DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a-101)

 

Information Required In Proxy Statement

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

 

 

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☐    Soliciting Material Pursuant to §240.14a-12

 

 

 

ARTHUR J. GALLAGHER & CO.


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Arthur J. Gallagher & Co.

2850 Golf Road

Rolling Meadows, Illinois 60008-4050

Notice of 2019 Annual Meeting of Stockholders

Dear Stockholder:

We are pleased to invite you to the 2019 Annual Meeting of Stockholders of Arthur J. Gallagher & Co., which will be held on May 14, 2019, at 9:00 AM CDT, at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050. At the meeting, stockholders will vote on each item described below and we will transact such other business that properly comes before the meeting.

 

Voting Items

  Board Recommendations

 

  Elect each of the 9 nominees named in the accompanying Proxy Statement as directors to hold office until our 2020 Annual Meeting (Item 1)

 

 

FOR each nominee

 

  Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019 (Item 2)

 

 

FOR

 

  Approve, on an advisory basis, the compensation of our named executive officers (Item 3)

 

 

FOR

Stockholders of record at the close of business on March 20, 2019 are entitled to notice of and to vote at the Annual Meeting. The applicable voting standard and the treatment of abstentions and “broker non-votes” for each of these items are set forth on page 35 of the Proxy Statement.

Stockholders who wish to attend the Annual Meeting in person should bring a driver’s license, passport or other form of government-issued identification to verify their identities. In addition, if you hold your shares through a broker, you will need to bring either (1) a letter from your broker stating that you held Gallagher shares as of the record date, or (2) a copy of the notice of Annual Meeting document you received in the mail.

We urge you to read the Proxy Statement for additional information concerning the matters to be considered at the Annual Meeting and then vote in accordance with the Board’s recommendations. Your vote is very important to us.

By Order of the Board of Directors

 

 

LOGO

WALTER D. BAY

SECRETARY

March 22, 2019

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders

to Be Held on May 14, 2019:

We are making this Notice of Annual Meeting, this Proxy Statement, our 2018 Annual Report, and the Notice of Internet Availability of Proxy Materials available on the Internet at www.materials.proxyvote.com/363576 and mailing copies of these proxy materials to certain stockholders on or about March 22, 2019.

 


Table of Contents

      

 

 

Proxy Statement

Table of Contents

 

CORPORATE GOVERNANCE         

Item 1 – Election of Directors

     1  

Board Leadership Structure

     5  

Director Independence

     5  

Board Committees

     6  

Board’s Role in Risk Oversight

     7  

Other Board Matters

     7  

Director Compensation

     8  

Certain Relationships and Related Person Transactions

     9  

Security Ownership by Certain Beneficial Owners and Management

     10  

Equity Compensation Plan Information

     12  
AUDIT MATTERS         

Item 2 –  Ratification of Appointment of Independent Auditor

     13  

Audit Committee Report

     14  
EXECUTIVE COMPENSATION         

Compensation Discussion and Analysis

     15  

Overview of Our Executive Compensation Program

     15  

2018 Compensation

     17  

Compensation Decision-Making Process

     21  

Comparative Market Assessment

     22  

Compensation Committee Report

     23  

Executive Compensation Tables

     24  

Item 3 –  Advisory Vote to Approve the Compensation of Our Named Executive Officers

     34  

CEO Pay Ratio

     34  
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING      35  
EXHIBITS          

Exhibit A: Information Regarding Non-GAAP Measures

     A-1  

Exhibit B: Resources

     B-1  

 

 

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Corporate Governance

Item 1 – Election of Directors

Evaluation Process for Director Candidates

The Nominating/Governance Committee considers director candidates suggested by stockholders, management or other members of the Board and may hire consultants or search firms to help identify and evaluate potential director candidates. For information regarding how stockholders can submit a director candidate for consideration by the Nominating/Governance Committee, see page 36.

The Nominating/Governance Committee evaluates director candidates by considering their judgment, qualifications, attributes, skills, integrity, diversity, international business or other experience relevant to our global activities, and other factors it deems appropriate. The Committee looks for candidates who are leaders in the organizations with which they are affiliated and have experience in positions with a high degree of responsibility. The Committee seeks candidates free from relationships or conflicts of interest that could interfere with the director’s duties to Gallagher or our stockholders. The Committee also evaluates candidates’ independence and takes into account other applicable requirements for directors under Securities and Exchange Commission (SEC) rules and New York Stock Exchange (NYSE) listing standards.

Board Diversity

The Nominating/Governance Committee seeks Board members from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. The Committee implements this policy through discussions among its members and assesses its effectiveness annually as part of the Committee’s and the Board’s self-evaluation process. The Committee has also used a search firm on occasion to help it identify highly qualified and diverse candidates.

Board Nominees and Vote Required

Upon the recommendation of the Nominating/Governance Committee, the Board has nominated our Chairman and CEO and each of the eight individuals listed below to hold office until the next annual meeting and the election and qualification of their successors or, if earlier, until their resignation, death or removal. Each of the nominees currently serves on the Board and has consented to serve for a new term if elected. However, if any nominee should become unable or unwilling to serve, the Board may nominate another person to stand for election or reduce the number of directors.

Each director nominee who receives more “FOR” votes than “AGAINST” votes at the Annual Meeting will be elected. Any incumbent director nominees who receive a greater number of votes “AGAINST” election than votes “FOR” election are required to tender their offer of resignation for consideration by the Nominating/Governance Committee in accordance with our Governance Guidelines.

In connection with the mandatory retirement age provision of our Governance Guidelines, the Board is not nominating Elbert O. Hand for re-election to the Board. We gratefully acknowledge Mr. Hand’s distinguished service as a member of the Board of Directors since 2002.

Independent Director Qualifications

The table below summarizes the key qualifications and areas of experience that led our Board to conclude that each independent director nominee is qualified to serve on our Board, but is not intended to be an exhaustive list of their qualifications or contributions to the Board.

 

 

CEO
Experience

 

Finance /
Capital
Markets

 

Legal /
Compliance /

Regulatory

 

Risk
Management /

Governance

 

Sales and
Marketing

 

International

 

Insurance
Industry

 

             

Sherry S. Barrat

 

X

 

X

 

X

 

X

 

X

             

William L. Bax

 

X

 

X

             

D. John Coldman

 

X

 

X

 

X

 

X

             

Frank E. English, Jr.

 

X

 

X

             

David S. Johnson

 

X

 

X

 

X

 

X

             

Kay W. McCurdy

 

X

 

X

 

X

             

Ralph J. Nicoletti

 

X

 

X

 

X

             

Norman L. Rosenthal

 

X

 

X

 

X

 

 

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2019 PROXY STATEMENT

 

 

 

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Table of Contents

ITEM 1: ELECTION OF DIRECTORS

 

 

 

  LOGO    

THE BOARD RECOMMENDS THAT YOU VOTE FOR

THE ELECTION OF EACH OF THE DIRECTOR NOMINEES

LISTED BELOW

 

  

 

Sherry S. Barrat

 

Age: 69

Director Since: 2013

 

Independent

 

Committee Memberships:

Compensation (Chair)

Nominating/Governance

 

Public Company Boards: 2

  

Ms. Barrat retired in 2012 as Vice Chairman of Northern Trust Corporation, a global financial holding company headquartered in Chicago, Illinois. She assumed the role of Vice Chairman in March 2011. From 2006 to 2011, Ms. Barrat served as Global President of Northern Trust’s personal financial services business, which provides asset management, fiduciary, estate and financial planning, and private banking services to individuals and families around the world. During her 22-year career at Northern Trust, Ms. Barrat served in various other leadership roles and as a member of the Northern Trust Management Committee. Since 1998, Ms. Barrat has served as a director of NextEra Energy, Inc., one of the largest publicly traded electric power companies in the United States, where she serves on the compensation and finance committees. Since 2013, Ms. Barrat has also served as an independent trustee or director of certain Prudential Insurance mutual funds, where she serves on the investment review, governance & nominating and compliance committees.

 

  

 

Skills and Qualifications

 

Ms. Barrat’s qualifications to serve on our Board and chair our Compensation Committee include her executive management, operational and financial experience, in particular her deep understanding of the financial services industry and her experience leading a global client service and sales organization.

 

  

 

  

 

William L. Bax

 

Age: 75

Director Since: 2006

 

Independent

 

Committee Memberships:

Audit (Chair)

 

Public Company Boards: 1

  

Mr. Bax was Managing Partner of the Chicago office of PricewaterhouseCoopers (PwC), an international accounting, auditing and consulting firm, from 1997 until his retirement in 2003, and was a partner in the firm for 26 years. Mr. Bax previously served as a director of Sears, Roebuck & Co., a publicly traded retail company, from 2003 to 2005; Andrew Corporation, a publicly traded communications products company, from 2006 to 2007; and mutual fund companies Northern Funds/Northern Institutional Funds, from 2006 to 2018.

 

  

 

Skills and Qualifications

 

Mr. Bax’s qualifications to serve on our Board and chair our Audit Committee include his 26 years as a partner and six years as head of PwC’s Chicago office, his tenure on the boards of two public companies and his experience advising public companies on accounting and disclosure issues.

 

  

 

  

 

D. John Coldman, OBE

 

Age: 71

Director Since: 2014

 

Independent

 

Committee Memberships:

Compensation

 

Public Company Boards: 1

  

Mr. Coldman began his career at WT Greig, a reinsurance broker. In 1988, he became Managing Director and in 1996 was appointed Chairman of The Benfield Group, the world’s leading independent reinsurance and risk intermediary, until its acquisition by Aon Corporation in 2008. From 2001 to 2006, Mr. Coldman served as Deputy Chairman and a Member of Council of Lloyd’s of London. He is also a past Chairman of Brit PLC, a publicly traded global specialty insurer and reinsurer, from 1996 to 2000, and Omega Insurance Holdings Limited, a publicly traded insurance and reinsurance group, from 2010 to 2012. Mr. Coldman served as the non-executive Chairman of Roodlane Medical Ltd., a privately held healthcare services provider, from 2007 to 2011. A U.K. citizen, Mr. Coldman was appointed an Officer of the Order of the British Empire (OBE) in the Queen’s Birthday Honours List 2017, for “services to business, young people, and charity.”

 

  

 

Skills and Qualifications

 

Mr. Coldman’s qualifications to serve on our Board include his international insurance industry knowledge, his experience within the Lloyd’s and London marketplaces, and his experience with public company matters and mergers and acquisitions.

 

  

 

 

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ITEM 1: ELECTION OF DIRECTORS

 

 

 

  

 

Frank E. English, Jr.

 

Age: 73

Director Since: 2009

 

Independent

 

Committee Memberships:

Audit

 

Public Company Boards: 3

  

From 1976 to 2009, Mr. English served in various senior roles at Morgan Stanley, a multinational investment bank and financial services company, finishing his tenure there as Managing Director and Vice Chairman of Investment Banking. Mr. English serves on the board of directors and the audit and compensation committees of Tower International, Inc., a publicly traded global automotive components manufacturer, where he has been a board member or board advisor since 2010. Since 2012, Mr. English has also served on the board of directors of Cboe Global Markets, a publicly traded holding company for various securities exchanges, including the largest options exchange in the United States, where he serves on the finance and strategy, nominating and governance, and compensation committees. From 2011 to 2017, Mr. English served as a Senior Advisor to W.W. Grainger, a publicly traded broad-based distributor of industrial maintenance, repair and operations supplies.

 

  

 

Skills and Qualifications

 

Mr. English’s qualifications to serve on our Board include his extensive investment banking expertise, particularly in the areas of capital planning, strategy development, financing and liquidity management.

 

  

 

  

 

J. Patrick Gallagher, Jr.

 

Age: 67

Director Since: 1986

 

Chairman of the Board Since:

2006

 

Public Company Boards: 2

  

Mr. Gallagher has spent his entire career with Arthur J. Gallagher & Co. in a variety of management positions, starting as a Production Account Executive in 1974, then serving as Vice President of Operations from 1985 to 1990, as President and Chief Operating Officer from 1990 to 1995, and as President and Chief Executive Officer since 1995. In 2011, Mr. Gallagher joined the board of directors of InnerWorkings, Inc., a global, publicly traded provider of managed print, packaging and promotional solutions, and was appointed to its compensation and nominating/governance committees. He also serves on the Board of Trustees of the American Institute for Chartered Property Casualty Underwriters and on the Board of Founding Directors of the International Insurance Foundation.

 

  

 

Skills and Qualifications

 

Mr. Gallagher is the only member of management serving on the Board. His 44 years of experience with our company and 33 years of service on the Board, his deep knowledge of our company and the insurance industry and his extensive leadership experience greatly enhance the Board’s decision making and enable Mr. Gallagher to serve as a highly effective Chairman of the Board.

 

  

 

  

 

David S. Johnson

 

Age: 62

Director Since: 2003

 

Independent Lead Director
Since: 2016

 

Committee Memberships:

Compensation

Nominating/Governance

 

Public Company Boards: 1

  

Mr. Johnson has served as Chief Executive Officer of North America for Aryzta AG, a publicly traded global food business, since January 2018, where he also serves on the company’s group executive committee. From 2009 to 2017, he served as President and Chief Executive Officer of the Americas for Barry Callebaut AG, the world’s largest manufacturer of cocoa and chocolate products, where he also served on the global executive committee. Mr. Johnson served as President and Chief Executive Officer, and as a member of the board, of Michael Foods, Inc., a food processor and distributor, from 2008 to 2009, and as Michael Foods’ President and Chief Operating Officer from 2007 to 2008. From 1986 to 2006, Mr. Johnson served in a variety of senior management roles at Kraft Foods Global, Inc., a global food and beverage company, most recently as President of Kraft Foods North America, and as a member of Kraft Foods’ Management Committee. Prior to that, he held senior positions in marketing, strategy, operations, procurement and general management at Kraft Foods.

 

  

 

Skills and Qualifications

 

Mr. Johnson’s qualifications to serve on our Board and as Lead Director include his experience as a senior executive of global businesses and his knowledge of corporate governance and executive compensation best practices.

  

 

 

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ITEM 1: ELECTION OF DIRECTORS

 

 

 

  

 

Kay W. McCurdy

 

Age: 68

Director Since: 2005

 

Independent

 

Committee Memberships:

Compensation

Nominating/Governance (Chair)

 

Public Company Boards: 1

  

Ms. McCurdy practiced corporate and finance law from 1975 to 2019 at the law firm of Locke Lord LLP, where she was a partner from 1983 to 2012 and Of Counsel from 2012 to 2019. She served on the firm’s Executive Committee from 2004 to 2006. During her career as a corporate and finance attorney, Ms. McCurdy represented numerous companies on a wide range of matters, including financing transactions, mergers and acquisitions, securities offerings, executive compensation and corporate governance. Ms. McCurdy served as a director of Trek Bicycle Corporation, a leading bicycle manufacturer, from 1998 to 2007. In recognition of her ongoing commitment to director education and boardroom excellence, the National Association of Corporate Directors (NACD) has named Ms. McCurdy a NACD Governance Fellow every year since 2010. She is also a director of the Chicago chapter of NACD.

 

  

 

Skills and Qualifications

 

Ms. McCurdy’s qualifications to serve on our Board and chair the Nominating/Governance Committee include her experience advising companies regarding legal, public disclosure, corporate governance, mergers and acquisitions and executive compensation issues.

 

  

 

  

 

Ralph J. Nicoletti

 

Age: 61

Director Since: 2016

 

Independent

 

Committee Memberships:

Audit

 

Public Company Boards: 1

  

Mr. Nicoletti has served as Senior Vice President and Chief Financial Officer of The AZEK Company LLC, a privately held building products company, since January 2019. Mr. Nicoletti served as Executive Vice President and Chief Financial Officer of Newell Brands, Inc., a publicly traded consumer goods company, from June 2016 to December 2018, and as Executive Vice President and Chief Financial Officer of Tiffany & Co., a publicly traded jewelry business, from April 2014 to May 2016. Prior to joining Tiffany, Mr. Nicoletti was Executive Vice President and Chief Financial Officer of Cigna Corporation, a publicly traded global health services and insurance company, from 2011 to 2013; and of Alberto Culver, Inc., a publicly traded manufacturer and distributor of beauty products, from 2007 to 2011. Prior to that, Mr. Nicoletti held a number of financial management positions at Kraft Foods, Inc., finishing his tenure there as Senior Vice President of Corporate Audit.

 

  

 

Skills and Qualifications

 

Mr. Nicoletti’s qualifications to serve on our Board include his experience as a senior executive of global businesses, his deep financial management expertise and his experience managing privacy and cybersecurity issues.

 

  

 

  

 

Norman L. Rosenthal,
Ph.D.

 

Age: 67

Director Since: 2008

 

Independent

 

Committee Memberships:

Audit

 

Public Company Boards: 1

  

Since 1996, Dr. Rosenthal has been President of Norman L. Rosenthal & Associates, Inc., a management consulting firm that specializes in the property and casualty insurance industry. He is also an affiliated partner of Lindsay Goldberg LLC, a private equity firm. Dr. Rosenthal served on the board and as a member of the compensation committee of National Interstate Corporation, a publicly traded insurance company specializing in commercial transportation exposures, from June 2015 until it was acquired by another insurance company in November 2016. He currently serves on the board of The Plymouth Rock Company, a privately held group of auto and homeowners’ insurance companies, as well as that of its subsidiary, Plymouth Rock Management Company of New Jersey. Prior to 1996, Dr. Rosenthal spent 15 years practicing in the property and casualty insurance industry at Morgan Stanley & Co., finishing his tenure there as Managing Director. Dr. Rosenthal holds a Ph.D. in Business and Applied Economics, with an insurance focus, from the Wharton School of the University of Pennsylvania. Dr. Rosenthal has been named a NACD Leadership Fellow every year since 2017.

 

  

 

Skills and Qualifications

 

Dr. Rosenthal’s qualifications to serve on our Board include his extensive experience in the insurance and finance industries, his experience as an investment analyst and his knowledge of enterprise risk management practices.

 

  

 

 

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CORPORATE GOVERNANCE

 

 

Board Leadership Structure

Pat Gallagher currently serves as Chairman of the Board and CEO. With the exception of the Chairman, all Board members are independent and actively oversee the activities of the Chairman and other members of the senior management team. We believe that our Board leadership structure allows us to take advantage of Pat Gallagher’s extensive experience and knowledge of our business, which enriches the Board’s decision making. Pat Gallagher’s role as Chairman and CEO also enhances communication and coordination between management and the Board on critical issues.

David Johnson was originally elected by the Board in 2016 to serve as our independent Lead Director for a two-year term and re-elected in 2018 for a second two-year term. Under our Governance Guidelines, the Lead Director may serve up to two consecutive two-year terms. The duties and responsibilities of the independent Lead Director are set forth below.

 

Independent Lead Director Duties & Responsibilities

 

 

Act as a liaison between the Chairman and the independent directors

 

 

Be available for consultation and communication with stockholders as appropriate

 

 

Call and preside over executive sessions of the independent directors without the Chairman or other members of management present

 

 

Consult with the Chairman and approve Board meeting agendas and schedules

 

 

Consult with the Chairman and approve information provided to the Board

 

 

Consult with committee chairs with respect to agendas and information needs relating to committee meetings

 

 

Work closely with and act as an advisor to the Chairman; be available to discuss with other directors concerns about the company or the Board and relay those concerns, where appropriate, to the Chairman or other members of the Board; and be familiar with corporate governance best practices

 

 

Provide leadership to the Board if circumstances arise in which the role of the Chairman may be, or may be perceived to be, in conflict

 

 

Perform such other duties and responsibilities as the Board may determine

 

The independent directors meet regularly in executive sessions. Executive sessions are held at the beginning and at the end of each regularly scheduled in-person Board meeting. Other executive sessions may be called by the Lead Director at his discretion or at the request of the Board. The committees of the Board also meet regularly in executive sessions. Executive sessions are chaired by our independent Lead Director. The Board believes that its leadership structure as described above provides an effective framework for addressing the risks facing our company.

Director Independence

The Board has conducted its annual review of the independence of each director nominee under NYSE standards and the independence standards set forth in Appendix A of our Governance Guidelines (available on our website located at www.ajg.com/ir, under the heading “Corporate Governance”). Based upon its review, the Board has concluded in its business judgment that, with the exception of Pat Gallagher, all of the director nominees (Sherry S. Barrat, William L. Bax, D. John Coldman, Frank E. English, Jr., David S. Johnson, Kay W. McCurdy, Ralph J. Nicoletti, and Normal L. Rosenthal) and Elbert O. Hand, who is not standing for re-election at the Annual Meeting, are independent.

 

 

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CORPORATE GOVERNANCE

 

 

Board Committees

The Board currently has Audit, Compensation and Nominating/Governance Committees, all of the members of which are independent. The tables below set forth the primary responsibilities, members and the number of meetings held in 2018 for each committee.

 

 

Audit Committee

 

Met 5 times in 2018

 

Committee Members:

William L. Bax (Chair)

Frank E. English, Jr.

Ralph J. Nicoletti

Norman L. Rosenthal

    

 

 

 

  

 

The Audit Committee’s responsibilities include general oversight of the integrity of our financial statements; enterprise risk assessment and management; finance activities; our compliance with legal and regulatory requirements; our independent registered public accounting firm’s qualifications and independence; and the performance of our internal audit function and independent registered public accounting firm.

 

The Audit Committee manages our relationship with our independent registered public accounting firm and is responsible for the appointment, retention, termination and compensation of the independent auditor.

 

Independence and Audit Committee Financial Experts

 

Each member of the Audit Committee meets the additional heightened independence and other requirements of the NYSE listing standards and SEC rules. In addition, the Board has determined that each of Mr. Bax and Mr. Nicoletti qualifies as an “audit committee financial expert” under SEC rules.

 

 

 

Compensation Committee

 

Met 6 times in 2018

 

Committee Members:

Sherry S. Barrat (Chair)

D. John Coldman

Elbert O. Hand (1)

David S. Johnson

Kay W. McCurdy

 

 

  

 

 

  

 

The Compensation Committee’s responsibilities include reviewing and approving compensation arrangements for our executive officers, including our CEO; administering our equity compensation and other benefit plans and reviewing our overall compensation structure to avoid incentives that promote excessive risk-taking by executive officers and other employees.

 

The Compensation Committee engaged a compensation consultant to assist it in carrying out its duties and responsibilities. The Committee has the sole authority to retain and terminate such compensation consultant and the sole authority to approve such consultant’s fees and other retention terms. For more information regarding the role of the Committee’s compensation consultant in setting compensation, see page 21.

 

Independence

 

Each member of the Compensation Committee meets the additional heightened independence and other requirements of the NYSE listing standards.

 

 

 

Nominating/

Governance Committee

 

Met 6 times in 2018

 

Committee Members:

Kay W. McCurdy (Chair)

Sherry S. Barrat

Elbert O. Hand (1)

David S. Johnson

 

 

 

  

 

 

  

 

The Nominating/Governance Committee’s responsibilities include identifying qualified Board and Board committee candidates; recommending changes to the Board’s size and composition; determining outside director compensation; recommending director independence standards and governance guidelines; reviewing and approving related person transactions and reviewing legal and regulatory compliance risks relating to corporate governance.

 

The Committee also engages in succession planning for the Board and key leadership roles on the Board and its committees, taking into consideration skills and characteristics the Board may find valuable in light of the company’s anticipated business needs.

 

Independence

 

Each member of the Nominating/Governance Committee is independent under NYSE standards.

 

 

(1)

Mr. Hand is not standing for re-election at the Annual Meeting.

 

 

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CORPORATE GOVERNANCE

 

 

Board’s Role in Risk Oversight

Overview. The Board is responsible for oversight and monitoring of our enterprise risk management program. In carrying out this responsibility, the Board has designated the Audit Committee with primary responsibility for overseeing enterprise risk management. The other committees of the Board also oversee the management of risks within their areas of responsibilities. The Board receives periodic reports from each committee and from management on our major risks and steps undertaken to monitor and mitigate such risks.

Audit Committee. At each regularly scheduled meeting, the Audit Committee monitors management’s risk management function. It does this by discussing, among other things, guidelines and policies regarding risk assessment and risk management, our major risk exposures, including marketplace, regulatory, cybersecurity and other risks, and steps taken by management to monitor and control such exposures. Our Global Chief Compliance Officer attends each Committee meeting and reports on significant risk and compliance issues. In addition, the Committee oversees an internal audit department, the head of which reports directly to the Committee (on matters other than day-to-day operations). The internal audit department is independent from management and the Committee defines its responsibilities. Among other things, the purpose of the department is to bring a systematic and disciplined approach to evaluating and improving the effectiveness of our risk management, control and governance processes. The internal audit department evaluates the effectiveness of our risk management processes, performs consulting and advisory services for us related to risk management, and reports significant risk exposures to the Committee. The Committee periodically reports to the full Board a summary of its activities and any key findings that arise from its risk oversight and monitoring functions.

Compensation Committee. The Compensation Committee reviews our overall compensation policies and practices to determine whether our program provides incentives for executive officers and other employees to take excessive risks. Based upon an analysis conducted by management and discussions between management and the Committee, the Committee has determined that our compensation policies and practices do not present risks that are likely to have a material adverse effect on us or our business. In reaching this determination, our Committee and management noted the following: (i) no single business unit bears a disproportionate share of our overall risk profile; (ii) no single business unit is significantly more profitable than the other business units; (iii) our compensation practices are substantially consistent across all business units both in the amount and types of compensation awarded; (iv) substantially all of our revenue-producing employees are sales professionals whose compensation is tied to the amount of revenue received by the company; (v) our annual cash incentive program caps payouts at 200% of target awards; and (vi) our PSUs are capped at 200% of target awards and are based on average performance over a three-year measurement period. A significant portion of our senior executives’ compensation is deferred and invested in Gallagher stock through our DEPP and our senior executives own significant amounts of Gallagher stock. In addition, stock options vest

on the third, fourth and fifth anniversaries of the grant date and restricted stock units vest on the fifth anniversary of the grant date. Based on the above, we believe that our compensation practices help ensure that no single year’s results and no single corporate action has a disproportionate effect on executive officers’ annual compensation, and encourage steady and consistent long-term performance by our executive officers.

Nominating/Governance Committee. The Nominating/Governance Committee reviews risks related to our corporate governance structure and processes, including those related to succession planning for the Board and key leadership roles on the Board and its committees. The Committee also reviews related person transactions to evaluate whether our directors and executive officers have conflicts of interest that could interfere with their ability to carry out their duties to the company.

Other Board Matters

Attendance. The Board expects each director to attend and participate in all Board and applicable committee meetings and annual meetings of stockholders. Each director is expected to prepare for meetings in advance and to dedicate the time necessary to discharge properly his or her responsibilities at each meeting and to ensure other commitments do not materially interfere with his or her service on the Board. During 2018, the Board met seven times. All of the nominees attended 75% or more of the aggregate meetings of the Board and the committees on which they served during 2018. With the exception of Mr. Coldman, all of our Board members attended the 2018 Annual Meeting.

Stockholder Communications with the Board. A stockholder or other party interested in communicating with the Board, any of its committees, the Chairman, the Lead Director, the non-management directors as a group or any director individually may do so by writing to their attention at our principal executive offices, Arthur J. Gallagher & Co., c/o Corporate Secretary, 2850 Golf Road, Rolling Meadows, Illinois 60008-4050.

Corporate Governance Materials. We are committed to sound and effective corporate governance. To that end, the Board has adopted Governance Guidelines that set forth principles to assist it in determining director independence and other important corporate governance matters. The Board has also adopted Global Standards of Business Conduct (the Global Standards) that apply to all directors, executive officers and employees. The Global Standards, along with our Governance Guidelines and the charters of the Audit, Compensation and Nominating/Governance Committees, are available at www.ajg.com/ir, under the heading “Corporate Governance.” We will provide a copy of the Global Standards or Governance Guidelines without charge to any person who requests a copy by writing to our Corporate Secretary at 2850 Golf Road, Rolling Meadows, Illinois 60008-4050. We intend to satisfy the disclosure requirements of Item 5.05 of Form 8-K regarding any amendment to, or waiver from, the Global Standards by posting such information on our website.

 

 

 

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Director Compensation

The Board sets the amount and form of director compensation based upon recommendations made by the Nominating/Governance Committee. Pat Gallagher receives no additional compensation for his service as a director. A substantial portion of each non-employee director’s total annual compensation consists of equity grants, in the form of restricted stock units. Under our stock ownership guidelines, directors with at least five years of service are expected to own an amount of our common stock with a value equal to five times the cash portion of the annual director retainer. In 2018, the annual cash retainer was $100,000. All of our directors meet these guidelines.

On May 15, 2018, each non-employee director was granted 2,100 restricted stock units that vest on the first anniversary of the date of grant (or immediately upon a director’s departure from the Board). Committee Chairs receive additional annual fees as follows: $25,000 for the Audit Committee, $20,000 for the Compensation Committee and $15,000 for the Nominating/Governance Committee. The Lead Director receives an additional annual fee of $30,000. Directors are reimbursed for travel and accommodation expenses incurred in connection with attending Board and committee meetings.

Directors may elect to defer all or a portion of their annual cash retainer or restricted stock units under our Deferral Plan for Nonemployee Directors. Deferred cash retainers and restricted stock units are converted to notional stock units, which are credited with dividend equivalents when dividends are paid on our common stock. Deferred restricted stock units are distributed in the form of common stock, and deferred cash retainers and accrued dividend equivalents are distributed in cash, at a date specified by each director or upon such director’s departure from the Board.

 

 

Name

 

    Fees Earned    

    or Paid in Cash    

    ($)    

 

    Stock Awards    

    ($)(1)    

 

        Total        

        ($)        

 

     

 

Sherry S. Barrat

 

 

 

 

 

120,000

 

 

 

 

 

 

 

140,406

 

 

 

 

 

 

 

    260,406    

 

 

 

     

 

William L. Bax

 

 

 

 

 

125,000

 

 

 

 

 

 

 

140,406

 

 

 

 

 

 

 

    265,406    

 

 

 

     

 

D. John Coldman

 

 

 

 

 

100,000

 

 

 

 

 

 

 

140,406

 

 

 

 

 

 

 

    240,406    

 

 

 

     

 

Frank E. English, Jr.

 

 

 

 

 

100,000

 

 

 

 

 

 

 

140,406

 

 

 

 

 

 

 

    240,406    

 

 

 

     

 

Elbert O. Hand

 

 

 

 

 

100,000

 

 

 

 

 

 

 

140,406

 

 

 

 

 

 

 

    240,406    

 

 

 

     

 

David S. Johnson

 

 

 

 

 

130,000

 

 

 

 

 

 

 

140,406

 

 

 

 

 

 

 

    270,406    

 

 

 

     

 

Kay W. McCurdy

 

 

 

 

 

115,000

 

 

 

 

 

 

 

140,406

 

 

 

 

 

 

 

    255,406    

 

 

 

     

 

Ralph J. Nicoletti

 

 

 

 

 

100,000

 

 

 

 

 

 

 

140,406

 

 

 

 

 

 

 

    240,406    

 

 

 

     

 

Norman L. Rosenthal

 

 

 

 

 

100,000

 

 

 

 

 

 

 

140,406

 

 

 

 

 

 

 

    240,406    

 

 

 

 

(1)

This column represents the full grant date fair value of restricted stock units granted in 2018 in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, except that in accordance with SEC rules, any estimate for forfeitures is excluded from, and does not reduce, such amounts. For additional information on the valuation assumptions with respect to awards of restricted stock units, refer to Note 12 to our consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018. Each director had 2,100 unvested restricted stock units outstanding as of December 31, 2018.

 

 

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Certain Relationships and Related Person Transactions

How We Review and Approve Related Person Transactions

We review all relationships and transactions exceeding $120,000 in which the company participates and in which any related person (our directors and executive officers or their immediate family members and any persons owning 5% or more of our common stock) had or will have a direct or indirect material interest. The company’s legal staff is primarily responsible for reviewing such relationships and transactions based on the facts and circumstances, and for developing and implementing processes and controls for obtaining and evaluating information about related person transactions. As required by SEC rules, we disclose in this Proxy Statement all such transactions that are determined to be directly or indirectly material to a related person. In addition, the Nominating/Governance Committee reviews and approves, ratifies or disapproves any such related person transaction. In the course of reviewing and determining whether or not to approve or ratify a disclosable related person transaction, the Committee considers the following factors:

 

 

Nature of the related person’s interest in the transaction

 

 

Material transaction terms, including the amount involved

 

 

Whether the transaction is on terms no less favorable than could have been reached with an unrelated third party

 

 

For employment arrangements, whether compensation is commensurate with that of other employees with equivalent qualifications and responsibilities and holding similar positions

 

 

Importance and potential benefits of the transaction to the related person and to the company

 

 

Whether the transaction would impair a director or executive officer’s judgment to act in the company’s best interest

 

 

Whether the transaction was undertaken in the ordinary course of business

 

 

Any other matters the Committee deems appropriate, including the conflicts of interest and corporate opportunity provisions of our Global Standards of Business Conduct.

Related Person Transactions for 2018

In 2018, the following relatives of Pat Gallagher were employed with us: (i) his sister is head of a specialty sales unit within our brokerage segment and received compensation of $733,457; (ii) his brother-in-law is vice president of niche strategy within our brokerage segment and received compensation of $594,529; (iii) one of his sons is a regional leader within our brokerage segment, and received compensation of $1,047,239; (iv) another son is a branch manager within our brokerage segment and received compensation of $840,390; and (v) a third son is a leader within our brokerage segment in Australia and received compensation of $974,430 (including certain relocation-related payments). In addition, the partner of Joel Cavaness, one of our executive officers, is a client service leader within our brokerage segment and she received compensation of $391,716. The compensation (salary, bonus, and the grant value of equity and cash awards) of each related person described above was commensurate with that of other employees with equivalent qualifications and responsibilities and holding similar positions.

Tom Gallagher, one of our named executive officers, is a brother of our CEO. His compensation is disclosed in the 2018 Summary Compensation Table below.

 

 

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Security Ownership by Certain Beneficial Owners and Management

The table below presents information concerning beneficial ownership of our common stock by: (i) each person we know to be the beneficial owner of more than 5% of our outstanding shares of common stock (as of December 31, 2018); (ii) each of our named executive officers, directors and director nominees (as of March 20, 2019); and (iii) all of our executive officers and directors as a group (as of March 20, 2019). The percentage calculations in this table are based on a total of 185,224,733 shares of our common stock outstanding as of the close of business on March 20, 2019. Unless otherwise indicated below, to our knowledge, the individuals and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned by them, subject to community property laws where applicable. In addition, unless otherwise indicated, the address for all persons named below is c/o Arthur J. Gallagher & Co., 2850 Golf Road, Rolling Meadows, Illinois 60008-4050.

 

           Common Stock Issuable Within 60
Days of March 20, 2019
             
         

Name

 

Shares of

Common
Stock
(1)

    Stock Options    

Restricted Stock

Units (2)

   

Total Beneficial

Ownership

   

Percent of

Common Stock

Outstanding

 

5% Stockholders

 

         

The Vanguard Group (3)

100 Vanguard Blvd.

Malvern, PA 19355

    20,308,477       N/A                N/A                20,308,477       11.0%           
         

BlackRock, Inc. (4)

55 East 52nd Street

New York, NY 10055

    19,674,828       N/A                N/A                19,674,828       10.6%           

Named executive officers, directors and nominees

 

         

Pat Gallagher

    868,461 (5)       161,368                —                1,029,829       *               
         

Doug Howell

    211,619 (6)       102,835                —                314,454       *               
         

Tom Gallagher

    421,682 (7)       78,668                —                500,350       *               
         

Scott Hudson

    26,072 (8)       73,702                —                99,774       *               
         

Walt Bay

    14,344       67,602                —                81,946       *               
         

Sherry S. Barrat

    15,006       —                2,100                17,106       *               
         

William L. Bax

    39,670       —                2,100                41,770       *               
         

D. John Coldman

    6,527       —                2,100                8,627       *               
         

Frank E. English, Jr.

    7,300       —                2,100                9,400       *               
         

Elbert O. Hand

    33,200       —                2,100                35,300       *               
         

David S. Johnson

    46,228       —                2,100                48,328       *               
         

Kay W. McCurdy

    32,632       —                2,100                34,732       *               
         

Ralph J. Nicoletti

    6,217       —                2,100                8,317       *               
         

Norman L. Rosenthal

    30,025 (9)       —                2,100                32,125       *               

All directors and executive officers as a group (18 people)

    1,881,747       591,344                18,900                2,491,991       1.3%           

 

*

Less than 1%

 

(1)

Includes “notional stock units” held under our Supplemental Plan (see page 25) for executive officers. Under this plan, some of our executive officers have deferred restricted stock units upon vesting or elected to invest other deferred amounts into a Gallagher common stock fund. These deferred notional stock units are included because the plan permits participants to elect to move in and out of the Gallagher common stock fund and, as a result, participants have investment power with respect to the underlying shares.

 

 

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(2)

All non-employee director unvested restricted stock units vest immediately upon a director’s departure from the Board, and are included because a director could depart the Board at his or her discretion and acquire rights to the underlying stock within 60 days.

 

(3)

Share total obtained from a Schedule 13G/A filed on February 11, 2019 by The Vanguard Group. Vanguard disclosed that it had sole voting power with respect to 216,212 of these shares, shared voting power with respect to 52,653 shares, sole investment power with respect to 20,046,228 shares, and shared investment power with respect to 262,249 shares.

 

(4)

Share total obtained from a Schedule 13G/A filed on January 10, 2019 by BlackRock, Inc. BlackRock disclosed that it had sole voting power with respect to 17,940,899 of these shares and sole investment power with respect to the full number of shares disclosed.

 

(5)

Includes 52,548 notional stock units (see footnote (1) above); 218,697 shares held in trust for the benefit of his children by his wife, Anne M. Gallagher, and another, as trustees, and over which he has shared voting and shared investment power; 246,538 shares held in a revocable trust of which his wife is the sole trustee and over which he has no voting or investment power and therefore disclaims beneficial ownership; 205,965 shares held by Elm Court LLC, a limited liability company of which the voting LLC membership interests are owned by Pat Gallagher and the non-voting LLC membership interests are owned by a grantor retained annuity trust of which Pat Gallagher is the trustee; and 66,703 shares held in an irrevocable trust of which he is the sole trustee.

 

(6)

Includes 166,437 notional stock units (see footnote (1) above); 2,605 shares held by his wife, over which he has no voting or investment power and therefore disclaims beneficial ownership; and 11,317 shares held in a margin securities account at a brokerage firm, with no loans outstanding in the account.

 

(7)

Includes 5,875 notional stock units (see footnote (1) above); 82,325 shares held in a grantor retained annuity trust of which he is the sole beneficiary; 55,280 shares held in trusts for the benefit of his children, of which his wife is the sole trustee, and over which he has no voting or investment power and disclaims beneficial ownership; 31,671 shares held by his wife, over which he has no voting or investment power; and 66,709 shares held in an irrevocable trust of which he is the sole trustee.

 

(8)

Includes 1,090 notional stock units (see footnote (1) above).

 

(9)

Includes 2,500 shares held in a joint brokerage account with Caryl G. Rosenthal and 2,000 shares held in a joint brokerage account with Marisa F. Rosenthal. These are both margin securities accounts with no loans outstanding. Dr. Rosenthal has shared voting and investment power with respect to these shares.

Section 16(a) Beneficial Ownership Reporting Compliance

Our executive officers, directors and 10% stockholders are required under the Exchange Act to file reports of ownership and changes in ownership with the SEC and the NYSE. Copies of these reports must also be furnished to us. Based on a review of copies of Forms 3, 4 and 5 furnished to us or filed with the SEC, or written representations that no additional reports were required, we believe that, during the last fiscal year, our executive officers, directors and 10% stockholders timely filed all reports required by Section 16(a) of the Exchange Act.

 

 

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Equity Compensation Plan Information

The following table provides information as of December 31, 2018, regarding the number of shares of our common stock that may be issued under our equity compensation plans.

 

  (a) (b) (c)
     

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 column (a))

     

Equity compensation plans approved by security holders

 

10,654,878

(1)

 

 

50.16

(2)

 

 

21,503,351

(3)

 
          

Equity compensation plans not approved by security holders

 

8,000

(4)

 

 

 

     

Total

 

10,662,878

 

50.16

(2)

 

 

21,503,351

 

(1)

This amount includes the following:

 

   

8,782,635 shares that may be issued in connection with outstanding stock options;

 

   

235,100 shares that may be issued in connection with earned performance share units, and unearned performance share units valued at target levels; and

 

   

1,637,143 unvested restricted stock units.

 

(2)

Indicates the weighted average exercise price of the outstanding stock options included in column (a).

 

(3)

This amount includes the following:

 

   

14,717,233 shares available under the 2017 Long-Term Incentive Plan; and

 

   

6,786,118 shares available under our Employee Stock Purchase Plan.

 

(4)

This amount represents deferred restricted stock units under the Restricted Stock Plan, an equity compensation plans not approved by stockholders under which we have outstanding awards. All of our directors, officers and employees were eligible to receive awards under the plan, which provided for the grant of contingent rights to receive shares of our common stock. Awards under the plan were granted at the discretion of the Compensation Committee. Each award granted under the plan represents the right of the holder of the award to receive shares of our common stock, cash or a combination of shares and cash, subject to the holder’s continued employment with us for a period of time after the grant date of the award. The Compensation Committee determined each recipient of an award under the plan, the number of shares of common stock subject to such an award and the period of continued employment required for the vesting of such award. The last year we made awards under this plan was 2009.

 

 

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Audit Matters

Item 2 – Ratification of Appointment of Independent Auditor

The Audit Committee has considered the qualifications of Ernst & Young LLP and has appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019. As a matter of good governance, the Board is submitting the appointment of Ernst & Young LLP to our stockholders for ratification. If the appointment of Ernst & Young LLP is not ratified, the Audit Committee will consider the outcome of this vote in its future deliberations regarding the selection of our independent registered public accounting firm.

Principal Accountant Fees and Services

The following is a summary of Ernst & Young LLP’s fees for professional services rendered to us for the fiscal years ended December 31, 2018 and 2017:

 

    

2018

    2017  
   

Audit Fees(1)

 

$

4,653,000

 

 

$

5,070,000

 

   

Audit-Related Fees(2)

 

 

853,000

 

 

 

1,005,000

 

   

Tax Compliance Fees(3)

 

 

938,000

 

 

 

1,259,000

 

   

Tax Advisory Fees(4)

 

 

3,554,000

 

 

 

3,902,000

 

   

All Other Fees(5)

 

 

34,000

 

 

 

3,000

 

   

Totals

 

$

10,032,000

 

 

$

11,239,000

 

 

(1)

Audit fees include fees associated with the annual audit of our company and our subsidiaries and the effectiveness of internal control over financial reporting, the review of our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, and statutory audits required internationally.

 

(2)

Audit-related fees principally include due diligence in connection with acquisitions, issuance of service auditor reports (SOC 1 and SOC 2) related to operations at one of our subsidiaries and advisory work related to our compliance with foreign statutory requirements.

 

(3)

Tax compliance fees include fees associated with the preparation of our annual Federal and state tax returns.

 

(4)

Tax advisory fees include tax advice and tax planning related to Federal, state and international tax matters.

 

(5)

All other fees principally include fees for access to an online accounting and tax information database.

Audit fees were lower in 2018 due in part to reductions in audit fees and scope of services. Tax compliance and tax advisory fees were lower in 2018 due to a reduction in scope of services.

Audit Committee Pre-Approval Policies and Procedures

All audit services, audit-related services, tax services and other services for fiscal years 2018 and 2017 were pre-approved by the Audit Committee. It is the policy of the Audit Committee to pre-approve the engagement of Ernst & Young LLP before we engage such firm to render audit or other permitted non-audit services. The Audit Committee has adopted procedures for pre-approving all audit and permitted non-audit services provided by Ernst & Young LLP. The Audit Committee annually pre-approves a list of specific services and categories of services, subject to a specified cost level. Part of this approval process includes making a determination as to whether permitted non-audit services are consistent with the SEC’s rules on auditor independence. The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee for the types of services that Ernst & Young LLP has historically been retained to perform related to integrated audit and other recurring services, subject to reporting any such approvals at the next Audit Committee meeting.

A representative of Ernst & Young LLP is expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement if the representative so desires.

 

 

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THE BOARD RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE

APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2019

 

 

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Audit Committee Report

The Audit Committee represents and assists the Board in fulfilling its responsibilities for general oversight of the integrity of the company’s financial statements, risk assessment and risk management, and compliance with legal and regulatory requirements. The Audit Committee manages the company’s relationship with and is responsible for the appointment, retention, termination and compensation of Ernst & Young LLP. Ernst & Young LLP has served as the company’s auditor since 1973. The Audit Committee reviews Ernst & Young LLP’s independence, capabilities, expertise, performance and fees in deciding whether to retain its services.

The company’s management is responsible for the preparation, presentation and integrity of its consolidated financial statements, accounting and financial reporting principles, and internal controls designed to assure compliance with accounting standards and applicable laws and regulations. Ernst & Young LLP is responsible for auditing the company’s consolidated financial statements and expressing an opinion as to their conformity with U.S. generally accepted accounting principles and for auditing the effectiveness of the company’s internal controls over financial reporting. The Audit Committee monitors the financial reporting process and reports its findings to the Board.

The Audit Committee carried out its duties and responsibilities, including the following specific actions:

 

   

Reviewed and discussed with management and Ernst & Young LLP the company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2018 and its internal control over financial reporting as of December 31, 2018;

 

 

   

Reviewed and discussed with Ernst & Young LLP all matters required to be discussed by the standards of the Public Company Accounting Oversight Board (PCAOB); and

 

 

   

Obtained the written disclosures and letter from Ernst & Young LLP regarding its communications with the Audit Committee concerning Ernst & Young LLP’s independence as required by the PCAOB, including the requirements under PCAOB Rule 3526, and has discussed with Ernst & Young LLP its independence.

 

Based on these reviews and discussions with management and Ernst & Young LLP, the Audit Committee recommended to the Board that the company’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018, for filing with the SEC. The Audit Committee believes that the retention of Ernst & Young LLP to serve as the company’s independent registered public accounting firm is in the best interests of the company.

AUDIT COMMITTEE

William L. Bax (Chair)

Frank E. English, Jr.

Ralph J. Nicoletti

Norman L. Rosenthal

 

 

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Compensation Discussion and Analysis

 

 

This Compensation Discussion and Analysis discusses the compensation of the following named executive officers:

  Pat Gallagher

  

Chairman, President and Chief Executive Officer

  Doug Howell

  

Chief Financial Officer

  Tom Gallagher

  

President – Global P/C Brokerage

  Scott Hudson

   President – Risk Management

  Walt Bay

 

  

General Counsel and Secretary

 

Non-GAAP financial measures. See Exhibit A for additional information regarding the non-GAAP financial measures referred to in this Proxy Statement (adjusted revenue, adjusted EBITDAC, and adjusted EBITDAC per share, as defined for our annual cash incentive and performance share unit programs, and adjusted EBITDAC margin and organic revenue growth), including required reconciliations to the most directly comparable GAAP financial measures.

 

Overview of Our Executive Compensation Program

The Compensation Committee believes that our compensation program for named executive officers is balanced and reasonable and helps us retain and motivate highly talented business leaders through a range of economic cycles. We reward performance by emphasizing a balance of short- and long-term compensation vehicles. Annual cash incentives are awarded based on achievement of financial performance measures and the Committee’s assessment of individual performance. Further details on the principles and objectives of our compensation program are set forth below.

 

Principle

  Features of Compensation Program Aligned to Principle
 

Pay-for-Performance

 

  Our program emphasizes at-risk incentive award opportunities, which are tied to specified financial objectives.

 

  Our annual incentive program is based primarily on the achievement of key company performance objectives set by the Compensation Committee.

 

  Our long-term incentive program awards are tied to a combination of stock price performance and achievement of performance objectives established by the Compensation Committee.

 

Attract and Retain
World-Class Talent

 

  Compensation elements and award opportunities enable us to compete effectively for executive talent.

 

  The Compensation Committee engages a compensation consultant to conduct a market assessment to ensure that our program is highly competitive.

 

  High performers are awarded above-target pay when company performance goals are exceeded.

 

Stockholder Alignment

 

  We align the long-term financial interests of our named executive officers and stockholders through (i) performance share units, stock options and restricted stock units with long vesting periods and (ii) our Deferred Equity Participation Plan, which encourages retention and alignment with long-term stockholder interests by requiring our named executive officers to remain employed with us through at least age 62 in order to vest in their awards.

 

  Collectively, our senior executives own significant amounts of Gallagher stock and are subject to rigorous stock ownership guidelines (six times salary for CEO, four times for CFO and three times for other named executive officers). All of our named executive officers meet these guidelines.

 

Committee Discretion

 

  While annual incentive awards are determined primarily based on achievement of company performance objectives, the Compensation Committee exercises discretion when necessary to adjust awards based on factors such as individual or division performance, changes in accounting standards, economic or business conditions, adherence to company values or similar matters.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Key Pay and Governance Practices

The Compensation Committee continually evaluates emerging best practices related to executive compensation and governance and considers modifications to our executive compensation program that support our business strategies, provide an appropriate balance of risk and reward for our named executive officers, and align their compensation with long-term stockholder interests. The following charts summarize certain of our key pay and governance practices.

 

What We Do

 

 

 

LOGO

 

 

 

Double-trigger change-in-control agreements

 

 

 

LOGO

 

 

Our 2017 Long-Term Incentive Plan requires the Board to approve any accelerated payouts on a change in control (i.e., not single-trigger)

 

 

 

LOGO

 

 

 

Performance share units (PSUs) with three-year performance period

 

 

 

LOGO

 

 

Minimum vesting requirements for equity awards under our plans. In practice, PSUs cliff vest in three years, stock options vest ratably over years three through five, and RSUs cliff vest in five years

 

 

 

LOGO

 

 

 

Stock ownership guidelines for executive officers and directors

 

 

 

LOGO

 

 

 

Clawback policy for equity and cash incentive awards

 

What We Don’t Do

 

 

 

LOGO

 

 

 

No single-trigger change-in-control payments in our 2017 Long-Term Incentive Plan or our change in control agreements

 

 

 

LOGO

 

 

 

No guaranteed incentive awards for senior executives

 

 

 

LOGO

 

 

 

No employment agreement with any of our named executive officers

 

 

 

LOGO

 

 

 

No pledging of common stock by executive officers and directors without prior approval

 

 

 

LOGO

 

 

 

No hedging of common stock by executive officers and directors

 

 

 

LOGO

 

 

 

No excessive perquisites or related tax gross-ups

 

 

 

LOGO

 

 

 

No new excise tax gross-ups upon change in control

 

 

 

LOGO

 

 

 

No stock option repricing, stock option cash buyouts, or liberal share recycling in equity plans

 

 

 

Stockholder Views

When making determinations regarding corporate governance and executive compensation, our Board of Directors pays close attention to the views of our stockholders, including the 97.4% approval rate received for our “say on pay” proposal in 2018. In light of this strong level of support, the Compensation Committee did not make any changes to our executive compensation program as a result of the 2018 “say on pay” proposal.

In addition, members of our management team engaged with our largest stockholders to discuss corporate governance and executive compensation matters during the year. In 2017 the Committee implemented a three-year performance period for performance share units (PSUs) based on a new performance measure, average growth in adjusted EBITDAC per share. Based in part on stockholder feedback, the Committee continues to believe that PSUs structured this way, which constitute 75% of our CEO’s and the largest portion of our other named executive officers’ annual equity award value, appropriately align the interests of our executives with those of our stockholders over the long term.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

2018 Compensation

Components of Compensation for Named Executive Officers

 

Compensation Element

 

 

Objective

 

 

Key Features

 

   

 

Base Salary

 

 

Recognize the experience and expertise of our named executive officers and for fulfilling the regular duties and responsibilities of their positions

 

 

 

Base salary may be increased from time to time based on job performance, promotion into a new role, expansion of duties, or market conditions

   

 

Annual Cash Incentives

 

 

Reward strong operational and financial performance that further short-term strategic objectives

 

 

Maximum annual cash incentive opportunities are tied to significant growth in adjusted revenue and adjusted EBITDAC. Final awards are subject to the Committee’s discretion and are determined by the Committee based on various factors, including the company’s organic revenue growth, divisional financial performance and individual achievement

 

See page 18 for more information

 

   

 

Long-Term Incentives

 

Performance share units (PSUs), stock options and restricted stock units

 

 

Tie a significant portion of compensation to our long-term performance, promote retention of named executive officers and align the financial interests of named executive officers with those of stockholders

 

 

PSUs, stock options and restricted stock units each tie named executive officers’ long-term wealth to the performance of our stock while multi-year vesting requirements reinforce sustainable value creation and promote retention of key executives

 

Long-term incentive opportunities are greater for named executive officers with a greater direct impact on long-term company performance

 

See pages 18 to 20 for more information

 

   

 

Deferred Equity Participation Plan (DEPP)

 

 

Promote retention of named executive officers and align their financial interests with those of stockholders

 

 

Vesting of awards is delayed until named executive officers reach age 62, and for one-year increments after such age

 

Each named executive officer has made an irrevocable election to invest their awards in a fund representing our common stock

 

See page 25 for more information

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Annual Cash Incentives

In 2018, the Compensation Committee approved maximum annual cash incentive opportunities to be determined as follows: (i) target award opportunities of 150% of base salary for our CEO and 100% of base salary for our other named executive officers, multiplied by (ii) a percentage determined by the combination of adjusted revenue growth and adjusted EBITDAC growth in the year of performance.

 

       

 

 

Adjusted Revenue Growth*

 

        

0% to 2.49%

 

 

2.5% to 4.99%

 

 

 

5% to 7.49%

 

 

 

7.5% to 9.99%

 

 

 

> 10%

 

Adjusted

EBITDAC

Growth*

 

 

    0% to 4.99%    

 

 

 

100%

 

 

 

100%

 

 

 

100%

 

 

 

100%

 

 

 

100%

 

 

 

    5% to 9.99%    

 

 

 

100%

 

 

 

100%

 

 

 

125%

 

 

 

125%

 

 

 

150%

 

 

 

    10% to 13.99%    

 

 

 

100%

 

 

 

125%

 

 

 

150%

 

 

 

150%

 

 

 

175%

 

 

 

    14-19.99%    

 

 

 

100%

 

 

 

125%

 

 

 

150%

 

 

 

175%

 

 

 

200%

 

 

 

    >20%    

 

 

100%

 

 

 

150%

 

 

 

175%

 

 

 

200%

 

 

 

200%

 

*

We define “adjusted revenue” the same here as we do in our other filings (i.e., revenue for the brokerage segment and revenue before reimbursements for the risk management segment excluding gains on sales of books of business and adjusted to remove the effect of foreign currency translation). However, we define “adjusted EBITDAC” for our annual cash incentives and performance share units as follows: EBITDAC for the brokerage and risk management segments excluding (i) gains on sales of books of business, (ii) lease abandonment and workforce termination charges, and (iii) the effect of foreign currency translation. Unlike adjusted EBITDAC as presented in our most recent earnings release, in this context the measure does not exclude acquisition integration costs and other acquisition-related adjustments. The Committee believes that including the impact of acquisition-related expenses increases management accountability around the execution of our acquisition strategy. If adjusted revenue was less than $3.5 billion or adjusted EBITDAC was less than $300 million no annual cash incentive would be paid.

In 2018, we achieved adjusted revenue growth of 10.4% and adjusted EBITDAC growth of 13.2%. Based on this performance, as highlighted in the table above, each named executive officer qualified for an award opportunity of 175% of his target award. Final awards for each named executive officer, discussed under 2018 Compensation Actions, were determined by the Committee based on the company’s organic revenue growth, divisional financial performance and individual achievement, among other factors.

Long-Term Incentives

In 2018, the Compensation Committee determined a target long-term incentive award value (as a percentage of base salary) for each named executive officer. The Committee based this target value upon a number of factors including retention considerations, internal pay equity, our historical practices and external market data (see discussion of pay comparison groups on page 22). For our CEO and named executive officers who lead an operating division (Tom Gallagher and Scott Hudson), the target award value was allocated between PSUs and stock options. For Doug Howell and Walt Bay, who lead our financial and legal operations, respectively, the Committee allocated the target award value among PSUs, stock options and restricted stock units. PSUs make up the largest portion of each named executive officer’s award due to the Committee’s commitment to drive business performance and align executive interests with stockholder interests. Set forth below is the target award value and allocation between award types for each named executive officer.

 

Named Executive

Officer

 

Target Percent      

of Salary      

 

Target Grant

Amount

   

Performance      

Share Units      

 

Stock      

Options      

 

Restricted      

Stock      

Units      

 

         

 

Pat Gallagher

 

 

 

200%      

 

 

 

    $

 

 

2,500,000

 

 

 

 

 

 

75%      

 

 

 

25%      

 

 

 

 

 

 

 

 

 

 

         

 

Doug Howell

 

 

 

125%      

 

 

 

    $

 

 

1,125,000

 

 

 

 

 

 

60%      

 

 

 

20%      

 

 

 

 

 

 

20

 

 

%     

 

         

 

Tom Gallagher

 

 

 

125%      

 

 

 

    $

 

 

1,125,000

 

 

 

 

 

 

60%      

 

 

 

40%      

 

 

 

 

 

 

 

 

 

 

         

 

Scott Hudson

 

 

 

125%      

 

 

 

    $

 

 

875,000

 

 

 

 

 

 

60%      

 

 

 

40%      

 

 

 

 

 

 

 

 

 

 

         

 

Walt Bay

 

 

 

125%      

 

 

 

    $

 

 

843,750

 

 

 

 

 

 

40%      

 

 

 

30%      

 

 

 

 

 

 

30

 

 

 

Performance Share Units (PSUs). PSUs are granted on a provisional basis and are earned based on our average annual growth in “adjusted EBITDAC” per share (see the definition of “adjusted EBITDAC” under Annual Cash Incentives) over a three-year period. None of the award is earned with lower than 4% growth; 4-9% growth results in a number of earned PSUs interpolated on a straight-line basis between 50% and 100%; 9-14% growth results in a number of earned PSUs interpolated on a straight-line basis between 100% and 200%; and growth above 14% results in named executive officers earning 200% of their original award amounts. Earned PSUs cliff vest on the third anniversary of the grant date and settle in shares. For 2018, our one-year growth in adjusted EBITDAC per share was 11.5%. PSUs granted in 2018 and earned on the basis of average 2018-2020 performance will cliff vest on March 15, 2021 and PSUs granted in 2017 and earned on the basis of average 2017-2019 performance will cliff vest on March 16, 2020. As disclosed in our 2016 Proxy Statement, 95.7% of the PSUs provisionally awarded in 2015 were earned based on our 2015 performance. Those PSUs vested and paid out on March 11, 2018. See 2018 Option Exercises and Stock Vested for more information.

Stock Options and Restricted Stock Units. Stock options vest one-third on each of the third, fourth and fifth anniversaries of the grant date and restricted stock units cliff vest on the fifth anniversary of the grant date. See Outstanding Equity Awards at 2018 Year-End and 2018 Option Exercises and Stock Vested for information regarding vesting and exercise activity in 2018 for these awards.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

2018 Compensation Actions

 

Pat Gallagher – Chairman and CEO

 

    
   

 

Performance

 

  Compensation
 

The Compensation Committee believes that Pat Gallagher performed extremely well in 2018, leading the company to 10.4% adjusted revenue growth, 13.2% adjusted EBITDAC growth and 11.5% adjusted EBITDAC per share growth in our combined brokerage and risk management segments (for definitions of these measures see Annual Cash Incentives above). Gallagher’s total return to stockholders in 2018 was 19.2%. This performance compares favorably to the S&P 500 and S&P P&C Insurance indices, which declined 4.4% and 4.7%, respectively.

 

In addition, the Committee recognized the following aspects of Mr. Gallagher’s performance:

 

Organic growth. The company achieved 5.9% organic revenue growth during the year, 5.6% in the brokerage segment and 7.1% in the risk management segment.

 

Mergers and acquisitions. The company completed 48 acquisitions representing $340 million in acquired annualized revenue.

 

Quality and productivity. The company increased its adjusted EBITDAC margin 40 basis points to 26.0%.

 

Capital management. The company returned $301.8 million to stockholders as dividends, maintained significant liquidity and remained well within its debt covenants.

 

Based on Pat Gallagher’s and the company’s performance, the Compensation Committee made the following compensation decisions for 2018:

 

Base salary – remained the same, at $1,250,000.

 

Annual cash incentive – $3,281,250, 175% of his target award.

 

PSU award – 26,900 PSUs with a grant date value of $1,902,906.

 

Stock option award – 41,400 stock options with an exercise price of $70.74 and a grant date value of $383,789.

 

DEPP award – $1,000,000.

 

Over the past three years, our total return to stockholders (including dividends) was 95.4%, while Pat Gallagher’s compensation increased by 47.5%. As discussed under Comparative Market Assessment, Pat Gallagher’s total compensation is below the median for similarly situated CEOs in our peer group. In light of these considerations, the Compensation Committee increased Mr. Gallagher’s target long-term incentive award for 2019 (consisting of PSUs and stock options) from 200% to 225% of base salary.

 

Doug Howell – Chief Financial Officer

 

    
   

 

Performance

 

  Compensation
 

The Committee evaluated Doug Howell’s performance in light of the company’s overall performance as described above for Pat Gallagher. In addition, the Committee considered the following items:

 

  his contributions as a member of the senior management team to the company’s strong overall financial performance;

 

  his leadership of expense saving initiatives critical to increasing our adjusted EBITDAC margin;

 

  a $500 million debt placement;

 

  implementation of new revenue recognition accounting standards;

 

  successful execution and financing of our acquisition program using primarily cash and debt; and

 

  contribution of $118.6 million to net earnings by our clean energy investments.

 

Based on Doug Howell’s and the company’s performance, the Compensation Committee made the following compensation decisions for 2018:

 

Base salary – increased from $850,000 to $900,000.

 

Annual cash incentive – $1,575,000, 175% of his target award.

 

PSU award – 9,700 PSUs with a grant date value of $686,178.

 

Stock option award – 14,900 stock options with an exercise price of $70.74 and a grant date value of $138,127.

 

Restricted stock unit award – 3,250 restricted stock units with a grant date value of $229,905.

 

DEPP award – $500,000.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

Tom Gallagher – President, Global P/C Brokerage

 

    
   

 

Performance

 

  Compensation
 

In evaluating Tom Gallagher’s performance in 2018, the Committee considered the following items:

 

  his contributions as a member of the senior management team to the company’s strong overall financial performance;

 

  the strong financial performance of our global P/C brokerage business, including 9.8% adjusted revenue growth, 16.1% adjusted EBITDAC growth and 8.0% organic revenue growth;

 

  completion by our global P/C brokerage business of 30 acquisitions representing $161.2 million in acquired annualized revenue; and

 

  a successful transition of leadership of our U.K. brokerage operation from Grahame Chilton to Simon Matson.

 

Based on Tom Gallagher’s and the company’s performance, the Compensation Committee made the following compensation decisions for 2018:

 

Base salary – increased from $800,000 to $900,000 largely based on an increase in responsibility following his assumption of the role of President, Global P/C Brokerage.

 

Annual cash incentive – $1,575,000, 175% of his target award.

 

PSU award – 9,700 PSUs with a grant date value of $686,178.

 

Stock option award – 29,800 stock options with an exercise price of $70.74 and a grant date value of $276,254.

 

DEPP award – $450,000.

 

Scott Hudson – President, Risk Management

 

    
   

 

Performance

 

  Compensation
 

In evaluating Scott Hudson’s performance in 2018, the Committee considered the following items:

 

  his contributions as a member of the senior management team to the company’s strong overall financial performance;

 

  the strong financial performance of our risk management segment, including 8.7% adjusted revenue growth, 10.0% adjusted EBITDAC growth and 7.1% organic revenue growth;

 

  significant progress by the risk management segment in expanding adoption of our service centers in India and Las Vegas; and

 

  successful operational initiatives including continued growth in insurance carrier claim-handling clients and the acquisition of several key specialized partners.

 

 

 

Based on Scott Hudson’s and the company’s performance, the Compensation Committee made the following compensation decisions for 2018:

 

Base salary – increased from $650,000 to $700,000.

 

Annual cash incentive – $1,225,000, 175% of his target award.

 

PSU award – 7,550 PSUs with a grant date value of $534,087.

 

Stock option award – 23,200 stock options with an exercise price of $70.74 and a grant date value of $215,070.

 

DEPP award – $400,000.

 

Walt Bay – General Counsel and Secretary

 

    
   

 

Performance

 

  Compensation
 

In evaluating Walt Bay’s performance in 2018, the Committee considered the following items:

 

  his contributions as a member of the senior management team to the company’s strong overall financial performance;

 

  strong leadership of the company’s legal and compliance departments;

 

  successful management of the company’s legal and reputational risks, including litigation, mergers and acquisitions and regulatory compliance issues; and

 

  his role as a strategic advisor to our Board, CEO and executive management team on key legal and business matters.

 

Based on Walt Bay’s and the company’s performance, the Compensation Committee made the following compensation decisions for 2018:

 

Base salary – increased from $625,000 to $675,000.

 

Annual cash incentive – $1,181,250, 175% of his target award.

 

PSU award – 4,850 PSUs with a grant date value of $343,089.

 

Stock option award – 16,800 stock options with an exercise price of $70.74 and a grant date value of $155,740.

 

Restricted stock unit award – 4,000 restricted stock units with a grant date value of $282,960.

 

DEPP award – $350,000.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Compensation Decision-Making Process

The Compensation Committee is responsible for determining compensation opportunities for our named executive officers, establishing the annual total value to be transferred through our equity plans, setting thresholds, targets and maximum awards for incentive compensation, establishing performance measures and approving final award amounts. To determine compensation opportunities for our named executive officers, the Committee takes into account the compensation objectives noted earlier under Components of Compensation for Named Executive Officers, compensation data for our comparison groups, trends in the financial service and insurance brokerage sectors and the strategic value of a given role, among other factors.

Tally Sheets

The Compensation Committee also considers the data compiled in a tally sheet prepared by management for each named executive officer. Tally sheets provide:

 

  a comprehensive view of our compensation payout exposure under various termination scenarios (for example, voluntary or involuntary termination, retirement, and change in control);

 

  details regarding all compensation, benefits and perquisites delivered to our named executive officers during the most recent three-year period and a projection for the coming year; and

 

  a three-year analysis of equity and deferred compensation, which provides insight into total wealth accumulation for each officer, as well as the sensitivity of these figures to changes in our stock price.

This information provides a comprehensive context in which the Committee can determine the appropriate type and amount of compensation for each named executive officer.

Role of the CEO

At the beginning of each year, Pat Gallagher proposes performance objectives for the company and himself. The Compensation Committee and the Board review these objectives with Mr. Gallagher and make modifications as necessary. Following this review and discussion, the Compensation Committee and the Board finalize and approve the objectives for Mr. Gallagher and the company. The objectives include both quantitative financial measurements and qualitative strategic and operational considerations that focus on factors Mr. Gallagher and the Board believe create long-term stockholder value. Mr. Gallagher reviews and discusses preliminary considerations regarding his own compensation with the Compensation Committee but does not participate in the Committee’s final determination of his compensation. Mr. Gallagher also reviews the performance of each other named executive officer and presents a summary of these performance reviews to the Committee, along with preliminary recommendations regarding salary adjustments, if any, and annual award amounts.

Role of the Compensation Consultant

The Compensation Committee retained Pearl Meyer & Partners, LLC (Pearl Meyer) as its independent executive compensation consultant. In connection with its engagement, Pearl Meyer reviewed 2018 proxy season results and implications for our pay practices; assisted in the review and confirmation of our peer group for executive compensation and performance review purposes; provided updates on emerging executive compensation trends, including proxy advisory firm and regulatory developments; and reviewed and assessed all elements of our pay programs for executive officers, including the competitiveness of pay levels and incentive program design. The Committee assessed Pearl Meyer’s independence pursuant to SEC and NYSE rules and concluded that no conflict of interest exists that would prevent Pearl Meyer from serving as an independent consultant to the Committee.

Tax Considerations

Section 162(m) of the Internal Revenue Code limits the deductibility for Federal income tax purposes of compensation payable in a taxable year to our named executive officers to the extent that such compensation exceeds $1 million. In 2018, all of our named executive officers received compensation in excess of $1 million and, therefore, that portion of the compensation expense was non-deductible.

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Comparative Market Assessment

The Compensation Committee reviews compensation data from two different comparison groups as a market reference for its named executive officer compensation decisions.

Proxy Comparison Group

The Compensation Committee uses the Proxy Comparison Group as a reference point for our compensation plan structure, pay mix, general equity granting practices and individual pay levels.

This group is focused on our direct competitors for executive talent. Its members are selected from insurance brokers and carriers and from professional and financial services companies that may compete with us for executive talent or in specific lines of business.

The companies listed below under “Insurance Brokers” are of particular interest for the Compensation Committee. Although Aon, Marsh & McLennan and Willis Towers Watson are larger than we are on several size dimensions, the Committee believes it is important to understand their compensation programs given that they compete with us the most directly. Additionally, we are similarly-sized to the median-sized company in the broader peer group.

The companies set forth below were used for the 2018 analysis. There were no changes to this group from the prior year.

 

Insurance Brokers

 

Aon plc

 

Brown & Brown, Inc.

 

Marsh & McLennan Companies, Inc.

 

Willis Towers Watson plc

 

 

Insurance Carriers

 

American Financial Group Inc.

 

Arch Capital Group Ltd.

 

Axis Capital Holdings Ltd.

 

W.R. Berkley Corp.

 

CNA Financial Corp.

 

Markel Corp.

 

Old Republic International Corp.

 

Unum Group

 

XL Group Ltd.*

 

Professional / Financial Services Firms

 

Fidelity National Financial, Inc.

 

Raymond James Financial, Inc.

 

Survey Comparison Group

The Compensation Committee also uses a Survey Comparison Group as a reference point for individual pay levels for certain executive positions.

This group consists of insurance and general industry companies similar to us in total assets, revenue or number of employees. In 2018, the Compensation Committee reviewed pay data from two published surveys, Executive Compensation Survey conducted by Mercer and Top Management Industry Compensation Survey conducted by Willis Towers Watson.

Results of the Comparative Market Assessment

For 2018, the Compensation Committee examined the total direct compensation opportunity (base salary, annual cash incentives and long-term incentives) for each named executive officer, as well as each individual element of compensation. Data from the Proxy Comparison Group and Survey Comparison Group were used as a market reference for compensation decisions. The Compensation Committee does not target total compensation to a specific percentile of comparison group compensation.

The comparative market assessment showed that total direct compensation for our named executive officer group was generally competitive with the Proxy Comparison Group. However, the assessment showed that Pat Gallagher’s total direct compensation was below the median for similarly situated CEOs in the Proxy Comparison Group.

 

 

*

Acquired by AXA in September 2018.

 

 

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Compensation Committee Report

The Compensation Committee oversees the company’s compensation program for named executive officers on behalf of the Board. In fulfilling its oversight responsibilities, the Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis set forth above.

Based on the review and discussion referred to above, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the company’s 2019 Proxy Statement and incorporated by reference in its 2018 Annual Report on Form 10-K, which it files with the SEC.

COMPENSATION COMMITTEE

Sherry S. Barrat (Chair)

D. John Coldman

Elbert O. Hand

David S. Johnson

Kay W. McCurdy

 

 

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Executive Compensation Tables

2018 Summary Compensation Table

 

   Name and
   Principal Position
  Year    

Salary

($)

   

Stock

Awards

($) (1)

   

Option

Awards

($) (2)

   

Non-Equity

Incentive Plan

Compensation

($) (3)

   

Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

($) (4)

   

All Other

Compensation

($) (5)(6)

   

Total

($)

 
               

 

Pat Gallagher

Chairman, President and
Chief Executive Officer

 

 

 

 

 

2018

 

 

 

 

 

 

1,250,000

 

 

 

 

 

 

1,902,906

 

 

 

 

 

 

383,778

 

 

 

 

 

 

3,281,250

 

 

 

 

 

 

5,001

 

 

 

 

 

 

1,240,019

 

 

 

 

 

 

8,062,954

 

 

 

 

 

 

2017

 

 

 

 

 

 

1,250,000

 

 

 

 

 

 

1,856,479

 

 

 

 

 

 

665,786

 

 

 

 

 

 

2,812,500

 

 

 

 

 

 

87,165

 

 

 

 

 

 

1,214,561

 

 

 

 

 

 

7,886,491

 

 

 

 

 

 

2016

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

823,934

 

 

 

 

 

 

531,505

 

 

 

 

 

 

2,250,000

 

 

 

 

 

 

37,215

 

 

 

 

 

 

1,096,513

 

 

 

 

 

 

5,739,167

 

 

               

 

Doug Howell

Chief Financial Officer

 

 

 

 

2018

 

 

 

 

 

 

900,000

 

 

 

 

 

 

916,083

 

 

 

 

 

 

138,123

 

 

 

 

 

 

1,575,000

 

 

 

 

 

 

 

 

 

 

 

 

656,068

 

 

 

 

 

 

4,185,274

 

 

 

 

 

 

2017

 

 

 

 

 

 

850,000

 

 

 

 

 

 

841,528

 

 

 

 

 

 

226,116

 

 

 

 

 

 

1,275,000

 

 

 

 

 

 

2,630

 

 

 

 

 

 

580,302

 

 

 

 

 

 

3,775,576

 

 

 

 

 

 

2016

 

 

 

 

 

 

850,000

 

 

 

 

 

 

701,546

 

 

 

 

 

 

225,615

 

 

 

 

 

 

1,275,000

 

 

 

 

 

 

1,638

 

 

 

 

 

 

572,447

 

 

 

 

 

 

3,626,246

 

 

               

 

Tom Gallagher

President – Global P/C Brokerage

 

 

 

 

2018

 

 

 

 

 

 

900,000

 

 

 

 

 

 

686,178

 

 

 

 

 

 

276,246

 

 

 

 

 

 

1,575,000

 

 

 

 

 

 

 

 

 

 

 

 

1,073,473

 

 

 

 

 

 

4,510,897

 

 

 

 

 

 

2017

 

 

 

 

 

 

800,000

 

 

 

 

 

 

594,187

 

 

 

 

 

 

425,966

 

 

 

 

 

 

1,200,000

 

 

 

 

 

 

69,973

 

 

 

 

 

 

1,042,191

 

 

 

 

 

 

4,132,317

 

 

 

 

 

 

2016

 

 

 

 

 

 

750,000

 

 

 

 

 

 

310,341

 

 

 

 

 

 

299,130

 

 

 

 

 

 

1,125,000

 

 

 

 

 

 

28,886

 

 

 

 

 

 

2,115,624

 

 

 

 

 

 

4,628,981

 

 

               

 

Scott Hudson

President – Risk Management

 

 

 

 

2018

 

 

 

 

 

 

700,000

 

 

 

 

 

 

534,087

 

 

 

 

 

 

215,064

 

 

 

 

 

 

1,225,000

 

 

 

 

 

 

 

 

 

 

 

 

506,754

 

 

 

 

 

 

3,180,905

 

 

               
                                                               
               

 

Walt Bay

General Counsel and Secretary

 

 

 

 

2018

 

 

 

 

 

 

675,000

 

 

 

 

 

 

626,049

 

 

 

 

 

 

155,736

 

 

 

 

 

 

1,181,250

 

 

 

 

 

 

 

 

 

 

 

 

467,033

 

 

 

 

 

 

3,105,068

 

 

               
               

 

(1)

This column includes the full grant date fair value of PSUs and restricted stock units granted during each fiscal year. The amounts reported in this column have been calculated in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. The amounts reported in this column for PSUs granted during each fiscal year represent the value of each award at the grant date based upon the probable outcome of the performance conditions under the program, determined in accordance with FASB ASC Topic 718. In accordance with SEC rules, any estimate for forfeitures is excluded from, and does not reduce, such amounts. Maximum payouts for the PSU awards as of the date of grant were as follows: Pat Gallagher – $3,805,812; Doug Howell – $1,372,356; Tom Gallagher – $1,372,356; Scott Hudson – $1,068,174; and Walt Bay – $686,178. For a discussion of PSUs, see page 18. For additional information on the valuation assumptions with respect to stock grants, refer to Note 12 to our consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018.

 

(2)

This column represents the full grant date fair value of stock option awards granted during each fiscal year. The amounts reported in this column have been calculated in accordance with FASB ASC Topic 718. In accordance with SEC rules, any estimate for forfeiture is excluded from, and does not reduce, such amounts. For additional information on the valuation assumptions with respect to option grants, refer to Note 10 to our consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018.

 

(3)

This column represents annual performance-based cash incentive awards related to services rendered in 2016, 2017 and 2018. Awards are reported for the year in which they are earned, regardless of the year in which they are paid. These awards were paid fully in cash in April of 2017 and March of 2018 and 2019, respectively.

 

(4)

The amounts shown in this column represent the aggregate change in actuarial present value of each named executive officer’s benefits under our pension plan, except where such change is a negative value. When that is the case, SEC rules require that a zero be included in this table. In 2018, such figures were as follows: Doug Howell – $(922) and Tom Gallagher – $(27,308). Scott Hudson and Walt Bay do not have any accrued benefits under our pension plan.

 

(5)

The 2017 amount for Tom Gallagher has been revised to include non-U.S. tax reimbursements of $536,259.

 

 

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Table of Contents

EXECUTIVE COMPENSATION TABLES

 

 

 

(6)

For 2018, includes the following:

 

   Named Executive
   Officer
  DEPP
Awards*
($)
    Supplemental
Plan Match**
($)
    401(k)
Match***
($)
    Corporate
Auto &
Insurance
($)
    Financial
Advisory
Services
($)
    Non U.S. Tax
Reimbursement
($)
    Club Memberships
Not Exclusively
For Business Use,
Cell Phone
Allowance, Non-
Employee Travel
($)
 
             

 

Pat Gallagher

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

189,375    

 

 

 

 

 

 

 

 

 

13,750

 

 

 

 

 

 

 

 

 

8,649  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

 

 

 

28,245        

 

 

 

 

             

 

Doug Howell

 

 

 

 

 

 

500,000

 

 

 

 

 

 

 

 

 

95,000    

 

 

 

 

 

 

 

 

 

13,750

 

 

 

 

 

 

 

 

 

8,649  

 

 

 

 

 

 

 

 

 

16,155

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

 

 

 

22,514        

 

 

 

 

             

 

Tom Gallagher

 

 

 

 

 

 

450,000

 

 

 

 

 

 

 

 

 

75,000    

 

 

 

 

 

 

 

 

 

13,750

 

 

 

 

 

 

 

 

 

5,049  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

524,840    

 

 

 

 

 

 

 

 

 

4,834        

 

 

 

 

             

 

Scott Hudson

 

 

 

 

 

 

400,000

 

 

 

 

 

 

 

 

 

70,000    

 

 

 

 

 

 

 

 

 

13,750

 

 

 

 

 

 

 

 

 

6,849  

 

 

 

 

 

 

 

 

 

16,155

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

 

 

 

—        

 

 

 

 

             

 

Walt Bay

 

 

 

 

 

 

350,000

 

 

 

 

 

 

 

 

 

66,875    

 

 

 

 

 

 

 

 

 

13,750

 

 

 

 

 

 

 

 

 

8,649  

 

 

 

 

 

 

 

 

 

16,155

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

 

 

 

11,604        

 

 

 

 

*Deferred Equity Participation Plan (DEPP)

Deferred cash awards under the DEPP are nonqualified deferred compensation awards under Section 409A of the Internal Revenue Code. Each named executive officer has made an irrevocable election to have such awards deemed invested in a fund representing shares of our common stock. Awards under the DEPP do not vest until participants reach age 62 (or the one-year anniversary of the date of grant for participants over the age of 61, which applies to Pat Gallagher). Accordingly, amounts in the plan are subject to forfeiture in the event of a voluntary termination of employment prior to age 62 (or the minimum one-year vesting period). Awards deemed invested in our common stock provide an incentive for our named executive officers to manage our company for earnings growth and total shareholder return. In addition, the deferred realization of these awards encourages retention of our named executive officers until a normal retirement age, and for one-year increments after such age.

**Supplemental Savings and Thrift Plan (Supplemental Plan) Match

The Supplemental Plan allows certain highly compensated employees (those with compensation greater than an amount set annually by the IRS) to defer up to 80% of their base salary and annual cash incentive payment. We match any deferrals of salary and annual cash incentive payments on a dollar-for-dollar basis up to the lesser of (i) the amount deferred or (ii) 5% of the employee’s regular earnings minus the maximum contribution that we could have matched under the 401(k) Plan. All such cash deferrals and match amounts may be deemed invested, at the employee’s election, in a number of investment options that include various mutual funds, an annuity product and a fund representing our common stock. Such employees may also defer restricted stock units and PSUs, but these deferrals are not subject to company matching. Amounts held in the Supplemental Plan accounts are payable as of the employee’s termination of employment, or at such other time as the employee elects in advance of the deferral, subject to certain exceptions set forth in IRS regulations.

***401(k) Match

Under our 401(k) Savings and Thrift Plan (401(k) Plan), a tax qualified retirement savings plan, participating employees, including our named executive officers, may contribute up to 75% of their earnings on a before-tax or after-tax basis into their 401(k) Plan accounts, subject to limitations imposed by the Internal Revenue Service (IRS). Under the 401(k) Plan, we match an amount equal to one dollar for every dollar an employee contributes on the first 5% of his or her regular earnings. The 401(k) Plan has other standard terms and conditions.

 

 

LOGO

 

 

 

2019 PROXY STATEMENT

 

 

 

25

 


Table of Contents

EXECUTIVE COMPENSATION TABLES

 

 

2018 Grants of Plan-Based Awards

 

Name

  Plan    

Grant

Date

   

 

Estimated Future Payouts

Under Non-Equity
Incentive Plan Awards

   

 

Estimated Future Payouts

Under Equity
Incentive Plan Awards

   

All Other

Stock

Awards:

Number of

Shares of

Stock or

Units

(#)

 

 

   

All Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)

 

 

   

Exercise

or Base

Price of

Option

Awards

($/sh)

 

 

   

Grant

Date Fair

Value of

Stock and

Option

Awards

($)

 

 

 
 

Threshold 

($)

 

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

 
                       

Pat Gallagher

 

 

LTIP

(1) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,400

 

 

 

70.74

 

 

 

383,789

 

                       
   

 

LTIP

(3) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

13,450

 

 

 

26,900

 

 

 

53,800

 

 

 

 

 

 

 

 

 

 

 

 

1,902,906

 

                       
   

 

ANNUAL

(4) 

 
 

 

N/A

 

 

N/A  

 

 

1,875,000

 

 

 

3,750,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

                       

Doug Howell

 

 

LTIP

(1) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,900

 

 

 

70.74

 

 

 

138,127

 

                       
   

 

LTIP

(2) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,250

 

 

 

 

 

 

 

 

 

229,905

 

                       
   

 

LTIP

(3) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

4,850

 

 

 

9,700

 

 

 

19,400

 

 

 

 

 

 

 

 

 

 

 

 

686,178

 

                       
   

 

ANNUAL

(4) 

 
 

 

N/A

 

 

N/A  

 

 

900,000

 

 

 

1,800,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

                       

Tom Gallagher

 

 

LTIP

(1) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,800

 

 

 

70.74

 

 

 

276,254

 

                       
   

 

LTIP

(3) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

4,850

 

 

 

9,700

 

 

 

19,400

 

 

 

 

 

 

 

 

 

 

 

 

686,178

 

                       
   

 

ANNUAL

(4) 

 
 

 

N/A

 

 

N/A  

 

 

900,000

 

 

 

1,800,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

                       

Scott Hudson

 

 

LTIP

(1) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,200

 

 

 

70.74

 

 

 

215,070

 

                       
   

 

LTIP

(3) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

3,775

 

 

 

7,550

 

 

 

15,100

 

 

 

 

 

 

 

 

 

 

 

 

534,087

 

                       
   

 

ANNUAL

(4) 

 
 

 

N/A

 

 

N/A  

 

 

700,000

 

 

 

1,400,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

                       

Walt Bay

 

 

LTIP

(1) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,800

 

 

 

70.74

 

 

 

155,740

 

                       
   

 

LTIP

(2) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,000

 

 

 

 

 

 

 

 

 

282,960

 

                       
   

 

LTIP

(3) 

 
 

 

3/15/18

 

 

—  

 

 

 

 

 

 

 

 

2,425

 

 

 

4,850

 

 

 

9,700

 

 

 

 

 

 

 

 

 

 

 

 

343,089

 

                       
 

 

ANNUAL

(4) 

 
 

 

N/A

 

 

N/A  

 

 

675,000

 

 

 

1,350,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A

 

 

(1)

Stock options under our 2017 Long-Term Incentive Plan, vesting one-third on each of the third, fourth and fifth anniversaries of the grant date.

 

(2)

Restricted stock units under our 2017 Long-Term Incentive Plan, vesting on the fifth anniversary of the grant date.

 

(3)

The range of possible awards each named executive officer is eligible to receive on the third anniversary of the grate date related to performance share units under our 2017 Long-Term Incentive Plan. See page 18.

 

(4)

The amounts in this line represent the range of possible annual cash incentive award the named executive officer was eligible to receive in March 2019, related to 2018 performance under our annual cash incentive program. The amounts were subject to performance criteria and subject to the Compensation Committee’s downward discretion. The amounts actually awarded to each named executive officer are reported in the “Non-Equity Incentive Plan Compensation” column of the 2018 Summary Compensation Table and footnote (3) thereto.

 

 

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Table of Contents

EXECUTIVE COMPENSATION TABLES

 

 

Outstanding Equity Awards at 2018 Fiscal Year-End

 

 

Name

 

Option Awards (1)

 

   

Stock Awards

 

 
 

Number of

Securities

Underlying

Unexercised

Options (#)

 

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

 

Unexercisable

   

Option

Exercise

Price ($)

   

Option

Expiration

Date

   

Number

of Shares or
Units of Stock

That Have Not
Vested
(2) (#)

   

Market Value
of Shares or
Units of Stock

That Have Not
Vested
(3) ($)

   

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units

or Other
Rights
That
Have Not
Vested
(4)
(#)

 

 

   

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
(5)
($)

 

 
               

Pat Gallagher

    34,600       0       35.71       3/16/19                          
               
    35,700       0       39.17       3/13/20                          
               
    47,134       23,566       46.87       3/12/21                          
               
    17,001       33,999       46.17       3/11/22                          
               
    0       62,900       43.71       3/17/23                          
               
    0       58,300       56.86       3/16/24                          
               
    0       41,400       70.74       3/15/25                          
               
                                     

 

18,850

 

 

 

   

 

1,389,245

 

 

 

   

 

59,550

 

 

 

   

 

8,777,670

 

 

 

               

Doug Howell

    13,600       0       35.71       3/16/19                          
               
    20,000       0       39.17       3/13/20                          
               
    40,801       20,399       46.87       3/12/21                          
               
    6,367       12,733       46.17       3/11/22                          
               
    0       26,700       43.71       3/17/23                          
               
    0       19,800       56.86       3/16/24                          
               
    0       14,900       70.74       3/15/25                          
               
                                     

 

26,950

 

 

 

   

 

1,986,215

 

 

 

   

 

20,800

 

 

 

   

 

3,065,920

 

 

 

               

Tom Gallagher

    21,300       0       39.17       3/13/20                          
               
    18,467       9,233       46.87       3/12/21                          
               
    8,934       17,866       46.17       3/11/22                          
               
    0       35,400       43.71       3/17/23                          
               
    0       37,300       56.86       3/16/24                          
               
    0       29,800       70.74       3/15/25                          
               
                                     

 

7,100

 

 

 

   

 

523,270

 

 

 

   

 

20,150

 

 

 

   

 

2,970,110

 

 

 

               

Scott Hudson

    10,200       0       35.71       3/16/19                          
               
    15,100       0       39.17       3/13/20                          
               
    8,867       4,433       46.87       3/12/21                          
               
    17,535       35,065       46.17       3/11/22                          
               
    0       30,700       43.71       3/17/23                          
               
    0       30,300       56.86       3/16/24                          
               
    0       23,200       70.74       3/15/25                          
               
           

 

9,200

 

 

 

   

 

678,040

 

 

 

   

 

16,050

 

 

 

   

 

2,365,770

 

 

 

 

 

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2019 PROXY STATEMENT

 

 

 

27

 


Table of Contents

EXECUTIVE COMPENSATION TABLES

 

 

 

Name

 

Option Awards (1)

 

   

Stock Awards

 

 
 

Number of

Securities

Underlying

Unexercised

Options (#)

 

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

 

Unexercisable

   

Option

Exercise

Price ($)

   

Option

Expiration

Date

   

Number

of Shares or
Units of Stock

That Have Not
Vested
(2) (#)

   

Market Value
of Shares or
Units of Stock

That Have Not
Vested
(3) ($)

   

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units

or Other
Rights
That
Have Not
Vested
(4)
(#)

 

 

   

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
(5)
($)

 

 

 
               

Walt Bay

    13,800       0       39.17       3/13/20                          
               
    35,534       17,766       46.87       3/12/21                          
               
    4,201       8,399       46.17       3/11/22                          
               
    0       17,700       43.71       3/17/23                          
               
    0       21,800       56.86       3/16/24                          
               
    0       16,800       70.74       3/15/25                          
               
           

 

20,500

 

 

 

   

 

1,510,850

 

 

 

   

 

10,300

 

 

 

   

 

1,518,220

 

 

 

 

(1)

Stock options vest in accordance with the following vesting schedules:

 

Expiration Date

 

 

One-third vests on each of:

 

 

3/16/19

 

March 16, 2015, March 16, 2016 and March 16, 2017

 

3/13/20

 

March 13, 2016, March 13, 2017 and March 13, 2018

 

3/12/21

 

March 12, 2017, March 12, 2018 and March 12, 2019

 

3/11/22

 

March 11, 2018, March 11, 2019 and March 11, 2020

 

3/17/23

 

March 17, 2019, March 17, 2020 and March 17, 2021

 

3/16/24

 

March 16, 2020, March 16, 2021 and March 16, 2022

 

3/15/25

 

March 15, 2021, March 15, 2022 and March 15, 2023

 

(2)

The following table provides information with respect to the vesting of each named executive officer’s unvested restricted stock units and earned performance share units as of December 31, 2018:

 

Vesting Date

  Type of award   Pat
Gallagher
  Doug
Howell
  Tom
Gallagher
  Scott
Hudson
  Walt
Bay
           

3/11/20

  Restricted Stock Units*         —     3,950       —   3,050     3,050
           

3/17/21

  Restricted Stock Units*         —     5,350       —       —     5,350
           

3/16/22

  Restricted Stock Units*         —     3,700       —       —     4,550
           

3/15/23

  Restricted Stock Units*         —     3,250       —       —     4,000
           

3/17/19

  Performance Share Units**   18,850   10,700   7,100   6,150     3,550
           

Total

    18,850   26,950   7,100   9,200   20,500

 

  *

Granted in 2015, 2016, 2017 and 2018 (vesting five years from the date of grant).

 

  **

Granted and earned based on our performance in 2016.

 

 

 

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Table of Contents

EXECUTIVE COMPENSATION TABLES

 

 

(3)

The amounts in this column are based on a closing stock price of $73.70 for our common stock on December 31, 2018.

 

(4)

The following table provides information with respect to the vesting of each named executive officer’s unearned unvested performance share units as of December 31, 2018:

 

Vesting Date

  Type of award   Pat
Gallagher
    Doug
Howell
    Tom
Gallagher
    Scott
Hudson
    Walt
Bay
 

 

3/16/20

 

 

 

Performance Share Units*

 

 

 

 

 

 

32,650   

 

 

 

 

 

 

 

 

 

11,100

 

 

 

 

 

 

 

 

 

10,450  

 

 

 

 

 

 

 

 

 

8,500 

 

 

 

 

 

 

 

 

 

5,450

 

 

 

 

 

3/15/21

 

 

 

Performance Share Units**

 

 

 

 

 

 

26,900   

 

 

 

 

 

 

 

 

 

9,700

 

 

 

 

 

 

 

 

 

9,700  

 

 

 

 

 

 

 

 

 

7,550 

 

 

 

 

 

 

 

 

 

4,850

 

 

 

 

 

Total

 

   

 

 

 

 

59,550   

 

 

 

 

 

 

 

 

 

20,800

 

 

 

 

 

 

 

 

 

20,150  

 

 

 

 

 

 

 

 

 

16,050 

 

 

 

 

 

 

 

 

 

10,300

 

 

 

 

 

  *

Granted in 2017, to be earned on the basis of 2017-2019 performance. See page 18 for more information.

 

  **

Granted in 2018, to be earned on the basis of 2018-2020 performance. See page 18 for more information.

 

(5)

The amounts in this column are based on a closing stock price of $73.70 for our common stock on December 31, 2018 and a 200% payout. See page 18 for more information.

2018 Option Exercises and Stock Vested

 

  Option Awards Stock Awards
       

Name

Number of
Shares
Acquired
on Exercise

(#)

Value
Realized on
Exercise

($)

Number of
Shares
Acquired on
Vesting

(#) (1)(2)

Value
Realized on
Vesting

($) (1)(2)

       

Pat Gallagher

  43,362   1,804,522   15,064   1,094,098
       
       

Doug Howell

  16,261   656,655   11,606   839,218
       
       

Tom Gallagher

  26,700   1,018,629   5,260   382,034
       
       

Scott Hudson

      6,367   459,261
       
       

Walt Bay

  10,600   395,889   6,367   459,261
       

 

(1)

These columns reflect the vesting of restricted stock units and performance share units, as applicable. Restricted stock units awarded on March 12, 2014 vested on March 12, 2018, with value realized of $71.71 per share plus accrued cash dividend equivalents. Performance share units awarded on March 11, 2015 (and 95.7% earned on the basis of 2015 performance) vested on March 11, 2018, with value realized of $72.63 per share plus accrued cash dividend equivalents.

 

(2)

Pursuant to the terms of the Supplemental Plan (see page 25), Doug Howell deferred receipt of 4,050 shares related to the March 12, 2018 vesting of restricted stock units he was awarded on March 12, 2014. The shares were valued at $290,426 at the time of vesting. He elected a lump-sum distribution in July 2019.

2018 Pension Benefits

 

Name

Plan Name

Number
of
    Years of    

Credited
Service
(#)
(1)

Present
Value of
Accumulated
Benefit ($)

 

Pat Gallagher

 

 

Arthur J. Gallagher & Co. Employees’ Pension Plan        

 

 

 

 

 

25

 

 

 

 

 

 

 

780,053

 

 

 

 

Doug Howell

 

 

Arthur J. Gallagher & Co. Employees’ Pension Plan        

 

 

 

 

 

1

 

 

 

 

 

 

 

23,922

 

 

 

 

Tom Gallagher

 

 

Arthur J. Gallagher & Co. Employees’ Pension Plan        

 

 

 

 

 

25

 

 

 

 

 

 

 

472,916

 

 

 

 

Scott Hudson

 

 

Arthur J. Gallagher & Co. Employees’ Pension Plan        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walt Bay

 

 

Arthur J. Gallagher & Co. Employees’ Pension Plan        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The last year of credited service was 2005. Total years of actual service were as follows at December 31, 2018: Pat Gallagher - 44; Doug Howell - 15; Tom Gallagher - 38; Scott Hudson - 8; and Walt Bay - 11.

We maintain the Arthur J. Gallagher & Co. Employees’ Pension Plan (the Pension Plan) which is qualified under the Internal Revenue Code and which historically covered substantially all domestic employees. In 2005, we amended the Pension Plan to freeze the accrual of future benefits for all domestic employees effective July 1, 2005. Benefits under the Pension Plan are based upon the employee’s

 

 

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Table of Contents

EXECUTIVE COMPENSATION TABLES

 

 

highest average annual earnings for a five calendar-year period with us and are payable after retirement in the form of an annuity or a lump sum. The maximum amount of annual earnings that may be considered in calculating benefits under the Pension Plan is $210,000 (the maximum amount of annual earnings allowable by law in 2005, the last year that benefits accrued under the Pension Plan).

Benefits under the Pension Plan are calculated as an annuity equal to 1% of the participant’s highest annual average earnings multiplied by years of service, and commencing upon the participant’s retirement on or after age 65. The maximum benefit under the pension plan upon retirement would be $53,318 per year, payable at age 65 in accordance with IRS regulations. Participants also may elect to commence their pensions anytime on or after attaining age 55 if they retire prior to age 65, with an actuarial reduction to reflect the earlier commencement date, ranging from 54% at age 55 to no reduction at age 65. All of our named executive officers with accumulated benefits under the plan are eligible to take this early retirement option. For additional information on the valuation assumptions with respect to pensions, refer to Note 13 to our consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018.

2018 Nonqualified Deferred Compensation

 

<

Name

  Plan Name   Executive
Contributions
in Last Fiscal
Year
($)
(1)
    Registrant
Contributions
in Last Fiscal
Year
($)
(2)
    Aggregate
Earnings
in Last
Fiscal
Year
($)
(3)
    Aggregate
Withdrawals/
Distributions
in Last
Fiscal
Year
($)
(4)
   

Aggregate
Balance
at Last
Fiscal
Year

End
($)
(4)(5)

 

Pat Gallagher

 

 

DEPP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

1,171,874

 

 

 

 

 

 

 

 

 

57,672

 

 

 

 

 

 

 

 

 

7,927,215

 

 

 

 

 

 

Supplemental Plan

 

 

 

 

 

 

406,250

 

 

 

 

 

 

 

 

 

189,375

 

 

 

 

 

 

 

 

 

381,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,712,938

 

 

 

 

Doug Howell

 

 

DEPP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500,000

 

 

 

 

 

 

 

 

 

1,797,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,532,674

 

 

 

 

 

 

Supplemental Plan

 

 

 

 

 

 

631,613

 

 

 

 

 

 

 

 

 

95,000

 

 

 

 

 

 

 

 

 

1,673,126