sysco’s executive compensation, as well as in evaluating their pay relative to the performance and contributions of each NEO over the year. After reviewing competitive studies provided by its independent compensation consultant, the Committee determined that each NEO’s then current target compensation provided the executive with an appropriate compensation opportunity. The Committee later determined, based on the Company’s fiscal 2018 performance, that each NEO’s total fiscal 2018 compensation was generally appropriate in light of overall Company performance and the NEO’s personal performance.

 

In developing Sysco’s pay for performance policies, the Committee generally evaluates elements of pay as compared to a compensation peer group, as discussed below. However, the Committee has not historically used a precise formula for allocating between fixed and variable, cash and non-cash, or short-term and long-term compensation, allowing it to incorporate flexibility into our annual and long-term compensation programs and adjust for the evolving business environment.

 

Committee Oversight

 

The Committee, which is comprised entirely of independent directors, is responsible for overseeing Sysco’s executive compensation program. The Committee determines and approves all compensation of the CEO and Sysco’s other senior officers, including the NEOs. Although the Committee meets jointly with the Corporate Governance and Nominating Committee to discuss both the CEO’s personal goals and his performance in achieving such goals in each fiscal year, the Committee is solely responsible for approving all compensation awards and payment levels. The Committee develops and oversees programs designed to compensate our corporate officers, including the NEOs, as well as the presidents and executive vice presidents of our operating companies. The Committee is also authorized to approve all grants of PSUs, stock options, restricted stock, RSUs, cash and other awards to NEOs under our stockholder approved Sysco Corporation 2013 Long-Term Incentive Plan. Further information regarding the Committee’s responsibilities is found under “Corporate Governance – Board Meetings and Committees” and in the Committee’s Charter, available on the Sysco website at www.sysco.com under “Investors — Corporate Governance –Board of Directors & Committee Composition.”

 

The Committee has several resources and analytical tools it considers in making decisions related to executive compensation. The table that follows discusses the key tools the Committee uses.

 

Committee Resources
Independent Committee Consultant   Semler Brossy attended five Committee meetings during fiscal 2018. Semler Brossy advised on compensation matters, including peer group composition, annual and long-term incentive plan designs, special compensation issues related to acquisitions, and market data on CEO and other NEO compensation.
  More specifically:
    Semler Brossy assisted the Committee in identifying potential companies for removal from and addition to the peer group;
    Semler Brossy prepared executive compensation studies for the Committee, in May 2017 and May 2018, which included a comparison of base salaries and estimation of total cash compensation and total direct compensation, inclusive of annual incentive and LTI opportunities for each of the NEOs relative to the applicable peer group;
    Semler Brossy conducted a pay for performance analysis, comparing the relationship between actual realizable pay for the NEOs and the Company’s total shareholder return to that of the applicable peer group;
    Semler Brossy compared Sysco’s aggregate equity usage to the applicable peer group;
    The Committee consulted Semler Brossy for all executive compensation decisions made for fiscal 2018 and fiscal 2019, including base salary determinations and annual and LTI awards; and
    Semler Brossy worked with the Committee to develop appropriate pay arrangements for Mr. DeLaney and Mr. Bené for fiscal 2018 and 2019 in connection with the CEO succession process in fiscal 2018.
       
    The Committee has determined Semler Brossy to be independent from the Company and that no conflicts of interest exist related to the firm’s services provided to the Committee. Other than with respect to Semler Brossy’s respective roles in advising the Committee and the Corporate Governance and Nominating Committee with respect to non-employee director compensation, the firm did not perform any services for Sysco. Semler Brossy is an independent consultant with responsibility for reporting directly and exclusively to the Committee and the Corporate Governance and Nominating Committee. Additionally, Semler Brossy has policies and procedures in place to prevent conflicts of interest. The fees received by Semler Brossy during fiscal 2018 related to Sysco represented less than 5% of the firm’s total revenues for the 12-month period.
     
    Neither Semler Brossy, nor any adviser of the firm, had a business or personal relationship with any member of the Committee or any executive officer of Sysco since the beginning of fiscal 2018. No Semler Brossy adviser directly owned any Sysco common stock since the beginning of fiscal 2018.
Sysco’s Human Resources Department   Sysco’s Executive Vice President, Human Resources and the Human Resources Department (“HR”) provide additional analysis and guidance as requested by the Committee related to NEO compensation, including the following:
   
  Assisting the CEO in making preliminary recommendations of base salary structure, annual and LTI program design and target award levels for the NEOs and other employees eligible to receive annual incentive awards.
   
  Providing scenario planning – HR provides the Committee with anticipated payment levels throughout the year based on the Company’s projections relative to the performance measures.
   
  Providing comparison data on the internal equity of the compensation awarded within the Sysco organization.

 

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Committee Resources
CEO   For other NEOs, the CEO makes individual recommendations to the Committee on base salary and annual and LTI goals and award opportunities. The CEO also provides initial recommendations for annual incentive award performance targets and individual SBOs for the Committee to consider. The Committee reviews, discusses, modifies and approves, as appropriate, these compensation recommendations. Mr. DeLaney made recommendations with respect to the fiscal 2018 compensation for the NEOs (other than Mr. Bené), and Mr. Bené made recommendations for the fiscal 2019 compensation for the Current NEOs, which in each case were accepted by the Committee. No member of management, including the current CEO and the former CEO, had a role in determining his or her own compensation.

 

Role of CEO and/or Other Executive Officers in Determining NEO Compensation

 

As described in the table above, each of our current and former CEOs provided recommendations to the Committee for each element of compensation for each of the NEOs other than himself, except that Mr. DeLaney did not provide any recommendations with respect to the fiscal 2018 compensation for Mr. Bené. In forming his recommendations, each CEO was advised by HR as described above. HR assesses the design of, and makes recommendations related to, Sysco’s compensation and benefit programs. The CEO also consults with other senior officers of the Company for recommendations related to the appropriate financial and non-financial performance measures used in our incentive programs. In developing recommendations for the Committee, the CEO and HR consult benchmarking analyses and other market data from the Committee’s independent compensation consultant and other advisors, as described elsewhere in this proxy statement, and follow the philosophy and pursue the objectives described above under “– Philosophy of Executive Compensation Program.”

 

The Committee, with input from its independent compensation consultant, determines each element of compensation for the CEO. With input from its independent compensation consultant, HR and the CEO, the Committee determines each element of compensation for the other NEOs. The Committee is under no obligation to utilize these recommendations. Executive officers and others may also participate in discussions with the Committee when invited to do so.

 

Use of Peer Group and Survey Data

 

Sysco is the largest global distributor of food and food related products primarily to the food service and food-away-from-home industry, and, with the exception of two U.S. public company competitors, the other companies in the foodservice industry are significantly smaller and privately-held. We believe that these smaller, privately-held businesses would not create a satisfactory comparison group due to the greater skill levels and abilities required to manage a public company of Sysco’s size, complexity and global operations. Accordingly, the Committee concluded that the most comparable companies with respect to executive pay include (i) two U.S. public company foodservice distribution competitors and (ii) companies in other industries whose business size and complexity are similar to ours and with which we compete for top executive talent. However, due to the lack of a sufficient number of directly comparable public companies, the peer group developed for the executive compensation analysis for our NEOs is not the same peer group that is used in the stock performance graph included in our annual report to stockholders.

 

The Committee continually evaluates the compensation analysis peer group for appropriateness and, in fiscal year 2018, the Committee modified the peer group based on recommendations by Semler Brossy and input from management. Revenue, market capitalization, and earnings before interest and taxes were used as the primary screening criteria, and the peer companies were selected from among those in the logistics and distribution, consumer products and retail sectors. The peer group utilized by the Committee for executive pay and performance benchmarking for decisions made for fiscal 2017 and fiscal 2018 (through February 2018) was not the same peer group used for all such compensation decisions made after February 2018.

 

The companies in the peer group for executive pay and performance benchmarking for decisions made for fiscal 2018 (through February 2018) are the following, which we refer to as our “2018 peer group” or “2018 peer companies” throughout this proxy statement:

 

Fiscal 2018 Peer Group      
AmerisourceBergen Corporation FedEx Corp. Lowe’s Cos. Inc. United Parcel Service Inc.
Best Buy Company, Inc. Home Depot Inc. Staples, Inc. Walgreen Boots Alliance, Inc.
ConAgra Foods Inc. Kraft Heinz Company Target Corp. YUM! Brands Inc.
Costco Wholesale Corp. McDonald’s Corp.    

 

The companies in the peer group for executive pay and performance benchmarking for decisions made for fiscal 2018 (after February 2018) and fiscal 2019 are the following, which we refer to as our “2019 peer group” or “2019 peer companies” throughout this proxy statement:

 

Fiscal 2019 Peer Group      
Aramark Dollar Tree, Inc. Lowe’s Cos. Inc. United Parcel Service Inc.
Archer Daniels Midland Company FedEx Corp. Performance Food Group Walgreen Boots Alliance, Inc.
Bunge Limited Kimberly-Clark Corporation Target Corp. US Foods Holding Corp.
Costco Wholesale Corp. The Kroger Co. Tyson Foods, Inc.  

 

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Changes to the peer group for fiscal 2019 served to re-balance the 2019 peer group towards more relevant comparators in a few key areas:

 

Logistics and Distribution: AmerisourceBergen Corporation was removed due to the different operating/regulatory environment. Aramark, Archer Daniels Midland Company, Bunge Limited, Performance Food Group, and US Foods Holding Corp. were added to maintain an appropriate mix of logistics and distribution companies.
Consumer Products and Retail: Best Buy Company, Inc. and Home Depot Inc. were removed due to the lack of exposure to food services and related products. Kraft Heinz Company and McDonald’s Corp were removed given differences in operating and profitability models. Dollar Tree, Inc., Kimberly-Clark Corporation, The Kroger Co., and Tyson Foods, Inc. were added to maintain an appropriate mix of related consumer products and retail companies.
Company Transactions: ConAgra Foods Inc., Staples, Inc., and YUM! Brands Inc. were removed, as they had all recently experienced significant business transactions that made them less relevant competitors going forward.

 

In order to demonstrate the appropriateness of the 2018 peer group selected for benchmarking NEO compensation in connection with the Committee’s executive compensation determinations for fiscal 2018, Semler Brossy included in its May 2017 executive compensation study a comparison of Sysco’s estimated revenues and market capitalization to the median of the 2018 peer companies, which is set forth below:

 

Semler Brossy May 2017 Report  
   
  Revenue Level (median) Market Capitalization (median)
2018 Peer Group: $59.0 billion (trailing four quarters as of March 2017) $57.5 billion as of March 2017
Sysco: $53.1 billion (trailing four quarters as of March 2017) $30.3 billion as of March 2017
     

For purposes of the Committee’s executive compensation decisions for fiscal 2019, Semler Brossy similarly included in its May 2018 executive compensation study the following comparison of Sysco’s estimated revenues and market capitalization to the median of the 2019 peer companies:

 
Semler Brossy May 2018 Report  
   
  Revenue Level (median) Market Capitalization (median)
2019 Peer Group: $61.4 billion (trailing four quarters as of May 2018) $24.4 billion as of May 2018
Sysco: $57.8 billion (trailing four quarters as of May 2018) $33.1 billion as of May 2018

 

Peer group compensation data is limited to information that is publicly reported and, to the extent it deems appropriate, the Committee uses it to benchmark the major components of compensation for our NEOs.

 

Semler Brossy conducted an independent compensation study in May 2017 that compared Sysco’s target total direct compensation (as defined below) for the NEOs to the 2018 peer group pay levels. This study was used to benchmark target pay levels and identify prevailing performance criteria. In addition to benchmarking the composition of the incentive opportunities, the Committee also validated Sysco’s actual pay and performance alignment using total shareholder return (computed as of December 31, 2016) for one-year and three-year performance measures.

 

In May 2018, Semler Brossy prepared an updated report comparing the Company’s fiscal 2018 target total direct compensation for the Current NEOs to the pay levels of the 2019 peer group, based on the most recent publicly available information regarding the compensation of the 2019 peers’ named executive officers. For purposes of comparing Mr. Bené’s compensation to the 2019 peer group, Semler Brossy annualized Mr. Bené compensation, based on his CEO base salary and annual incentive and LTI opportunities effective January 1, 2018. Based on the findings from this report, the Committee confirmed that the total targeted compensation for (1) each of Messrs. Libby and Shurts was below the 25th percentile, (2) each of Messrs. Bené and Bertrand was between the 25th and 50th percentile and (3) Mr. Grade was between the 50th and 75th percentile.

 

In addition, the Committee further reviewed in May 2018 the relationship between actual realizable pay (as defined below) for the NEOs (other than Mr. Bertrand) and the Company’s total shareholder return for the three-year period from fiscal 2015 through fiscal 2017 and found that actual compensation earned continued to be closely aligned with the Company’s relative total shareholder return versus the 2019 peer group.

 

For purposes of the executive compensation studies referenced herein, with respect to the NEOs:

 

“Target total cash compensation” was defined as base salary plus target annual incentive opportunity of 150% for the Messrs. Bené and DeLaney while serving as CEO, 125% for Mr. Bené prior to becoming CEO, and 100% for Messrs. Grade, Bertrand, Libby and Shurts.
   
“Target total direct compensation” was defined as target total cash compensation plus the value of stock options and PSUs expected to be granted with respect to the year in question; stock options are valued using a Black-Scholes valuation model and PSUs are each valued at the average closing price of a share of Sysco stock for the ten trading days immediately preceding the date of grant; and
   
“Actual realizable pay” was defined as actual salary and annual incentive earned, plus the value of stock options exercised, the value of RSUs and PSUs that vested, the change in intrinsic value of unexercised stock options and unvested RSUs, and PSUs (assuming target performance), as well as the value of all cash earned and vested under the CPU program.

 

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What We Paid and Why – Compensation for NEOs

 

Base Salary – Detailed Information

 

We pay base salaries to attract and retain talented executives and to provide a fixed base of cash compensation. The table below shows the annualized salaries of each NEO at the beginning of fiscal 2017, 2018 and 2019, with the effective dates as noted below:

 

Named Executive Officer FY2017
Base Salary(1)
  FY2018
Base Salary(2)
  FY2019
Base Salary(3)
Thomas L. Bené $ 800,000   $ 1,100,000   $ 1,200,000
William J. DeLaney(4)   1,250,000     1,250,000     1,250,000
Joel T. Grade   625,000     675,000     690,000
Greg D. Bertrand   625,000     650,000     665,000
Russell T. Libby   600,000     612,000     625,000
Wayne R. Shurts   625,000     637,500     650,000
(1) The Committee approved these base salaries effective as of September 4, 2016.
(2) The Committee approved these base salaries effective as of August 27, 2017, except with respect to Mr. Bené, whose annualized base salary was $900,000 for the period from September 3, 2017 through December 31, 2017. In connection with his appointment as President and CEO, effective January 1, 2018, Mr. Bené’s annualized base salary was increased to $1.1 million, as reported in the table above.
(3) The Committee approved these base salaries effective as of September 1, 2018. The base salary increase for Mr. Bertrand reflected the increased areas of responsibility in connection with his promotion to Executive Vice President, U.S. Foodservice Operations. Mr. DeLaney is expected to retire effective December 31, 2018.
(4) The Committee determined, consistent with the Transition and Retirement Agreement with Mr. DeLaney, to maintain his annualized base salary for fiscal year 2018 and through December 31, 2018, at the same level as fiscal year 2017; see “Executive Compensation – CEO Succession Compensation Arrangements – Transition and Retirement Agreement with Mr. DeLaney” for a discussion of Mr. DeLaney’s Transition and Retirement Agreement.

 

Base Salary – Analysis

 

Fiscal 2018 Base Salary

 

For fiscal 2018 base salary determinations, the Committee reviewed, for each NEO: (i) the executive’s job responsibilities, management experience, individual contributions, tenure in his position and then-current salary; (ii) an independent compensation study from May 2017 by Semler Brossy that compared Sysco’s target total direct compensation for the applicable period to the 2018 peer companies; and (iii) with respect to the compensation adjustments for Messrs. DeLaney and Bené in connection with the CEO succession plan, a compensation study prepared by Semler Brossy in July 2017 that benchmarked the proposed compensation levels against the median of the 2018 peer group. The Committee determined, as recommended by management, that it was appropriate to grant the salary increases for fiscal 2018 described in the table above. Following a comprehensive review of Mr. DeLaney’s performance in fiscal 2017 by the Corporate Governance and Nominating Committee and the Committee, and as provided in the Transition and Retirement Agreement with Mr. DeLaney described below under “Executive Compensation – CEO Succession Compensation Arrangements,” the Committee determined that the CEO’s base salary would be maintained at its then current level. Also in connection with the CEO succession plan, the Committee approved a salary adjustment for Mr. Bené of 12.5% for the period from September 3, 2017 through December 31, 2017, reflecting his additional job responsibilities associated with his transition to CEO, followed by an increase to $1.1 million on an annualized basis effective January 1, 2018. The Committee, after considering input from the CEO on each of their individual contributions, approved salary adjustments of 8.0% for Mr. Grade, 4.0% for Mr. Bertrand and 2.0% for Messrs. Libby and Shurts. As a result of these changes, based on the May 2017 Semler Brossy compensation study, the fiscal 2018 base salaries of Messrs. DeLaney and Bené were positioned between the 50th and 75th percentile of the 2018 peer group, the fiscal 2018 base salaries of Messrs. Libby and Shurts were positioned between the 25th and 50th percentile of the 2018 peer group and the base salary of Mr. Grade was positioned below the 25th percentile of the 2018 peer group. Based on the Semler Brossy July 2017 compensation study, Mr. Bené’s annualized base salary as President and CEO, effective on January 1, 2018, approximated the 25th percentile of the 2018 peer group. Semler Brossy did not include Mr. Bertrand in its May 2017 comparative analysis, given that he was not a named executive officer at such time.

 

Fiscal 2019 Base Salary

 

For fiscal 2019 base salary determinations, the Committee again reviewed, for each Current NEO, the executive’s job responsibilities, management experience, individual contributions, tenure in his position and then-current salary. The Committee determined that it was appropriate to grant the salary increases for fiscal 2019 described in the table above. Following a comprehensive review of Mr. Bené’s performance in fiscal 2018 by the Corporate Governance and Nominating Committee and the Committee, the compensation levels of the 2019 peer group and Mr. Bené’s evaluation by the entire Board, the Committee approved an increase in Mr. Bené’s base salary for fiscal 2019 of $100,000, or 9.1%. The Committee, after considering input from the CEO on each of their individual contributions and additional job responsibilities, approved salary adjustments for each of Mr. Grade of 2.2%, Mr. Bertrand of 2.3%, Mr. Libby of 2.1% and Mr. Shurts of 2.0%. The Committee approved these salary increases for annual market adjustments after considering recommendations and information provided by Semler Brossy and management. Following these changes, the fiscal 2019 base salaries of the Current NEOs placed as follows, as compared to the 2019 peer group: (1) Mr. Shurts below the 25th percentile, (2) Mr. Grade approximating the 25th percentile, (3) Messrs. Bené and Libby between the 25th and 50th percentile and (4) Mr. Bertrand between the 50th and 75th percentile.

 

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Annual Incentive Award – Detailed Information

 

The annual incentive award is designed to offer opportunities for cash compensation tied directly to company performance. In August 2017, the Committee approved, pursuant to authority established by the Sysco Corporation 2013 Long-Term Incentive Plan, the Sysco Corporation Fiscal 2018 Management Incentive Program for MIP Bonus-Eligible Participants (the “2018 MIP”). In July 2018, pursuant to the same stockholder approved authority, the Committee approved the Sysco Corporation Fiscal 2019 Management Incentive Program (MIP) For Corporate MIP Bonus-eligible Positions (the “2019 MIP”).

 

Under the terms of the 2018 MIP and the 2019 MIP, we pay the annual incentive award in cash in the first quarter of the fiscal year for annual incentives earned for performance in the prior fiscal year.

 

Annual Incentive Award for Fiscal 2018

 

Under the 2018 MIP, each participating NEO’s annual incentive opportunity was initially targeted at the following percentages of base salary: 150% for Mr. DeLaney, 125% for Mr. Bené, and 100% for Messrs. Grade, Bertrand, Libby and Shurts. In connection with his promotion, Mr. Bené’s target annual incentive opportunity for fiscal 2018 increased from 125% to 150% of his annual base salary, effective for the period from January 1, 2018 through the end of fiscal 2018, resulting in a pro-rated annual incentive award opportunity.

 

The total annual incentive payment earned by each NEO (other than Mr. Bertrand) under the 2018 MIP was based:

 

50% on the adjusted operating income performance of the Company during fiscal 2018, a key earnings measure, as compared to projected, target adjusted operating income for the year;
   
25% on the Company’s adjusted gross profit dollar growth, which represents a key top-line measure, and U.S. Broadline and Canadian Broadline (“USCABL”) case growth during fiscal 2018, which represents a key volume performance measure that is not subject to external market variations like currency exchange rates and inflation/deflation, in each instance as compared to projected, target year over year growth for the metric; and
   
25% on the individual participant’s performance with respect to his own SBOs.

 

For Mr. Bertrand, the total annual incentive payment earned under the 2018 MIP was based:

 

25% on the adjusted operating income performance of the Company during fiscal 2018, as compared to projected, target operating income for the year;
   
35% on the adjusted operating income of the Company’s U.S. Foodservice Operations segment, as compared to projected, target operating income for the segment;
   
15% on the adjusted gross profit dollar growth for the U.S. Foodservice Operations segment and the total case growth for our U.S. Broadline operations (“USBL”), in each instance as compared to projected, target year-over-year growth for each metric; and
   
25% on his individual performance with respect to his own SBOs.

 

Each of the above components for the annual incentive payment was calculated and awarded independently, such that one portion of the award could have been earned even if the threshold level of performance for other measures was not achieved, consistent with the annual incentive calculations in prior years. Each metric based on the Company’s financial performance had a possible payout between 0% and 200%, depending on the Company’s actual performance relative to the established targets. The individual SBO portion of the annual incentive payment had a possible payout of between 0% and 150%, depending on actual performance relative to the SBOs.

 

For purposes of the 2018 MIP, actual results included:

 

adjusted operating income for the Company of $2.54 billion (exceeding threshold performance level);
   
adjusted gross profit dollar growth for the Company of 3.9% (exceeding threshold performance level), as modified by USCABL total case growth of 2.6% (exceeding the target performance level);
   
U.S. Foodservice Operations adjusted operating income of $3.04 billion (exceeding threshold performance level); and
   
U.S. Foodservice Operations adjusted gross profit dollar growth of 4.5% (approximating the target performance level), as modified by USBL total case growth of 3.6% (exceeding the target performance level).

 

In measuring the Company’s performance with respect to these financial metrics under the 2018 MIP, the Committee, in its sole discretion, made equitable adjustments in recognition of unusual or non-recurring events. For further discussion of performance factor adjustments, see “Executive Compensation – Annual Incentive Awards – 2013 Long-Term Incentive Plan – Performance Factor Adjustments” below. Also see “Executive Compensation – Annual Incentive Awards – Fiscal 2018 MIP Annual Incentive Awards – Calculation of Total Award Earned under 2018 MIP” below for the calculation of each NEO’s annual incentive award earned under the 2018 MIP, and see Annex I — Non-GAAP Reconciliations for a reconciliation of these adjusted measures to the most directly comparable GAAP measures.

 

Annual Incentive Award Potential for Fiscal 2019

 

In July 2018, the Committee approved the fiscal 2019 annual incentive award opportunities described below for the Current NEOs under the 2019 MIP, which was adopted by the Committee pursuant to the 2013 Sysco Corporation Long-Term Incentive Plan and which contains financial metrics substantively similar to those set forth in the 2018 MIP:

 

Under the 2019 MIP, each Current NEO’s annual incentive opportunity will be targeted at the following percentages of base salary: 150% for Mr. Bené, 125% for Mr. Bertrand, and 100% for Messrs. Grade, Libby and Shurts;
The total annual incentive payment to be earned by each Current NEO (other than Mr. Bertrand) under the 2019 MIP will be based (i) 50% on the adjusted operating income performance of the Company during fiscal 2019, as compared to projected, target adjusted operating income for the year; (ii) 25% on the Company’s adjusted gross profit dollar growth and USCABL case growth during fiscal 2019, as compared to projected, target year over year growth for each metric; and (iii) 25% on the individual participant’s performance with respect to his own SBOs;

 

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For Mr. Bertrand, the total annual incentive payment opportunity under the 2019 MIP will be based (i) 25% on the adjusted operating income performance of the Company during fiscal 2019, as compared to projected, target operating income for the year; (ii) 35% on the adjusted operating income of the Company’s U.S. Foodservice Operations segment, as compared to projected, target operating income for the segment; (iii) 15% on the adjusted gross profit dollar growth for the U.S. Foodservice Operations segment and the total USBL case growth, in each instance as compared to projected, target year-over-year growth for each metric; and (iv) 25% on his individual performance with respect to his own SBOs.

 

Limits on Fiscal 2018 Maximum Annual Incentive Award Payments

 

The Committee established an annual incentive pool limit for fiscal 2018, as set forth in the table below, for each of the CEO, CFO and certain “covered employees” of Sysco (including all of the NEOs) pursuant to Section 162(m) of the Internal Revenue Code (the “Code”), as in effect prior to the passage of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), to help ensure compliance with the deductibility requirements of Section 162(m) of the Code. Under the Tax Act, the exemption for deductibility of performance-based compensation under Section 162(m) of the Code has generally been eliminated for fiscal years beginning after December 31, 2017, as a result of which the Committee has discontinued application of the annual incentive pool for fiscal 2019 and future years.

 

Participant’s Title Percent of 2018 Incentive Pool
Allocated to Participant
CEO 36%
CFO 13%
NEO 3 27%
NEO 4 12%
NEO 5 12%

 

The umbrella structure of the incentive pool limit served only to provide a ceiling on the maximum annual incentive amount that any NEO could have received, and the actual incentive amount paid to each NEO was determined pursuant to the 2018 MIP as described below under “Executive Compensation – Annual Incentive Awards – Fiscal 2018 MIP Annual Incentive Awards.”

 

In addition, under the 2013 Long-Term Incentive Plan, the maximum dollar amount that may be paid under all cash-based awards granted to any individual for any fiscal year under the Plan is 1% of the Company’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of the Company’s annual report on Form 10-K for the fiscal year ended immediately before the date the applicable award is paid.

 

Annual Incentive Award – Analysis

 

Fiscal 2018

 

The Committee established annual incentive award targets for fiscal 2018 based on the corresponding planned performance for each of those financial measures under Sysco’s fiscal 2018 annual operating plan, aligning the annual incentive compensation for the NEO’s to the achievement of the financial performance contemplated by the Company’s operating plan, as well as by Sysco’s initial three-year plan established in fiscal 2016. The financial targets under the initial three-year plan include improving adjusted operating income, and the key strategic levers of this three-year plan included delivering accelerated case growth through a focus on local customers and growing gross profit dollars. Semler Brossy confirmed to the Committee that this approach continued to reflect sound design practices. In light of the foregoing, Sysco’s executive management team prepared, and the Committee approved, the various financial performance targets for the fiscal 2018 annual incentive opportunities described above. It was both management’s and the Committee’s intent to create an annual incentive award that was generally targeted at or above the median annual incentive ranges among companies in the 2018 peer group upon achieving target performance goals, in combination with base salaries targeted below market medians.

 

The Committee excludes the extraordinary items described below under “Executive Compensation – Annual Incentive Awards – Fiscal 2018 MIP Annual Incentive Awards” because they represent items that generally involve current period costs that management and the Committee believe would not result in benefits until later periods, or vice versa. The Committee believes that the threshold and target levels of performance represented challenging, but reasonably obtainable, Sysco performance, while levels in excess of the target level represented superior and extremely challenging performance.

 

The Committee also set the target annual incentive award levels for each of the NEOs to ensure that total cash compensation does not significantly exceed the median, unless outstanding performance levels are achieved. The Committee established target annual incentive levels for each of the NEOs for fiscal 2018 that generally provided a target total cash compensation opportunity between the 25th and 50th percentile of the 2018 peer group. At the Committee’s request, Semler Brossy validated that the threshold, target and maximum performance expectations and associated payment levels for fiscal 2018, which were targeted at the median annual incentive ranges among companies in the 2018 peer group upon achieving specified performance goals under the fiscal 2018 executive compensation program, would result in payments that are positioned appropriately compared to peers.

 

Based upon Semler Brossy’s May 2017 report for the NEOs other than Mr. Bené, and the July 2017 report with respect to Mr. Bené, target total cash compensation for fiscal 2018 for each of the NEOs (other than Mr. Bertrand) compared as follows with respect to the 2018 peer group: (1) Mr. Grade was positioned below the 25th percentile of the 2018 peer group, (2) Mr. Bené (based on his annualized CEO base salary and target annual incentive award opportunity) approximated the 25th percentile for the CEO position of the 2018 peer group, (3) Mr. Shurts was positioned between the 25th and 50th percentile of the 2018 peer group and (4) Messrs. DeLaney and Libby approximated the median of the 2018 peer group. Semler Brossy did not include Mr. Bertrand in its May 2017 comparative analysis, given that he was not a named executive officer at such time.

 

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The Committee believes that individual goals are extremely important in evaluating the CEO’s and other NEOs’ respective performance and that they should, therefore, also have an impact on each of their annual incentive opportunities. SBOs provide additional focus on critical strategic objectives that support both financial and non-financial goals. Under the 2018 MIP, the Committee continued the use of individual SBOs in order to align the NEOs’ objectives with the key components of Sysco’s overall strategy. These individualized SBOs were closely tailored to each NEO’s line-of-sight influence. The Committee believes that consideration of individual SBOs further promotes the overall executive compensation pay philosophy by strengthening the link between executive pay and individual performance. Each individual’s SBOs for fiscal 2018 were pre-established by the Committee based on the critical components of Sysco’s overall strategy as set out by management and the Board. For each SBO, the Committee reviewed and rated each NEO using the following rating and associated payment ranges: significantly below target (0%); below target (50% - 85%); on target (90% - 110%); above target (115% - 125%) and significantly above target (130% - 150%).

 

Following the Committee’s evaluation in July 2018 of each NEO’s performance in fiscal 2018 with respect to these individual SBOs, the Committee determined the applicable SBO Performance Factor for each NEO as described in the following table.

 

Name SBOs Committee’s Review and Determination
Bené

1)   Achieve planned earnings per share.

2)   Achieve planned cost per piece.

3)   Achieve planned growth in eCommerce sales.

Assigned an SBO Performance Factor of 97% of target based on the evaluation of Mr. Bené’s performance.
DeLaney

1)   Successfully transition responsibilities of CEO to successor.

Assigned an SBO Performance Factor of 100% of target pursuant to the Termination and Retirement Agreement with Mr. DeLaney.
Grade

1)   Achieve planned earnings per share.

2)   Achieve planned improvements in Days Sales Outstanding.

3)   Achieve planned cost per piece.

Assigned an SBO Performance Factor of 104% of target based on the evaluation of Mr. Grade’s performance.
Bertrand

1)   Achieve planned cost per piece for USBL operations.

2)   Achieve planned growth in eCommerce sales.

3)   Achieve planned customer service levels.

Assigned an SBO Performance Factor of 99% of target based on the evaluation of Mr. Bertrand’s performance.
Libby

1)   Achieve planned earnings per share.

2)   Achieve planned level of business development through acquisitions.

3)   Achieve planned development and execution with respect to corporate social responsibility strategy.

Assigned an SBO Performance Factor of 102% of target based on the evaluation of Mr. Libby’s performance.
Shurts

1)   Achieve planned earnings per share

2)   Achieve planned growth in eCommerce sales.

3)   Achieve planned business technology expense plan.

Assigned an SBO Performance Factor of 108% of target based on the evaluation of Mr. Shurts’ performance.

 

Fiscal 2019

 

In the first quarter of fiscal 2019, the Committee established the financial performance targets for fiscal 2019 under the 2019 MIP. For a discussion of each of these financial targets for purposes of calculating each Current NEO’s annual incentive opportunity, see “ – Annual Incentive Award – Detailed Information – Annual Incentive Award Potential for Fiscal 2019” above. The Committee continues to believe that the threshold and target levels of performance represent challenging, but reasonably obtainable, Sysco performance levels, while levels in excess of the target level represent superior and extremely challenging performance. Semler Brossy reviewed the 2019 MIP relative to Sysco’s business strategy and market practices and has indicated that the MIP continues to reflect sound design practices.

 

Due to changes to Section 162(m) of the Code, the Committee did not establish an annual incentive pool limit for fiscal 2019, as it has in previous years for the CEO, CFO and certain “covered employees” of Sysco, as defined in Section 162(m). The pool previously was intended to help ensure compliance with the deductibility requirements of the then-applicable Section 162(m) of the Code. The umbrella structure of the previous incentive pool limit only to impose a ceiling on the annual incentive amount that any NEO could receive, and the actual incentive amount paid to each NEO was always determined pursuant to the applicable MIP, which continues to be true for the 2019 MIP. The maximum annual incentive payout that can be received under the 2019 MIP is described above under “Annual Incentive Award Potential for Fiscal 2019.”

 

Long-term Incentives – Detailed Information

 

Fiscal 2018

 

The Committee granted annual long-term incentives in August 2017 for fiscal 2018 (the “Fiscal 2018 LTI Grant”). These long-term incentives were designed to provide our NEOs competitive, longer-term incentive opportunities that are consistent with our peer group and reflect our overall compensation philosophy of aligning pay with performance and the interests of stockholders. The Fiscal 2018 LTI Grant consisted of stock options and PSUs. The targeted aggregate dollar value of the Fiscal 2018 LTI Grant was set by the Committee at 6.5x base salary for Mr. DeLaney, 4.75x base salary for Mr. Bené, 3.5x base salary for Mr. Grade, 3.25x base salary for Mr. Shurts, 3x base salary for Mr. Libby and 2.25x base salary for Mr. Bertrand. The total target value of these long-term incentives for each NEO was allocated among the awards by the Committee as follows: approximately 40% of the target value in stock options and approximately 60% of the target value in PSUs. The options were valued at $7.32 per option using the Black-Scholes pricing model (as of July 14, 2017) and each PSU was valued, using the target number of shares, at $51.35 per share (i.e., the ten trading day average closing price of Sysco common stock immediately preceding the grant date).

 

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The Committee approved the Fiscal 2018 LTI Grant to each of the NEOs in August 2017 under our stockholder approved 2013 Long-Term Incentive Plan. The 2013 Long-Term Incentive Plan requires stock options to be priced at the closing price of our common stock on the business day prior to the grant date, and the stock options are subject to ratable vesting over a three-year period. The maximum term of the stock options under the Fiscal 2018 LTI Grant is ten years. The PSU component of the Fiscal 2018 LTI Grant provides for cliff vesting at the conclusion of the three-year performance period if threshold performance levels are achieved. The Committee grants all stock options and PSUs pursuant to approved equity grant guidelines. These guidelines are more fully described under “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End.”

 

The PSUs issued in connection with the Fiscal 2018 LTI Grant provide the opportunity for participants to receive shares of common stock based on pre-established financial performance targets over a performance period of three fiscal years. The performance criteria for the fiscal 2018 PSUs are based on (i) the Company’s earnings per share compound annual growth rate (“EPS CAGR”) as compared to projected, target EPS CAGR for the performance period, representing 66.7% of the total incentive opportunity under the PSUs, and (ii) the Company’s three-year average adjusted return on invested capital (“ROIC”), as compared to projected, target ROIC for the performance period, representing 33.3% of the total incentive opportunity under the PSUs. Each of EPS CAGR and three-year average ROIC performance measures is assessed independently of the other, such that one portion of the award could be earned even if the threshold level of performance is not achieved for the other measure.

 

While performance targets for the PSUs are established at commencement for the entire performance period, the Committee retains the authority to adjust the calculation for certain extraordinary items. For fiscal 2018, the Company’s ROIC and EPS calculations were negatively adjusted to exclude the impact of Certain Items (defined above under “Business Highlights”) and the impact of lower federal income tax rate for the second half of fiscal 2018 resulting from U.S. tax reform. In so doing, the Committee was guided by the principle that management should not be advantaged in evaluation of their performance as a result of the change in the Company’s effective tax rate and strategic actions implemented or accelerated due to the revised tax rate.

 

Each PSU granted to participants represents the right to receive one share of common stock, but the ultimate number of shares of common stock to be earned with respect to a participant’s PSUs will be determined at the end of the three-year performance period and could range from 0% to 200% of the target number of PSUs issued to the participant, based on the Company’s EPS CAGR and ROIC performance relative to the pre-established targets. If applicable, dividend equivalents accrue during the performance period and are paid either in shares or in cash, in the discretion of the Committee, based on the number of PSUs earned following certification of the Company’s performance.

 

In July 2017, the Committee determined that, in addition to the Fiscal 2018 LTI Grant, Mr. Bené would receive a one-time, promotional long-term incentive award valued at $1.1 million and consisting of restricted stock units that vest in three equal, annual installments. This RSU grant was awarded in February 2018, following Mr. Bené’s appointment as President and Chief Executive Officer. This additional award was authorized to account for the fact the earlier Fiscal 2018 LTI Grant to Mr. Bené did not reflect his additional responsibilities upon becoming Chief Executive Officer.

 

In making this promotional grant, the Committee considered a pro-rata award for the portion of fiscal 2018 during which Mr. Bené would serve as both President and Chief Executive Officer. In selecting RSUs as the form of the promotional award, the Committee reiterated its belief that senior officers beneficially should own shares of common stock of the Company in order to align their individual interests with those of stockholders. As detailed in the Company’s share ownership requirements, upon Mr. Bené’s promotion to President and Chief Executive Officer, his required level of share ownership rose from a multiple of 4X to a multiple of 7X base salary. The form of award was also selected to further align Mr. Bené’s holdings with the heightened ownership requirements within the designated transition period.

 

For Mr. DeLaney, in recognition of his leadership and for purposes of retention during an orderly transition to Mr. Bené as the new Chief Executive Officer, the Committee in July 2017 approved the terms of his Transition and Retirement Agreement, discussed below under “Executive Compensation – CEO Succession Compensation Arrangements – Transition and Retirement Agreement with Mr. DeLaney.”

 

Fiscal 2019

 

The Committee granted long-term incentives in August 2018 for fiscal 2019 (the “Fiscal 2019 LTI Grant”). These long-term incentives were designed to provide our Current NEOs with competitive, longer-term incentive opportunities that are consistent with our revised peer group and again reflect our overall compensation philosophy of aligning pay with performance and the interests of stockholders. As in the prior year, the Fiscal 2019 LTI Grant consisted of stock options and PSUs. The targeted aggregate dollar value of the Fiscal 2019 LTI Grant was set by the Committee at 6.25x base salary for Mr. Bené, 3.5x base salary for Mr. Grade, 3.25x base salary for Mr. Shurts and 3x base salary for Messrs. Libby and Bertrand. Mr. DeLaney was not entitled to receive a Fiscal 2019 LTI Grant. The total target value of these long-term incentives for each Current NEO was allocated among the awards by the Committee as follows: approximately 40% of the target value in stock options and approximately 60% of the target value in PSUs. The options were valued at $10.69 per option using the Black-Scholes pricing model (as of July 13, 2018) and each PSU was valued, using the target number of shares, at $73.37 per share (i.e., the ten trading day average closing price of Sysco common stock prior to the grant date).

 

Long-term Incentives – Analysis

 

The Committee determined that providing a mix of stock options and PSUs for the Fiscal 2018 LTI Grant was an appropriate continuation of the Company’s incentive programs and competitive market practices. PSUs, which are contingent on the successful completion of both performance-based and time-based requirements before any payout occurs, further strengthen the link between individual pay opportunities and Company performance and further enhance the Company’s efforts to retain key executives. The performance targets selected by the Committee for the PSUs also incentivize participants to align their efforts with the Company’s initial three-year strategic plan. The Committee continued to target long-term incentive opportunities near the median of targeted grant value of long-term incentives awarded by companies in our 2018 peer group.

 

The Committee believes that the long-term equity mix, including stock options and PSUs, helps to ensure that long-term strategic initiatives are not compromised by having executives focus solely on short-term

 

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results through the annual incentive award. Such awards also help focus executives on strategies that increase long-term stockholder value. The Committee determined that continuing the same mix of stock options and PSUs, including the structure and relative weighting of the underlying performance metrics, for the Fiscal 2019 LTI Grant was appropriate. Existing executive equity ownership levels are not generally a factor in the Committee’s granting of stock options and PSUs.

 

Retirement/Career Benefits

 

Retirement Plans – Current Programs – Management Savings Plan

 

Since January 1, 2013, Sysco has offered a non-qualified, defined contribution savings plan, the Management Savings Plan (the “MSP”), to certain senior leaders, including the NEOs. The MSP allows individual deferrals and employer contributions in excess of IRS 401(k) contribution and compensation limits. Currently, individual contributions to the 401(k) plan are limited by law to $18,500 per year, plus an additional $6,000 in “catch-up” contributions if the participant is at least 50 years of age. The MSP allows eligible participants to defer up to 50% of their base salary and up to 90% of their eligible bonus.

 

In addition, in conjunction with the freeze of accruals in the Supplemental Executive Retirement Plan (the “SERP”) in 2013, certain participants (who would otherwise have incurred a sizable loss of future benefits under the SERP) are eligible for transition contributions. The participants in the MSP direct the investment for both their individual contributions and the Company contributions. The MSP is described in further detail below under “Executive Compensation — Fiscal 2018 Nonqualified Deferred Compensation – About the MSP.”

 

MSP Analysis

 

The Committee believes that the MSP incentivizes and assists in the retention of key employees by providing them with a supplemental retirement savings vehicle. The MSP is an important, and cost effective, recruitment and retention tool for Sysco, as the companies with which we compete for executive talent typically provide a similar plan to their senior employees.

 

Retirement Plans – Transition from Legacy Programs

 

Since 2013, Sysco has moved from a defined benefit towards a defined contribution strategy for future retirement benefit accruals. A defined contribution-based program further aligns Sysco with our peer group, increases flexibility, simplifies the benefit structure, retains key talent and both reduces and stabilizes costs. Since that time, wealth accumulation opportunities for NEOs at Sysco have been further focused on variable annual and long-term incentive plans.

 

The retirement program changes, however, were expected to result in significant reductions in anticipated benefits for existing participants in the pension plan, the SERP and the Executive Deferred Compensation Plan, or “EDCP.” In order to help ensure retention of key leaders during the transition from the defined benefit towards a defined contribution strategy, Sysco amended the 401(k) and MSP to partially mitigate the reductions in pension plan benefits by providing that, for a period of ten plan years commencing January 1, 2013, or until an eligible participant ceases employment with Sysco, whichever is earlier, Sysco will credit an automatic employer contribution of three percent (3%) of the participant’s gross base salary and bonus into the participant’s 401(k) account to the extent permitted under applicable IRS limitations, with the remainder credited to the MSP account of eligible participants (the “Pension Transition Contribution”). Mr. DeLaney is the only NEO eligible to receive the Pension Transition Contribution.

 

With respect to reductions in the expected value of benefits under the SERP and the EDCP, the cessation of future benefit accruals affected each individual in a different manner. To address concerns over retention, the Committee developed a transition program intended to help ensure that no impacted participant experiences an aggregate reduction of more than 15% - 20% (depending on an individual’s prior years of service) in his or her expected retirement benefits under the Company’s non-qualified plans as a result of the retirement strategy changes. While Messrs. Bené, Grade and Shurts were not eligible for the SERP or the EDCP, Mr. DeLaney (31%), and Mr. Bertrand (35%) and Mr. Libby (49%) each had a projected reduction in their respective non-qualified benefits in excess of the targeted range.

 

To mitigate the loss in projected non-qualified retirement benefits, impacted individuals were eligible for transitional compensation opportunities, including supplemental contributions to the MSP, for a period of ten plan years commencing January 1, 2013, or until an eligible employee ceases employment with Sysco, whichever is earlier. Of the NEOs, Messrs. Bertrand and Libby were eligible for a supplemental MSP contribution, made in the third quarter of fiscal 2018.

 

Legacy Program – Supplemental Executive Retirement Plan

 

We historically provided annual retirement benefits to all corporate employees and most of our non-union operating company employees under the tax-qualified Sysco Corporation Retirement Plan, a defined benefit program that we refer to as the “pension plan.” Since January 1, 2013, most employees no longer accrue additional retirement benefits under the pension plan. However, when the pension plan was the primary retirement vehicle, the Company also maintained a Supplemental Executive Retirement Plan, or SERP, in order to retain and drive continued performance from certain employees. The Committee utilized the SERP to increase the retirement benefits available to officers whose benefits under the pension plan were limited by law. Of the Current NEOs, Messrs. Bertrand and Libby participate in the SERP.

 

The SERP was frozen and future accruals under the SERP ceased, effective June 29, 2013. Those SERP participants who retire and are not eligible for immediate commencement of their SERP benefit are

 

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deemed 100% vested, with benefits payable upon reaching age 65. The earliest an executive can retire and receive any benefits under the SERP is age 55 with a minimum of 15 years of MIP service or age 60 with at least 10 years of MIP service and 20 years of Sysco service. Payments before the age of 65 are adjusted by an early retirement reduction factor. A participating NEO will receive a SERP benefit based on the greater of the accrued benefit determined as of June 29, 2013, the date of the SERP accrual freeze, under the current provisions of the SERP, or the accrued benefit determined as of June 28, 2008 under the prior provisions of the SERP, but with eligibility for immediate benefit payments and related early retirement reduction factors determined as of the relevant separation from service date. The terms of the SERP are more specifically described under “Executive Compensation — Pension Benefits — Supplemental Executive Retirement Plan.” The amounts accrued by each participating NEO under the pension plan and the SERP as of July 1, 2018 are set forth under “Executive Compensation — Pension Benefits.” Mr. DeLaney will be entitled to receive benefits under the SERP upon his retirement scheduled for the end of calendar 2018, as discussed in further detail below under “Executive Compensation – Pension Benefits.”

 

SERP Analysis

 

The Committee previously amended the SERP to freeze benefits, stop future accruals and to provide for immediate vesting of accrued benefits in order to achieve the following goals:

 

Bring the value of retirement benefits more in line with the practices of our peer group; and
Increase the proportion of long-term and performance-based compensation in the compensation mix, relative to fixed and retirement compensation such as the SERP and MSP.

 

Legacy Program – Executive Deferred Compensation Plan

 

Prior to December 31, 2012, Sysco offered an Executive Deferred Compensation Plan, or EDCP, to provide MIP participants, including Messrs. DeLaney, Libby and Bertrand, the opportunity to save for retirement and accumulate wealth in a tax-efficient manner beyond savings opportunities under Sysco’s 401(k) retirement savings plan. Participants were able to defer up to 100% of their base salary and up to 40% of their MIP bonus, or any bonus paid in lieu of or as a replacement for the MIP bonus, to the EDCP. Sysco did not match any base salary deferrals into the EDCP in fiscal 2018, as deferrals are no longer permitted. An executive is always 100% vested in his or her past deferrals and Sysco matches, but any portion of an executive’s account attributable to Sysco matches, including associated deemed investment return, and the net investment gain, if any, credited on his or her deferrals, is subject to forfeiture for specified cause or competing against Sysco in certain instances. Participants who have deferred compensation under the EDCP may choose from a variety of investment options. The EDCP is described in further detail under “Executive Compensation — Fiscal 2018 Nonqualified Deferred Compensation – About the EDCP.”

 

EDCP Analysis

 

For many years, the EDCP served as a recruitment and retention tool for Sysco. In connection with the broader transition in retirement philosophy, beginning in fiscal 2013, a new deferred compensation plan, the MSP, has been utilized to fulfill this objective.

 

Executive Perquisites & Other Benefits – Detailed Information

 

We provide benefits for executives that we believe are reasonable, particularly since the cost of these benefits constitutes a very small percentage of each NEO’s total compensation. Certain of these benefits are described below.

 

Sysco’s NEOs are generally eligible to participate in Sysco’s regular employee benefit programs, which include a 401(k) plan, an employee stock purchase plan, group life insurance and other group welfare benefit plans, and until the changes were made to retirement benefits in fiscal 2013, the defined benefit pension plan. We also provide MIP participants, including the NEOs, with additional life insurance and accidental death and dismemberment insurance benefits, long-term disability coverage, including disability income coverage, and long-term care insurance, as well as reimbursement for an annual comprehensive wellness examination by a physician of their choice. We believe many of these benefits are required to remain competitive with our competitors for executive talent. Although the executive officers are eligible to participate in Sysco’s group medical and dental coverage, we adjust employees’ contributions towards the monthly cost of the medical plan according to salary level; therefore, executives pay a higher employee contribution to participate in these welfare plans than do non-executives.

 

Furthermore, Sysco owns fractional interests in private aircraft that are made available to members of the Board of Directors, executives and other members of management for business use, but these aircraft are not allowed to be used for personal matters.

 

All employees, including our NEOs, as well as members of our Board, are also entitled to receive discounts on all products carried by Sysco and its subsidiaries.

 

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Executive Compensation Governance and Other Information

 

Severance and Employment Agreements

 

None of Sysco’s current executive officers, other than Mr. DeLaney, is party to any severance or employment agreements providing for guaranteed severance or other compensation upon termination. See “Executive Compensation – CEO Succession Compensation Arrangements” below for a discussion of the terms of the Transition and Retirement Agreement with Mr. DeLaney. Consistent with our approach of rewarding performance, employment is not guaranteed, and either the Company or the NEO may terminate the employment relationship at any time. In some cases, the Committee or the Board may agree to provide separation payments to departing executives upon their termination to obtain an additional non-compete, non-solicitation and non-disclosure agreement and a release of claims.

 

Relocation Expenses

 

To address the Committee’s desire for Sysco to comply with best corporate governance and compensation practices, in October 2010, the Committee adopted an executive relocation expense reimbursement policy that applies to all of the NEOs. The reimbursement policy provides that Sysco will not reimburse any of such executives for any loss on the sale of the executive’s house sold in connection with the executive’s relocation. The reimbursement policy also provides that only certain pre-approved relocation expenses will be eligible for increased payments to cover all applicable taxes on the reimbursed amounts, such as state and federal income taxes, FICA, and Medicare taxes. In addition, the reimbursement policy provides that relocation agreements with any named executive officer include a recoupment provision that requires the executive to reimburse Sysco for all or a part of the reimbursement if his employment is terminated for any reason other than death, disability or change of control of Sysco, or termination without cause or for good reason, within a specified amount of time after receiving the reimbursement.

 

Benefits Following Change in Control

 

We currently have no separate severance or similar agreements that would cause an immediate or “single trigger” cash payment obligation solely as a result of a change in control of Sysco. We have included change of control provisions in several of Sysco’s benefit plans and agreements, including a prorated pay out of an MIP annual incentive payment through the date of change of control, and 100% vesting of options, PSUs (assuming target achievement) and RSUs upon a change in control. See “Executive Compensation —Quantification of Termination/Change in Control Payments” for a detailed explanation of potential benefits under the various provisions.

 

For equity-based awards issued from and after November 2013, the Board has established “double-trigger” accelerated vesting under certain change of control scenarios. Under this “double trigger,” the vesting of these equity-based awards is only accelerated upon a change in control if, during the period commencing 12 months prior to the change in control and ending 24 months after such change in control, the participant’s employment is terminated without “cause” (as defined in the applicable award agreement) or the participant terminates his or her employment for “good reason” (as defined in the applicable award agreement).

 

The Committee continues to believe that these provisions will preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of Sysco. The Committee has balanced the impact of these acceleration provisions with corresponding provisions in the MSP, the SERP and/or the EDCP that provide for a reduction in benefits to the extent they are not deductible under Section 280G of the Internal Revenue Code.

 

Executive Compensation Clawback and Protective Covenants

 

In the event of a restatement of our financial results, other than a restatement due to a change in accounting policy, it is the Committee’s policy that it will review all incentive payments made to MIP participants, including the NEOs, within the 36-month period prior to the restatement on the basis of having met or exceeded specific performance targets. If such incentive payments would have been lower had they been calculated based on the restated results, the Committee will, to the extent permitted by applicable law, seek to recoup any such excess payments for the benefit of Sysco. The MIP annual incentive awards and CPU and PSU grants made by the Committee since fiscal 2011 contain a contractual provision binding the grantee to this recovery right, and the Committee anticipates that future grants will contain similar provisions. The Committee has the sole discretion, subject to applicable law, to determine the form and timing of the clawback, which may include repayment from the MIP participant or an adjustment to the payment of a future incentive. In addition, the executives’ benefits under the SERP, EDCP and MSP may be subject to forfeiture or adjustment as a result of any such restatement of financial results. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities.

 

In addition, pursuant to the award agreements governing certain equity-based awards, in order to be eligible to receive an equity-based award, each participant is required to have entered into an agreement (the “Protective Covenants Agreement”) protecting the Company’s interests and confidential information by restricting certain recipient behavior during, and following termination of, employment. The Protective Covenants Agreement includes, among other things, restrictions on unfair post-employment competitive activities, improper solicitation of Company employees and customers, and the misuse of confidential information. In the event that a participant violates any of the restrictive covenants in the Protective Covenants Agreement, the participant forfeits the benefits

 

SYSCO CORPORATION - 2018 Proxy Statement    57

 
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and proceeds of the related equity awards. The forfeiture of benefits and proceeds has been required with regard to all awards of PSUs and RSUs since November 2013 and awards of stock options since August 2016. In addition to the Protective Covenants Agreements, the terms of the MSP, SERP and EDCP also provide for the forfeiture of certain payments in the event of prohibited conduct following termination of employment with the Company.

 

Tax Impact on Compensation

 

Income Deduction Limitations

 

Section 162(m) of the Internal Revenue Code generally sets a limit of $1 million on the amount of compensation that Sysco may deduct for federal income tax purposes in any given year with respect to the compensation of each of the NEOs. Historically, compensation that qualified as “performance-based compensation” under Section 162(m) of the Code could be excluded from this $1 million limit. This exception was repealed with the Tax Cuts and Jobs Act of 2017 (the “TCJA”), effective for taxable years beginning after 2017, unless certain transition relief is available. The Committee’s general intent prior to implementation of the TCJA was to structure our executive compensation programs so that payments could qualify as “performance-based compensation.” However, the Committee may have decided from time to time to grant compensation that would not (or could not) be able to qualify as “performance-based compensation” if appropriate to achieve the objectives of the compensation program.

 

With the repeal of the “performance-based compensation” provisions of Section 162(m) of the Code, compensation granted by the Committee may, more frequently, be non-deductible. The Committee believes that the tax deduction limitation should not be permitted to compromise its ability to design and maintain executive compensation arrangements that will attract and retain the executive talent to compete successfully. Accordingly, achieving the desired flexibility in the design and delivery of compensation may result in compensation that, in certain cases, is not deductible for federal income tax purposes, and it is possible that awards intended to qualify as “performance-based compensation” under the transition relief may not so qualify. Moreover, even if the Committee had intended to grant compensation that qualified as “qualified performance-based compensation” for purposes of Section 162(m) of the Code, the Company cannot guarantee that such compensation ultimately will be deductible.

 

Based on the factors discussed under “What We Paid and Why” above, in fiscal 2018 Sysco paid, and in fiscal 2019 the Committee expects Sysco to pay, certain NEOs a base salary and annual incentive award that, when aggregated with anticipated vesting of RSUs and PSUs, exceeds $1 million in value. The Committee believes that this compensation is necessary in order to maintain the competitiveness of the total compensation package and, as a result, has determined that it is appropriate, even though certain amounts of fiscal 2018 compensation will not be deductible, and the excess of anticipated salary and annual incentive payouts, plus the value of RSUs and PSUs vesting in fiscal 2019 over $1 million, respectively, will not be deductible for federal income tax purposes.

 

Section 409A of the Internal Revenue Code

 

Section 409A of the Internal Revenue Code deals specifically with non-qualified deferred compensation plans. Although the Company makes no guarantees with respect to exemption from, or compliance with, Section 409A of the Internal Revenue Code, we have designed all of our executive benefit plans with the intention that they are exempt from, or otherwise comply with, the requirements of Section 409A of the Internal Revenue Code.

 

REPORT OF THE COMPENSATION COMMITTEE

 

The Compensation Committee of the Board of Directors of Sysco Corporation has reviewed and discussed the foregoing Compensation Discussion and Analysis as required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K and this Proxy Statement.

 

COMPENSATION COMMITTEE

John M. Cassaday, Chairman

Daniel J. Brutto

Joshua D. Frank

Larry C. Glasscock

Bradley M. Halverson

Jackie M. Ward

 

SYSCO CORPORATION - 2018 Proxy Statement    58

 
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EXECUTIVE COMPENSATION

 

The following discussion, as well as the Compensation Discussion and Analysis contained herein, contains references to target performance levels for our incentive compensation. These targets and goals are discussed in the limited context of Sysco’s compensation programs and should not be interpreted as management’s expectations or estimates of results or other guidance. We specifically caution stockholders not to apply these statements to other contexts.

 

Summary Compensation Table

 

The following table sets forth information with respect to each of the NEOs – each person who served as our Chief Executive Officer during fiscal 2018, our Chief Financial Officer and the three most highly compensated of the other executive officers of Sysco and its subsidiaries employed at the end of fiscal 2018. In determining the most highly compensated executive officers, we excluded the amounts shown under “Change in Pension Value and Nonqualified Deferred Compensation Earnings.”

 

Name and
Principal Position
  Fiscal
Year
  Salary
($)(1
)   Bonus
($)(2
)   Stock
Awards
($)(3
)   Option
Awards
($)(4
)   Non-Equity
Incentive Plan
Compensation
($)(5
)   Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)(6
)   All Other
Compensation ($)(7
)   Total
($
Thomas L. Bené  2018  $1,000,000   $   $3,658,623   $1,649,258   $2,362,088   $4,238   $100,370   $8,774,577 
President and Chief Executive Officer  2017   800,000        1,802,252    1,208,000    1,895,332    4,473    114,341    5,824,398 
2016   770,833    281,250    737,725    1,263,858    2,256,626    3,331    98,794    5,412,417 
William J. DeLaney(8)  2018   1,250,000        4,862,929    3,134,562    5,640,000    64,941    263,216    15,215,648 
Former Chief Executive Officer  2017   1,250,000        4,881,193    3,271,663    5,321,094    56,770    319,560    15,100,280 
2016   1,245,833        2,031,327    3,379,548    6,021,090    1,097,895    304,113    14,079,806 
Joel T. Grade  2018   675,000        1,413,979    911,432    1,665,450    1,311    102,347    4,769,519 
Executive Vice President and Chief Financial Officer  2017   625,000        1,314,169    880,831    1,087,500    761    270,797    4,179,058 
2016   605,833    60,000    546,869    909,876    1,335,625    23,364    633,628    4,115,195 
Greg D. Bertrand(9)  2018   650,000        875,299    564,221    1,177,100    22,051    101,143    3,389,814 
Executive Vice President, U.S. Foodservice Operations                                           
Russell T. Libby  2018   612,000        1,098,874    708,309    1,414,548    3,047    181,964    4,081,742 
Executive Vice President, Administration and Corporate Secretary  2017   600,000        1,081,372    724,800    1,293,534    2,072    206,528    3,908,306 
2016   590,125    315,000    450,021    748,698    1,192,867    70,680    194,411    3,561,802 
                                         
Wayne R. Shurts  2018   637,500        1,240,036    799,312    1,561,800    1,610    69,155    4,309,413 
Executive Vice President and Chief Technology Officer  2017   625,000        1,220,285    817,913    1,474,055    1,279    79,500    4,218,032 
2016   621,602    264,150    507,821    844,884    1,736,673    7,165    76,057    4,058,352 
                                         

 

(1) The salary amounts reflect the actual base salary payments earned by the NEOs in the applicable fiscal year.
(2) In July 2015, the following NEOs received one-time, incentive and retention awards to, among other things, incentivize and retain these officers as they transitioned their focus from merger integration planning to pursuing other operational and strategic initiatives: Mr. Grade ($60,000), Mr. Bené ($281,250), Mr. Libby ($315,000) and Mr. Shurts ($264,150).
(3) These amounts relate to grants of restricted stock units (“RSUs”) made in fiscal 2016 and grants of performance share units (“PSUs”) made in fiscal 2017 and 2018, as applicable. With respect to fiscal 2018, we valued PSUs granted on August 25, 2017 at $51.22 per PSU, being the closing price of our common stock on the last business day before the grant date, and assuming the target number of shares would be earned at the end of the three-year performance period. Grants of PSUs are reflected at target since actual shares to be received, if any, will be determined after the three-year performance period ending on June 27, 2020. With respect to fiscal 2017, we valued PSUs granted on August 25, 2016 at $52.42 per share, being the closing price of our common stock on the last business day before the grant date, and assuming the target number of shares would be earned at the end of the three-year performance period. Grants of PSUs are reflected at target since actual shares to be received, if any, will be determined after the three-year performance period ending on June 29, 2019. See footnote (2) to “Grants of Plan-Based Awards” below regarding assumptions underlying our valuation of these PSUs. With respect to fiscal 2016, we valued the RSUs granted on November 17, 2015 at $40.59 per share, being the closing price of our common stock on the last business day before the grant date. The 2016 amount for Mr. Bené also includes the value of RSUs he received on February 18, 2016, in connection with his promotion to President and Chief Operating Officer. These additional RSUs for Mr. Bené were valued at $44.38 per share, being the closing price of our common stock on the last business day before the grant date. The 2018 amount for Mr. Bené also includes the value of RSUs he received on February 22, 2018, in connection with his promotion to President and Chief Executive Officer. These additional RSUs for Mr. Bené were valued at $58.55 per share, being the closing price of our common stock on the last business day before the grant date.
(4) The amounts in this column reflects the grant date fair value of the awards. See Note 17 of the consolidated financial statements in Sysco’s Annual Report on Form 10-K for the year ended June 30, 2018, Note 18 of the consolidated financial statements in Sysco’s Annual Report on Form 10-K for the year ended July 1, 2017, and Note 19 of the consolidated financial statements in Sysco’s Annual Report on Form 10-K for the year ended July 2, 2016, regarding assumptions underlying our valuation of these equity awards. The 2016 amount for Mr. Bené also includes the value of options he received on February 18, 2016, in connection with his promotion to President and Chief Operating Officer. These additional options for Mr. Bené were valued at $6.12 per option, using a Black-Scholes pricing model, assuming a volatility of 20.4%, a 1.5% risk-free rate of return, a dividend yield at the date of grant of 3.1% and a 7.2-year expected option life. We did not assume any option exercises or risk of forfeiture during the expected option life in determining the valuation of the option awards. Had we done so, such assumptions could have reduced the reported grant date value. The actual value, if any, an executive may realize upon exercise of options will depend on the excess of the stock price over the exercise price on the date the option is exercised. Consequently, there is no assurance that the value realized, if any, will be at or near the value estimated by the Black-Scholes model.

 

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(5) These amounts include the annual incentive awards paid in August 2018 with respect to fiscal 2018, August 2017 with respect to fiscal 2017 and August 2016 with respect to fiscal 2016. The amounts shown also include the following payments made in, as applicable, August of 2018, 2017 and 2016 for the three-year performance periods ending in fiscal 2018, 2017 and 2016, respectively, with respect to the cash performance unit grants previously made under our 2008 Cash Performance Unit Plan and our Fiscal Year 2016 Cash Performance Unit Program, as discussed below under “Long-Term Incentive Awards:”
  Mr. Bené ($1,228,500); ($915,332) and ($995,313);
  Mr. DeLaney ($4,095,000); ($3,483,594) and ($3,523,590);
  Mr. Grade ($1,102,500); ($478,125) and ($498,750);
  Mr. Bertrand ($648,000);
  Mr. Libby ($907,200); ($709,734) and ($396,667); and
  Mr. Shurts ($1,023,750); ($859,680) and ($934,798).
(6) The amounts reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column reflect above-market interest on amounts in the Executive Deferred Compensation Plan, or “EDCP,” and the MSP, and the actuarial change in the present value of the NEOs’ benefits under all pension plans established and maintained by Sysco, determined using interest rate and mortality rate assumptions consistent with those used in Sysco’s financial statements. The pension plan amounts, some of which may not be currently vested, include:
  changes in pension plan value; and
  changes in Supplemental Executive Retirement Plan, or “SERP,” value.

Active service-based accruals under the pension plan and the SERP ceased when each of those programs was frozen. Therefore, any subsequent changes in the actuarial present value of an NEO’s accumulated benefit under the pension plan and/or the SERP would likely be attributable, primarily, to variations in the discount rate or modifications to the actuarial assumptions. To the extent that any such aggregate change in the actuarial present value of an NEO’s accumulated benefit under the pension plan and/or the SERP was a decrease, this decrease is not reflected in the amounts shown in the “All Other Compensation” column above or the “Total” column in the table below.

The following table shows, for each NEO, the change in the actuarial present value for each of the pension plan and the SERP, as well as the above-market interest on amounts in the EDCP and MSP for fiscal 2018:

 

Name  Change in
Pension Plan
Value
   Change in SERP
Value
   Above-Market
Interest on Deferred
 Compensation
   Total 
Bené  $ N/A   $ N/A   $4,238   $4,238 
DeLaney   21,810    (558,090)   43,131    64,941 
Grade   1,311    N/A        1,311 
Bertrand   9,527    (28,323)   12,524    22,051 
Libby   3,047    (4,907)       3,047 
Shurts   1,015    N/A    595    1,610 

 

(7) Fiscal 2018 amounts reported in the “All Other Compensation” column include the following:

 

  a. the full amount paid for life insurance coverage for each individual (the excess coverage over the amounts paid for other employees is not determinable since the deductibles and coverages may be different);
  b. the following amounts of 401(k) Plan and Management Savings Plan Company contributions with respect to the 2018 fiscal year:

 

   401(k) Employer   MSP Employer 
Name  Contribution   Contribution 
Bené  $14,850   $84,742 
DeLaney   22,950    239,488 
Grade   14,850    53,887 
Bertrand   14,850    85,515 
Libby   14,850    166,336 
Shurts   14,850    53,527 

 

  c. the following perquisites and personal benefits for Mr. Grade (the aggregate value of all perquisites and personal benefits received by each of the NEOs, other than Mr. Grade, in fiscal 2018 was less than $10,000 and was excluded from the table above):
    the amounts paid for accidental death and dismemberment insurance coverage;
    the amounts paid for long-term care insurance;
    the amounts reimbursed for an annual medical exam;
    the amounts paid for long-term disability coverage under the Company’s welfare benefit plan;
    the amount paid by the Company to provide certain short-term physical and personal security services for Mr. Grade, including on-site residential security at his primary residence;
    the amount of foreign tax payments made by the Company during fiscal 2018 on Mr. Grade’s behalf to the Canadian tax authority pursuant to our tax equalization policy, which is designed to neutralize the tax impact of our employees of their working, and being subject to income taxes, in more than one country; these tax payments are partially offset by subsequent tax credits and/or refunds remitted to the Company; and
    the amount of fees paid by Sysco related to the preparation of foreign tax returns required to be filed by Mr. Grade for attendance at meetings or other travel related to Sysco business in foreign jurisdictions.

 

No NEO received any single perquisite or personal benefit with respect to fiscal 2018 with a value greater than $25,000, and no NEO received any other item of compensation with respect to fiscal 2018 required to be disclosed in this column with a value of $10,000 or more.

 

(8) Mr. DeLaney, our former Chief Executive Officer, transitioned out of this role with the Company effective December 31, 2017. For discussion of the terms of Mr. DeLaney’s fiscal 2018 compensation in connection with the CEO succession, see “Executive Compensation – CEO Succession Compensation Arrangements – Transition and Retirement Agreement with Mr. DeLaney.”
(9) Mr. Bertrand was not an NEO for fiscal 2016 or 2017; as a result, only his fiscal 2018 compensation information is included.

 

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Grants of Plan-Based Awards

 

The following table provides information on annual incentive award opportunities, PSUs, RSUs and stock options under our 2013 Long-Term Incentive Plan granted to the NEOs during fiscal 2018.

 

          Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(1)
  Estimated Future Payouts Under
Equity Incentive Plan Awards(2)
  All Other
Stock
Awards:
  All Other
Option
Awards:
  Exercise  Closing  Grant Date
Name  Grant
Date
  Number
of Shares,
Units or
Other
Rights
  Threshold
($)
  Target
($)
  Maximum
($)
  Threshold
(#)
  Target
(#)
  Maximum
(#)
  Number
of Shares
of Stock
or Units
(#)
  Number of
Securities
Underlying
Options
(#)(3)
 

or Base
Price of
Option

Awards
($/Sh)(4)

  Market
Price On
the Date
of Grant
($)
 

Fair Value
of Stock

and Option
Awards
($)(5)

Bené  8/25/17  49,954           11,655  49,954  99,908              $2,558,644
   8/25/17                          233,606  $51.22  $52.32  1,649,258
   8/25/17     $693,750  $1,387,500  $2,601,563                        
   2/22/18(6)                       18,787           1,099,979
DeLaney  8/25/17  94,942           22,153  94,942  189,884              4,862,929
   8/25/17                          443,989  51.22  52.32  3,134,562
   8/25/17     937,500  1,875,000  3,515,625                        
Grade  8/25/17  27,606           6,441  27,606  55,212              1,413,979
   8/25/17                          129,098  51.22  52.32  911,432
   8/25/17     337,500  675,000  1,265,625                        
Bertrand  8/25/17  17,089           3,987  17,089  34,178              875,299
   8/25/17                          79,918  51.22  52.32  564,221
   8/25/17     325,000  650,000  1,218,750                        
Libby  8/25/17  21,454           5,005  21,454  42,908              1,098,874
   8/25/17                          100,327  51.22  52.32  708,309
   8/25/17     306,000  612,000  1,147,500                        
Shurts  8/25/17  24,210           5,649  24,210  48,420              1,240,036
   8/25/17                          113,217  51.22  52.32  799,312
   8/25/17     318,750  637,500  1,195,313                        

(1) These amounts relate to annual incentive awards made in August 2017 pursuant to our Fiscal 2018 Management Incentive Program For Corporate MIP Bonus-Eligible Participants with respect to fiscal 2018. In approving the annual incentive awards for fiscal 2018, the Committee targeted each NEO’s annual incentive opportunity at the following percentages of the applicable base salary: a blended rate of 137.5% for Mr. Bené (representing 6 months at 125% and 6 months at 150%), 150% for Mr. DeLaney and 100% for each of Messrs. Bertrand, Grade, Libby and Shurts. For a discussion of how Mr. Bené’s annual incentive award was calculated, see footnote 1 to the “Calculation of Total FY2018 MIP Awards – NEOs (other than Mr. Bertrand)” table, set forth below under “Executive Compensation – Annual Incentive Awards – Fiscal 2018 MIP Annual Incentive Awards.”
(2) These amounts relate to PSUs with a three-year performance period that we granted in August 2017 under the Performance Share Unit Agreement For Performance Period FY2018 – FY2020 adopted pursuant to the Sysco 2013 Long-Term Incentive Plan. These amounts represent the number of shares of our common stock that would be paid out to each NEO, assuming threshold, target and maximum levels of Company financial performance during the performance period under the applicable performance criteria. See “Executive Compensation – Long Term Incentive Awards” below for further discussion of the terms of the PSUs, including the treatment of the PSUs following termination of the participant’s employment under various scenarios.
(3) These options, which were granted pursuant to the 2013 Long-Term Incentive Plan on August 25, 2017, have a term of 10 years, the maximum term under the plan, and vest in equal, annual installments over a period of three years beginning on the first anniversary of the grant date. If an executive experiences a qualifying retirement in good standing or leaves our employment because of disability, his options will remain in effect, vest and be exercisable in accordance with their terms as if he had remained employed. If an executive dies during the term of his option, all unvested options will vest immediately and may be exercised by his estate at any time until the earlier to occur of three years after his death, or the option’s termination date. In addition, an executive will forfeit all of his unexercised options if the Committee finds by a majority vote that, either before or after termination of his employment, he:
  committed fraud, embezzlement, theft, a felony, or proven dishonesty in the course of his employment and by any such act, damaged us or our subsidiaries;
  disclosed our trade secrets; or
  participated, engaged or had a financial or other interest in any commercial venture in the United States competitive with our business in violation of our Code of Conduct or that would have violated our Code of Conduct had he been an employee when he engaged in the prohibited activity.
(4) The exercise price for these options was set at the “Fair Market Value” on the date of the grant, which is defined as the closing sale price during regular trading hours of the stock on the immediately preceding date on the principal securities market in which shares of stock is then traded, or, if there were no trades on that date, the closing sale price during regular trading hours of the stock on the first trading day prior to that date. Pursuant to our 2013 Long-Term Incentive Plan, under which these options were granted, the exercise price of all options may not be less than the Fair Market Value.
(5) We determined the estimated grant date present value for the options issued on August 25, 2017 of $7.06 per option, using a Black-Scholes pricing model. With respect to the August 2017 grants, we assumed a volatility of 17.5%, a 2.0% risk-free rate of return, a dividend yield at the date of grant of 2.6% and a 7.0-year expected option life when applying the model. We did not assume any option exercises or risk of forfeiture during the expected option life in determining the valuation of the option awards. Had we done so, such assumptions could have reduced the reported grant date value. The actual value, if any, an executive may realize upon exercise of options will depend on the excess of the stock price over the exercise price on the date the option is exercised. Consequently, there is no assurance that the value realized, if any, will be at or near the value estimated by the Black-Scholes model. We determined the estimated grant date present value of the PSUs granted on August 25, 2017 to be $51.22 per PSU, being the closing price of our common stock on the last business day before the grant date, and assuming the target number of shares would be earned at the end of the three-year performance period. Grants of PSUs are reflected at target since actual shares to be received, if any, will be determined after the three-year performance period ending on June 27, 2020. We determined the estimated grant date present value of the RSUs granted to Mr. Bené on February 22, 2018 to be $58.55 per RSU, being the closing price of our common stock on the last business day before the grant date.
(6) Represents RSUs granted to Mr. Bené under the 2013 Long-Term Incentive Plan on February 22, 2018, in connection with his promotion to President and Chief Executive Officer. The RSUs vest one-third per year for three years beginning the first day of the month following the first anniversary of the grant date. Vesting of the RSUs granted to Mr. Bené is contingent upon his continued service with the Company, except that the RSUs will remain in effect and continue to vest according to the vesting schedule upon his termination of employment due to qualifying retirement in good standing or disability. Additionally, the RSUs will vest immediately upon his death or qualifying involuntary termination following a change in control of the Company. In addition, Mr. Bené will forfeit all of his unvested RSUs if the Committee finds, by a majority vote, that, either before or after termination of his employment, he:
  committed fraud, embezzlement, theft, a felony, or proven dishonesty in the course of his employment and by any such act, damaged us or our subsidiaries;
  disclosed our trade secrets; or
participated, engaged or had a financial or other interest in any commercial venture in the United States competitive with our business in violation of our Code of Conduct or that would have violated our Code of Conduct had he been an employee when he engaged in the prohibited activity.

 

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Annual Incentive Awards

 

2013 Long-Term Incentive Plan

 

Pursuant to the Sysco Corporation 2013 Long-Term Incentive Plan, the Compensation Committee is authorized to provide key executives, including the NEOs, with equity and cash awards, including the opportunity to earn incentive cash payments through the grant of annual, performance-based incentive awards. The Committee generally grants annual incentive awards in the first quarter of the fiscal year to which the awards relate, and we have historically paid amounts owed under such awards during the first fiscal quarter following the conclusion of the fiscal year corresponding to such awards.

 

Performance Factors. In connection with granting annual incentive awards, the Committee may determine the performance factors that must be met for the NEO to receive payment with respect to the award, as well as the relative weights of those performance factors. The performance factors established by the Committee may relate to, among other things, the Company’s achievement of certain financial, operational or transactional objectives, as well as the individual performance of the NEO.

 

Performance Factor Adjustments. The 2013 Long-Term Incentive Plan allows the Committee, in its sole discretion, after an award has been granted, to make equitable adjustments to the performance factors in recognition of unusual or non-recurring events affecting the Company or the financial statements of the Company, in response to changes in applicable laws or regulations, including changes in generally accepted accounting principles or practices, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business. Application of any such equitable adjustments to any performance factors with respect to “covered employees” under Section 162(m) of the Internal Revenue Code, which includes each of the NEOs, is limited to circumstances where the modification of performance factors will not impact the deductibility of the annual incentive compensation under Section 162(m) of the Internal Revenue Code.

 

Award Limits. Pursuant to the 2013 Long-Term Incentive Plan, no NEO could have received an aggregate annual incentive award under the 2018 MIP (defined below) in excess of 1% of the Company’s earnings before income taxes for fiscal 2018.

 

Fiscal 2018 MIP Annual Incentive Awards

 

In August 2017, the Compensation Committee approved the incentive award structure for fiscal 2018 pursuant to the Sysco Corporation Fiscal 2018 Management Incentive Program for MIP Bonus-Eligible Participants (the “2018 MIP”). Under the 2018 MIP, the annual incentive award opportunity for each of the NEO’s, other than Mr. Bertrand, was based on the following pre-determined metrics, weighted as indicated below:

 

The adjusted operating income performance of the Company, as compared to projected, target operating income for the year under the fiscal 2018 annual operating plan, representing 50% of the total annual incentive award opportunity;
   
The Company’s adjusted gross profit dollar growth and U.S. broadline and Canadian broadline (“USCABL”) total case growth, in each instance as compared to projected, target year-over-year growth for each metric under the fiscal 2018 annual operating plan, representing 25% of the total annual incentive award opportunity; and
   
Each NEO’s individual performance with respect to his strategic bonus objectives, or SBOs, representing 25% of the total annual incentive award opportunity.

 

The annual incentive award opportunity for Mr. Bertrand, as a foodservice operations leader, was based on the following pre-determined metrics, weighted as indicated below:

 

The adjusted operating income performance of the Company, as compared to projected, target operating income for the year under the fiscal 2018 annual operating plan, representing 25% of the total annual incentive award opportunity;
   
The adjusted operating income of the Company’s U.S. Foodservice Operations segment, as compared to projected, target operating income for the segment under the fiscal 2018 annual operating plan, representing 35% of the total annual incentive award opportunity;
   
The adjusted gross profit dollar growth for the U.S. Foodservice Operations segment and the total case growth for our U.S. Broadline operations (“USBL”), in each instance as compared to projected, target year-over-year growth for each metric under the fiscal 2018 annual operating plan, representing 15% of the total annual incentive award opportunity; and
   
Mr. Bertrand’s individual performance with respect to his strategic bonus objectives, or SBOs, representing 25% of the total annual incentive award opportunity.

 

Cases are the foodservice industry-defined measure of a unit that is sold to a customer, and “case growth” represents the percentage increase period-over-period in this volume measure.

 

Fiscal 2018 Financial Performance Targets. For the NEOs other than Mr. Bertrand, the 2018 MIP provided for minimum annual incentive payments upon achieving (i) adjusted operating income of at least $2.46 billion and/or (ii) adjusted gross profit dollar growth of at least 2%. The USCABL total case growth metric functions as a modifier to the annual incentive opportunity with respect to the adjusted gross profit dollar growth component, resulting in higher payment levels when USCABL total case growth is equal to or exceeds 1.0%. The various levels of financial performance required to reach threshold, target and maximum payments are set forth below:

 

   2018 MIP Financial Performance Targets
(NEOs other than Mr. Bertrand) – Fiscal 2018
   Sysco Adjusted
Operating Income
Sysco Adjusted Gross
Profit Dollar Growth
USCABL Total
Case Growth
Threshold  $         2.46 billion ≥2.0% <1.0%
Target  2.66 billion 4.5% 2.2%
Maximum  ≥2.86 billion ≥5.5% ≥3.0%

 

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For Mr. Bertrand, the 2018 MIP provided for minimum annual incentive payments upon one or more of the following: (i) the Company achieving adjusted operating income of at least $2.46 billion; (ii) the U.S. Foodservice Operations segment achieving adjusted operating income growth of at least $2.89 billion; or (iii) the U.S. Foodservice Operations segment achieving adjusted gross profit dollar growth of at least 2.0%. The USBL total case growth metric functions as a modifier to the annual incentive opportunity with respect to the U.S. Foodservice Operations adjusted gross profit dollar growth component, resulting in higher payment levels when USBL total case growth is equal to or exceeds 1.5%. The various levels of financial performance required for Mr. Bertrand to reach threshold, target and maximum payments are set forth below:

 

   2018 MIP Financial Performance Targets (Mr. Bertrand) – Fiscal 2018
   Sysco Adjusted
Operating Income
U.S. Foodservice
Operations Adjusted
Operating Income
U.S. Foodservice
Operations Adjusted
Gross Profit Dollar
Growth
USBL Total
Case Growth
Threshold  $         2.46 billion $          2.89 billion ≥2.0% <1.5%
Target  2.66 billion 3.12 billion 4.5% 3.3%
Maximum  ≥2.86 billion ≥3.36 billion ≥5.5% ≥4.5%

 

Fiscal 2018 Financial Results and Performance Factors. For purposes of the 2018 MIP, actual results included (i) adjusted operating income for the Company of $2.54 billion (exceeding threshold performance level); (ii) adjusted gross profit dollar growth for the Company of 3.9% (exceeding threshold performance level), as modified by USCABL total case growth of 2.6% (exceeding the target performance level); (iii) U.S. Foodservice Operations adjusted operating income of $3.04 billion (exceeding threshold performance level); (iv) U.S. Foodservice Operations adjusted gross profit dollar growth of 4.5% (approximating the target performance level), as modified by USBL total case growth of 3.6% (exceeding the target performance level). See Annex I — Non-GAAP Reconciliations for a reconciliation of these adjusted measures to the most directly comparable GAAP measures. Based on these results, we calculated weighted performance factors for each of the financial performance metrics under the 2018 MIP, as illustrated in the table below:

 

Calculation of Weighted Financial Performance Factors (75% of target annual incentive opportunity)
Financial Performance Metric
(for NEOs other than Mr. Bertrand)
  Potential
Payment
  Weighting(1) x 2018
Performance
= Weighted Financial
Performance Factor
Sysco Adjusted Operating Income(2)  0% - 200%  50 %   63.2 %   31.6 %
Sysco Adjusted Gross Profit Dollar/USCABL Total Case Growth(3)  0% - 200%  25 %   103.1 %   25.8 %
Financial Performance Metric
(for Mr. Bertrand)
  Potential
Payment
  Weighting(1) x 2018
Performance
= Weighted Financial
Performance Factor
Sysco Adjusted Operating Income(2)  0% - 200%  25 %   63.2 %   15.8 %
U.S. Foodservice Operations Adjusted Operating Income(4)  0% - 200%  35 %   73.6 %   25.8 %
U.S. Foodservice Operations Adjusted Gross Profit  Dollar/USBL Total Case Growth(5)  0% - 200%  15 %   100.8 %   15.1 %

 

(1) This column represents, for each financial performance metric, the weighting of that metric for purposes of the total 2018 MIP annual incentive opportunity.
   
(2) The calculation of adjusted results for this performance metric excluded the following items: severance charges, professional fees on 3-year financial objectives, facility closure costs, costs associated with our revised business technology strategy, Brakes Group acquisition, integration and restructuring costs, the liability associated with the withdrawal by a Sysco subsidiary from a multiemployer pension plan in May 2017 (fourth quarter 2017 only) and the impact of changes in applicable foreign exchange rates as compared to the corresponding planned foreign exchange rates.
   
(3) The calculation of the adjusted results for the gross profit growth metric excluded the impact of changes in applicable foreign exchange rates as compared to the corresponding planned foreign exchange rates.
   
(4) The calculation of adjusted results for this performance metric excluded the following items: severance charges, the liability associated with the withdrawal by a Sysco subsidiary from a multiemployer pension plan and the impact of changes in applicable foreign exchange rates as compared to the corresponding planned foreign exchange rates.
   
(5) The calculation of adjusted results for the gross profit growth metric excluded the impact of changes in applicable foreign exchange rates as compared to the corresponding planned foreign exchange rates.

 

Calculation of Total Award Earned under 2018 MIP. The total annual incentive award payment for each NEO under the 2018 MIP was calculated as indicated in the table below, with 75% of the target incentive opportunity based on the applicable financial performance metrics and the remaining 25% of the target incentive opportunity based on individual performance with regard to pre-established individual SBOs, which the Committee had the discretion to pay out between 0% - 150% based on its assessment of the NEO’s performance, except with regard to Mr. DeLaney’s SBOs, which were deemed to have been achieved at the “target” level pursuant to his Transition and Retirement Agreement. The Committee believes the use of individual SBOs further promotes the overall executive compensation pay philosophy to link individual pay to performance. For further discussion of the Committee’s evaluation with respect to the individual SBOs of each NEO, other than Mr. DeLaney, as well as the calculation of each such NEO’s “Weighted Individual SBO Performance Factor” for purposes of the table below, please see “Compensation Discussion and Analysis—What We Paid and Why—Compensation for NEOs—Annual Incentive Award—Analysis” above.

 

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Calculation of Total FY2018 MIP Awards – NEOs (other than Mr. Bertrand)
Name  Ending Base
Salary
  Target
Annual
Incentive
(% of Base
Salary)
   Sysco
Adjusted
Operating
Income
Performance
Factor
   Amount
of Award
Funding on
Sysco
Adjusted
Operating
Income
Performance
Factor
  Sysco Adjusted
Gross Profit
Dollar/USCABL
Total Case
Growth
Performance
Factor
   Amount
of Award
Funding on
Sysco
Adjusted
Gross Profit
Dollar/
USCABL Total
Case Growth
Performance
Factor
  Weighted
Individual
SBO
Performance
Factor
   Amount
of Award
Funding on
Weighted
Individual
SBO
Performance
Factor
  Total
2018 MIP
Award Earned
for FY18
Performance
 
Bené(1)  $  1,100,000  150%  31.6%  $       438,450  25.8%  $       357,975  24.3%  $      337,163  $      1,133,588 
DeLaney  1,250,000  150%  31.6%  592,500  25.8%  483,750  25.0%(2)  468,750  1,545,000 
Grade  675,000  100%  31.6%  213,300  25.8%  174,150  26.0%  175,500  562,950 
Libby  612,000  100%  31.6%  193,392  25.8%  157,896  25.5%  156,060  507,348 
Shurts  637,500  100%  31.6%  201,450  25.8%  164,475  27.0%  172,125  538,050 
   Base  Target   SOI PF   A = Base x Target
x SOI PF
  SGP/TC PF   B = Base x Target
x SGP/TC PF
  SBO PF   C = Base x
Target x SBO PF
  Total = A+B+C 
(1) Mr. Bené’s 2018 annual incentive payment was calculated using different base salaries and annual incentive targets for portions of fiscal 2018. For 50% of his 2018 annual incentive payment, covering the period from the beginning of the fiscal year to December 31, 2017, immediately preceding the effective date of his promotion, a base salary of $900,000 and a target of 125% were used. For the remaining 50% of his annual incentive payment, covering the period from January 1, 2018 to the end of the fiscal year, a base salary of $1.1 million and a target of 150% were applied.
(2) Mr. DeLaney’s SBOs were deemed to have been achieved at the “target” level pursuant to his Transition and Retirement Agreement.

 

Calculation of Total FY2018 MIP Award – Mr. Bertrand
Ending
Base
Salary
  Target
Annual
Incentive
(% of
Base
Salary)
   Sysco
Adjusted
Operating
Income
Performance
Factor
   Amount
of Award
Funding on
Sysco
Adjusted
Operating
Income
Performance
Factor
  US
Foodservice
Adjusted
Operating
Income
Performance
Factor
   Amount
of Award
Funding
on US
Foodservice
Adjusted
Operating
Income
Performance
Factor
  U.S.
Foodservice
Adj. Gross
Profit Dollar/
USBL Total
Case Growth
Performance
Factor
   Amount of
Award Funding
on U.S.
Foodservice
Adj. Gross
Profit Dollar/
USBL Total
Case Growth
Performance
Factor
 Weighted
Individual
SBO
Performance
Factor
   Amount
of Award
Funding on
Weighted
Individual
SBO
Performance
Factor
  Total 2018
MIP Award
Earned
for FY18
Performance
 
 $  650,000  100%  15.8%  $    102,700  25.8%  $    167,700  15.1%  $    98,150  24.7%  $    160,550  $    529,100 
Base  Target   SOI PF   A = Base x
Target x SOI PF
  USFS PF   B = Base x
Target x USFS
PF
  GP/TC PF   C = Base x
Target x GP/TC
PF
 SBO PF   D = Base x
Target x SBO
PF
  Total =
A+B+C+D
 

 

Executive Compensation Clawback Policy. The fiscal 2018 awards are also subject to clawback provisions that provide that, subject to applicable law, all or a portion of the award paid pursuant to the 2018 MIP may be recovered by Sysco if there is a restatement of our financial results, other than a restatement due to a change in accounting policy, within 36 months of the payment of the award and the restatement would result in the payment of a reduced award if the award was recalculated using the restated financial results. The Committee has the sole discretion to determine the form and timing of the repayment. See “Compensation Discussion and Analysis—Executive Compensation Governance and Other Information—Executive Compensation Clawback Policy and Protective Covenants.”

 

Fiscal 2019 Annual Incentive Awards

 

In July 2018, the Compensation Committee approved the fiscal 2019 annual incentive award opportunities for the eligible NEOs under the Sysco Corporation Fiscal 2019 Management Incentive Program For Corporate MIP Bonus-Eligible Participants, which was adopted by the Committee pursuant to the 2013 Long-Term Incentive Plan and which is described in “Compensation Discussion and Analysis—What We Paid and Why—Compensation for NEOs—Annual Incentive Award—Detailed Information— Annual Incentive Award Potential for Fiscal 2019.”

 

Limits on Fiscal 2018 Maximum Annual Incentive Award Payments

 

The Committee established an annual incentive pool limit for fiscal 2018, as set forth in the table below, for each of the CEO, CFO and certain “covered employees” of Sysco (including all of the NEOs) pursuant to Section 162(m) of the Internal Revenue Code (the “Code”), as in effect prior to the passage of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), to help ensure compliance with the deductibility requirements of Section 162(m) of the Code. Under the Tax Act, the exemption for deductibility of performance-based compensation under Section 162(m) of the Code has generally been eliminated for fiscal years beginning after December 31, 2017, as a result of which the Committee has discontinued application of the annual incentive pool for fiscal 2019 and future years.

 

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Participant’s Title  Percent of 2018 Incentive Pool
Allocated to Participant
CEO   36%
CFO   13%
NEO 3   27%
NEO 4   12%
NEO 5   12%

 

The umbrella structure of the incentive pool limit served only to provide a ceiling on the maximum annual incentive amount that any NEO could have received, and the actual incentive amount paid to each NEO was determined pursuant to the 2018 MIP as described above.

 

In addition, under the 2013 Long-Term Incentive Plan, the maximum dollar amount that may be paid under all cash-based awards granted to any individual for any fiscal year under the Plan is 1% of the Company’s earnings before income taxes as publicly disclosed in the “Consolidated Results of Operations” section of the Company’s annual report on Form 10-K for the fiscal year ended immediately before the date the applicable award is paid.

 

Long-Term Incentive Awards

 

The Company’s fiscal year 2018 long-term incentives awarded to certain key employees, including the NEOs, consisted of awards of performance share units (“PSUs”) under the Performance Share Unit Agreement For Performance Period FY2018 – FY2020 (the “PSU Agreement”) and stock options, which PSUs and stock options were issued pursuant to the Sysco 2013 Long-Term Incentive Plan. The PSU Agreement provides the opportunity for participants to receive shares of Sysco common stock based on pre-established financial performance targets over a performance period of three fiscal years. The PSUs with a performance period beginning in fiscal year 2018 represent 60% of the target long-term incentive opportunity, with stock options representing the remaining 40% of the target long-term incentive opportunity. Stock options granted in fiscal year 2018 vest in 3 equal, annual installments.

 

Additionally, in recognition of his additional responsibilities following his promotion to President and CEO and in connection with increasing Mr. Bené’s stake in the success of the Company, enhancing the alignment of his interests with those of shareholders and aligning his stock holdings with the heightened CEO ownership requirements, Mr. Bené received on February 22, 2018, a one-time, promotional long-term incentive award valued at $1.1 million, which consisted of time-based restricted stock units, which we refer to as “RSUs.” For discussion of the compensation adjustments for Mr. Bené in connection with the transition and appointment to CEO, see “Executive Compensation – CEO Succession Compensation Arrangements – Compensation Adjustments for Mr. Bené.”

 

Prior to fiscal year 2017, the Committee had issued cash performance units, which we refer to as “CPUs,” to provide certain key employees, including the NEOs, the opportunity to earn cash incentive payments based on pre-established performance criteria over performance periods of at least three years, as well as to provide certain key employees, including the NEOs, the opportunity to earn shares of our common stock over a three-year performance period.

 

Under the 2013 Long-Term Incentive Plan, the Committee may select performance goals from those specified in the plan and other documents governing the award, based on the performance of Sysco generally or on the performance of subsidiaries or divisions. The Committee establishes the performance goals for each award during the first ninety days of the applicable performance period.

 

Fiscal 2018 PSU Awards

 

In August 2017, the Committee approved awards of a long-term incentive, PSUs, to eligible NEOs pursuant to the PSU Agreement, adopted in August 2016 under the 2013 Long-Term Incentive Plan. The Committee has established performance criteria for the PSU Agreement based on (i) the compound annual growth rate in the Company’s earnings per share, adjusted for Certain Items (“Adjusted EPS CAGR”) as compared to projected, target Adjusted EPS CAGR for the performance period, representing two-thirds (2/3rds) of the total incentive opportunity; and (ii) the Company’s three-year average adjusted return on invested capital (“Adjusted ROIC”), as compared to projected, target Adjusted ROIC for the performance period, representing one-third (1/3rd) of the total incentive opportunity. The various levels of financial performance required to reach threshold, target and maximum payments with respect to these criteria are set forth below:

 

Adjusted EPS CAGR:

 

Threshold – if the Company’s Adjusted EPS CAGR for the performance period is approximately 46% of target Adjusted EPS CAGR, the Adjusted EPS CAGR payout is 25% of target for this component;
   
Target – if the Company’s Adjusted EPS CAGR for the performance period is equal to target Adjusted EPS CAGR, the Adjusted EPS CAGR payout is at target (100%) for this component; and
   
Maximum – if the Company’s Adjusted EPS CAGR for a fiscal year is greater than or equal to approximately 154% of target Adjusted EPS CAGR, the Adjusted EPS CAGR payout is 200% of target for this component.
   
Adjusted ROIC:
   
Threshold – if the Company’s Adjusted ROIC for the performance period is approximately 73% of target Adjusted ROIC, the Adjusted ROIC payout is 20% of target for this component;
   
Target – if the Company’s Adjusted ROIC for the performance period is equal to target Adjusted ROIC, the Adjusted ROIC payout is at target (100%) for this component; and
   
Maximum – if the Company’s Adjusted ROIC for a fiscal year is greater than or equal to approximately 117% of target Adjusted ROIC, the Adjusted ROIC payout is 200% of target for this component.

 

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Each PSU granted to participants under the PSU Agreement represents the right to receive one share of common stock, at target levels, but the ultimate number of shares of common stock to be earned with respect to a participant’s PSUs will be determined at the end of the three-year performance period and could range from 0% to 200% of the target number of PSUs offered to the participant, based on the Company’s Adjusted EPS CAGR and Adjusted ROIC performance relative to the pre-established targets. Dividend equivalents accrue during the performance period and are paid either in shares or in cash, in the discretion of the Committee, based on the number of PSUs earned following certification of the Company’s performance.

 

Benefits upon Termination of Employment or Change in Control – PSUs

 

Disability. If the executive’s employment terminates during a performance period due to disability, the executive will nonetheless receive the specified shares of common stock on the applicable payment date, as if he or she remained employed on that date, which number of shares of common stock will be determined using Sysco’s performance for the entire three-year performance period.

 

Retirement. If the executive’s employment terminates during a performance period because the executive experiences a retirement in good standing, and provided that the executive’s retirement in good standing occurs on or after a complete fiscal year of the Company following the commencement of the performance period, the executive will be entitled to retain a prorated number of PSUs based on the number of whole fiscal months of employment during the applicable performance period through the retirement date. Payment of shares of common stock with respect to such retained PSUs will be made, to the extent earned, on the applicable payment date as if the executive had remained employed through the end of the performance period.

 

Death. If the executive’s employment terminates during a performance period due to the executive’s death, the executive’s estate will be paid a cash amount equal to the value of the PSUs, assuming Company financial performance at the target level under the applicable performance criteria and based on the closing price of Sysco common stock on the date of the executive’s death.

 

Change in Control. If a change in control occurs during a performance period and the executive’s employment is terminated involuntarily, other than for Cause, during the period commencing 12 months prior to the change in control and ending 24 months after the change in control, the executive’s PSUs will be considered vested and the executive will receive the target number of shares of common stock payable with respect to the executive’s PSUs for that performance period, as if the target performance levels had been achieved. Absent an involuntary termination without Cause within the period specified in the foregoing sentence, the occurrence of a change in control will not affect the vesting of his or her PSUs.

 

Other Terminations. If the executive’s employment terminates before the end of the performance period for any reason other than those specified above, we will cancel the executive’s PSUs, and the executive will not receive any payments with respect to such cancelled awards.

 

Payment under Fiscal 2016 CPU Awards

 

In November 2015, the Committee approved the final awards of CPUs to eligible NEOs under Sysco’s Fiscal Year 2016 Cash Performance Unit Program, which was adopted by the Committee in August 2015 pursuant to the 2013 Long-Term Incentive Plan. Each CPU was assigned a value of $1, and all payments due with respect to these CPUs were made to our participating NEOs in cash in August 2018. The principal financial performance metric for the fiscal 2016 CPU awards was the Company’s average adjusted 3-year return on invested capital (“Adjusted ROIC”), as compared to the target Adjusted ROIC established by the Committee on an annual basis, subject to modification based on the Company’s relative total shareholder return (“TSR”) for the performance period. Target Adjusted ROIC for each of the fiscal years during the performance period was established by the Committee within the first 90 days of each respective fiscal year, and calculations were adjusted for certain extraordinary or non-recurring items. The Company’s ROIC performance for fiscal 2016 and fiscal 2017 was adjusted to exclude the impact of Certain Items and the impact of changes in foreign exchange rates, and the Company’s ROIC performance for fiscal 2017 was also adjusted to exclude the impact of debt incurred in fiscal 2017 in connection with the acquisition of the Brakes Group. The Company’s ROIC performance for fiscal 2018 was adjusted to exclude the impact of Certain Items and the impact of the lower federal income tax rate for the second half of fiscal 2018 resulting from U.S. tax reform. See Annex I — Non-GAAP Reconciliations for a reconciliation of adjusted ROIC to the most directly comparable GAAP measure.

 

Average Capital Efficiency Performance Factor. For each year during the performance period, the Company’s Adjusted ROIC performance was measured against the target Adjusted ROIC, yielding an annual capital efficiency performance factor. For each year in the performance period, the annual capital efficiency performance factor was calculated based on the following:

 

Fiscal 2016 – the Company’s Adjusted ROIC was 14.1%, as compared to target performance of 12.5%, resulting in a performance factor of 150%;
   
Fiscal 2017 – the Company’s Adjusted ROIC was 12.4%, as compared to target performance of 11.9%, resulting in a performance factor of 125%; and
   
Fiscal 2018 – the Company’s Adjusted ROIC was 13.6%, as compared to target performance of 13.9%, resulting in a performance factor of 85%.

 

The sum of the annual capital efficiency performance factors above for each fiscal year in the performance period was then divided by the total number of fiscal years in the performance period, yielding an average capital efficiency performance factor of 120%.

 

Relative Total Shareholder Return Modifier. The payout under the fiscal 2016 CPU awards was further modified by the Company’s relative TSR during the 3-year performance period. In order to compute TSR, the following sum was first calculated:

 

the closing price of a share of Sysco’s common stock, as reported on the New York Stock Exchange, on the day immediately preceding the last day of the three fiscal year performance period, plus,
   
the per share cash dividends paid on Company common stock during the three-year performance period, minus,
   
the closing price of a share of Sysco’s common stock, as reported on the New York Stock Exchange, on the day immediately preceding the first day of the three-year performance period.

 

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TSR was then computed as that sum divided by the closing price of a share of Sysco’s common stock, as reported on the New York Stock Exchange, on the day immediately preceding the first day of the three-year performance period. Based on the Company’s TSR for the performance period, which was in the 89th percentile relative to the S&P 500, the TSR modifier was determined to be 120%.

 

Calculation of CPU Payout. The cash payout under the fiscal 2016 CPU awards was calculated, as indicated in the table below, by multiplying the number of CPUs held by the NEO by the product of (1) 120% (the average capital efficiency performance factor) and (2) 120% (the relative TSR modifier):

 

          Fiscal 2016 CPU Awards – Calculation of Payout        
   Number of
Outstanding CPUs
   Target Value
Per CPU
 Average
Capital Efficiency
Performance Factor
   Relative Total
Shareholder Return
Modifier
   Total CPU
Payout Earned
 
Bené  853,125   $1  120%  120%  $1,228,500 
DeLaney  2,843,750    1  120%  120%   4,095,000 
Grade  765,625    1  120%  120%   1,102,500 
Bertrand  450,000    1  120%  120%   648,000 
Libby  630,000    1  120%  120%   907,200 
Shurts  710,938    1  120%  120%   1,023,750 

 

CEO Succession Compensation Arrangements

 

Transition and Retirement Agreement with Mr. DeLaney

 

On July 17, 2017, in connection with effecting a smooth and orderly CEO succession, as Mr. DeLaney transitioned out of his roles as CEO and a member of the Board, the Compensation Committee approved, and the Company entered into, a Transition and Retirement Agreement with Mr. DeLaney (the “Agreement”), which provided for, among other things, the following terms and conditions:

 

Pre-Transition Period: during the period through December 31, 2017 (the “Transition Date”), Mr. DeLaney received:

 

  A base annual salary no less than that received in fiscal year 2017;
     
  100% of the actually earned annual incentive for fiscal year 2017 under the Management Incentive Program;
     
  Equity awards that were no less in value than those granted for fiscal year 2017, which awards were made in August 2017 in recognition of Mr. DeLaney’s continued service as CEO through the Transition Date, and his service as an advisor and mentor to Mr. Bené through December 31, 2018 (the “Separation Date”); provided that, with regard to the PSU component of the equity awards, assuming Mr. DeLaney works through the Separation Date, he will only be eligible to receive 50% of the applicable award because he will have worked for one half of the three-year performance period;
     
  Continued participation in all Sysco retirement, health and welfare plans, including all employer matching contributions; and
     
  A fiscal year 2018 annual incentive targeted at 150% of base salary.

 

Transition Period: during the period from the Transition Date through the Separation Date, and in exchange for his execution of a customary waiver and release of claims in favor of the Company and his continued service to the Company, Mr. DeLaney is entitled to:

 

  A base salary at the annual rate in effect on the Transition Date;
     
  Payment of the annual incentive for fiscal year 2018 under the Management Incentive Program, with the amount based on the Company’s actual financial performance and with performance under the strategic bonus objectives deemed to be at 100% of target;
     
  Continued vesting of Mr. DeLaney’s outstanding stock options, restricted stock units, performance share units and cash performance units, in each case in accordance with the terms and conditions of the applicable award agreements; and
     
  Continued participation in all Sysco retirement, health and welfare plans, including all employer matching contributions.

 

Post-Separation: Mr. DeLaney’s employment with the Company will terminate effective on the Separation Date, after which he will be entitled to receive earned but unpaid salary, payment for any accrued but unused vacation days, reimbursement for unreimbursed business expenses and vested amounts payable pursuant to the Company’s retirement, deferred compensation and benefit plans, in accordance with the terms thereof. In addition, subject to his execution of an additional waiver and release of claims in favor of the Company, Mr. DeLaney will be entitled to:

 

  A payment in the amount of 75% of Mr. DeLaney’s 2018 annual base salary, covering the six month period during which he is expected to be employed in fiscal 2019, which is equivalent to one half of his fiscal 2018 annual incentive opportunity; and
     
  Continuation of Mr. DeLaney’s (and his dependents’) health, dental and vision benefits for a period ending in March 2021, including reimbursement for the amounts of any premiums or other fees paid to maintain such benefits under the Company’s group health plans or otherwise.

 

The Agreement also provides for the benefits provided to Mr. DeLaney in the event that his employment with the Company is terminated prior to the Separation Date due to death or for “Cause” (as defined in the Agreement). The treatment of Mr. DeLaney’s outstanding stock options, restricted stock units, performance share units and cash performance units following his retirement will be determined by the terms and conditions set forth in the applicable award agreements.

 

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Compensation Adjustments for Mr. Bené

 

In recognition of Mr. Bené’s additional responsibilities in connection with his transition to President and Chief Executive Officer, the Committee approved the following compensation adjustments for Mr. Bené:

 

Mr. Bené’s annual base salary was increased from $800,000 to $900,000, effective for the period from September 3, 2017 to December 31, 2017;
   
The targeted aggregate dollar value of Mr. Bené’s annual long-term incentive awards under the Company’s long-term incentive plans was increased from 3.75x to 4.75x his annual base salary, effective for the period from August 1, 2017 to December 31, 2017; and
   
Mr. Bené’s target annual incentive opportunity for fiscal 2018 under the Company’s management incentive program remained at 125% of his annual base salary, effective for the period from July 2, 2017 through December 31, 2017.

 

Effective January 1, 2018, in recognition of Mr. Bené’s additional responsibilities in connection with his promotion to President and Chief Executive Officer, the Committee also approved the following further compensation adjustments:

 

Mr. Bené’s annual base salary was increased from $900,000 to $1.1 million;
   
The targeted aggregate dollar value of future annual long-term incentive awards to Mr. Bené under the Company’s long-term incentive plans will be increased from 4.75x to 5.75x his annual base salary;
   
Mr. Bené’s target annual incentive opportunity for fiscal 2018 under the Company’s management incentive program was increased from 125% to 150% of his annual base salary, effective for the period from January 1, 2018 through the end of fiscal 2018, resulting in a pro-rated annual incentive award opportunity; and
   
A one-time, promotional long-term incentive award valued at $1.1 million, which consisted of RSUs that vest in three equal, annual installments and which Mr. Bené received in February 2018.

 

Outstanding Equity Awards at Year-End

 

Option grants to the NEOs prior to fiscal 2017 under the 2013 Long-Term Incentive Plan and its predecessor, the 2007 Stock Incentive Plan, which we refer to as the “plans,” have generally vested and become exercisable in five equal annual installments, beginning one year after the grant date, and the option grants to NEOs since fiscal 2017 vest and become exercisable in three equal, annual