Rowan Companies plc (NYSE:RDC) Files An 8-K Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
Item 5.02
|
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On February 22, 2017, the Compensation Committee (the
Committee) of the Board of Directors (the Board) of
Rowan Companies plc (the Company) made the following
determinations regarding compensation for the Companys named
executive officers (NEOs). Certain determinations, as
appropriate, were ratified by the Board on the same day.
2016 Annual Incentive Plan and NEO
Caps
NEOs participated in the Companys 2016 annual incentive plan
(AIP), the material terms of which were approved by the
Committee in early 2016 and previously disclosed. Each
participant in the AIP has an incentive target that is a
percentage of base salary.
The 2016 AIP has a metrics component representing 75% of the
target payout, and a discretionary component representing 25%.
The metrics component is determined by the Companys performance
against the five metrics shown below. As previously disclosed,
due to the challenging market conditions in our industry and at
managements recommendation, the 2016 AIP metrics component was
capped at 150% of target for NEOs. The 25% discretionary
component is determined by the Committee based on Company
achievements and performance during the year. The total payout to
any participant may be adjusted upwards or downwards depending on
individual performance.
The 2016 AIP required the Company to achieve an initial
performance threshold in order to preserve the deductibility of
AIP awards intended to qualify as performance-based compensation
under Section 162(m) of the Code for federal income tax purposes.
The Committee certified that such threshold was met, and the 2016
AIP was fully funded, with the actual AIP payout determined by
the Committee as shown below.
The performance against our metrics was as follows:
| Metric | Weighting | Target Performance | Actual Performance | Percent of Target Achieved | Payout Percentage | |||||
|
Adjusted EBITDA (a) |
50% | $814.7 MM | $985.3 MM | 200% | 100% | |||||
|
Change in Cash Balance (b) |
20% |
$469.7 MM ($968.9 MM balance) |
$1,277.7 MM | 200% | 40% | |||||
|
HSE (TRIR) (c) |
15% | 0.8 | 0.59 | 200% | 30% | |||||
|
HSE (TPHR) (d) |
5% | 5.5 | 5.61 | 95% | 4.7% | |||||
| Contracted Non-Productive Time (e) | 10% | 3.20% | 2.54% | 200% | 20% | |||||
| TOTAL: | 194.7% |
| (a) |
Adjusted EBITDA is a non-GAAP financial measure. Although the Committee considered the following items, no adjustment was necessary as the Company had achieved the maximum performance level on this metric. EBITDA adjusted to (i) remove the negative 2016 impact of the blend and extend contract on the Rowan Resolute drillship and (ii) remove the impact of accelerated earnings into 2016 from the contract termination settlement on the Rowan Relentless drillship. |
| (b) |
Given the expected prolonged industry downturn, the cash metric was added to the 2016 AIP to focus on maintaining a strong cash and liquidity position. Change in cash balance is the change in cash from the end of the prior year compared to the end of the current year utilizing a 30-day average cash balance from December 15 through January 15, adjusted for special circumstances such as share or debt repurchases, blend and extend contract amendments, contract terminations, acquisitions and other unique circumstances. |
Although the Committee considered the following items, no
adjustment was necessary as the Company had achieved the maximum
performance level on this metric. Cash adjusted to (i) account
for year-to-date debt repurchases in excess of the new issuance
of debt; (ii) remove the negative 2016 impact of the blend and
extend contract on the Rowan Resolute drillship; and (iii) remove
the positive impact of cash received in 2016 for the termination
of the Rowan Reliance drillship contract.
| (c) |
Safety performance is derived from our internal incident reporting by comparing the trailing Total Recordable Incident Rate (TRIR) with Company goals. |
| (d) |
Total Potential Hurt Rate (TPHR) is derived from our internal incident reporting by comparing the trailing TPHR with Company goals. |
| (e) |
NPT refers to any period when a rig is on location and under contract but was not operational due to equipment failure or other unplanned stoppage. Represents the percentage of total offshore contracted hours down versus the total offshore hours (excluding significant periods of standby hours). NPT excludes hours for inspections and planned maintenance. |
In determining the payout for the 25% discretionary component,
the Committee reviewed, among other things, the Companys
operational and financial accomplishments of the year, absolute
and relative share price performance, the Companys liquidity
profile, strategic transactions, and continuous improvement
efforts that might not be reflected in the 75% metrics component.
The Committee determined that management had achieved outstanding
performance in 2016 as reflected in the Companys relative and
absolute share performance and improved liquidity position.
However, given the continued challenging market conditions in the
offshore drilling sector, the Committee capped the discretionary
portion at 150%, resulting in a total bonus payout for NEOs under
the 2016 AIP of 150%.
For more information regarding the Companys 2016 AIP, please see
the Companys proxy statement to be filed for the annual
shareholder meeting in 2017.
The following 2016 AIP payments to NEOs were approved:
| Executive Officer | 2016 AIP Payout ($) | |||
|
Thomas P. Burke, President and Chief Executive Officer |
1,080,000 | |||
|
Stephen M. Butz, Executive Vice President and Chief Financial Officer |
396,900 | |||
|
Mark A. Keller, Executive Vice President, Business Development |
449,730 | |||
|
Melanie M. Trent, Executive Vice President, Chief Administrative Officer, General Counsel and Company Secretary |
378,000 | |||
|
T. Fred Brooks, Executive Vice President, Operations and Engineering |
278,990 | |||
Payments with regard to Performance
Units
The performance periods with respect to PUs awarded in 2014 ended
as of December 31, 2016. Payments with respect to the 2014 PUs
will be paid in March 2017 at the end of the three-year cliff
vesting period.
| Executive Officer | Total Aggregate Payout for 2014 PUs ($) (a) | |||
| Burke | 3,033,346 | |||
| Butz | N/A (b) | |||
| Keller | 1,422,921 | |||
| Trent | 962,581 | |||
| Brooks | 867,299 | |||
| (a) | Based a payout per 2014 PU of $191.33. |
| (b) |
Mr. Butz joined the Company in December 2014, and therefore did not receive an annual PU award in 2014. |
2017 Compensation
Based on managements recommendation, the Committee did not make
any changes to base salaries or AIP and LTIP targets for 2017.
However, given the 10% reduction in base salaries effective since
July 1, 2016, the Committee may review compensation later in 2017
to ensure that NEO compensation remains competitive with peer
companies.
| Executive Officer |
2017 Salary ($) (a) |
2017 AIP Target Multiple (% of base salary) |
2017 LTI Target Multiple (% of base salary) (b) |
|||||||||
| Burke | 720,000 | 100% | 450% | |||||||||
| Butz | 378,000 | 70% | 325% | |||||||||
| Keller | 428,324 | 70% | 325% | |||||||||
| Trent | 360,000 | 70% | 300% | |||||||||
| Brooks | 360,000 | 70% | 300% | |||||||||
| (a) |
Reflects voluntary 10% discounted base salary, effective through at least June 30, 2017. |
| (b) |
2017 LTI awards were based on the multiple of base salary prior to the NEOs voluntary reduction in base salaries. |
2017 Long-Term Incentive Awards
NEOs target long-term incentive awards (LTI) are based on
a percentage of base salary. For 2017, 50% of such value was
granted in restricted share units (RSUs) vesting pro rata
over three years, and 50% in performance units (PUs) cliff
vesting on the third anniversary of the grant. These awards were
granted under the Companys incentive plan (the Plan):
| Executive Officer | Restricted Share Unit Value ($)* | Performance Unit Target Value($)(a)* | ||||||
| Burke | 1,800,000 | 1,800,000 | ||||||
| Butz | 682,500 (b) | 682,500 | ||||||
| Keller | 773,344 | 773,344 | ||||||
| Trent | 600,000 | 600,000 | ||||||
| Brooks | 600,000 | 600,000 | ||||||
| * |
Value amounts are calculated using the executive officers LTI target multiple of base salary, prior to managements voluntary 10% reduction. These values may not reflect grant date values calculated in accordance with accounting requirements. The number of RSUs to be awarded is determined based on the fair market value per share on February 22, 2017 and the number of PUs to be awarded is determined based on a target value of $100 per unit. |
| (a) |
The PUs may be settled in shares, cash or a combination of both at the discretion of the Compensation Committee at the time of settlement. The value of the PUs will be determined with reference to the Companys total shareholder return performance relative to the Companys peer offshore drilling companies measured each year and over the three-year period. |
| (b) |
In addition to his annual award, Mr. Butz received a one-time retention award on February 22, 2017 equal to 150% of his LTI target, or approximately $2.05 million in RSUs that cliff vest on the fourth anniversary of the grant. The Committee felt such award was appropriate in light of Mr. Butz outstanding accomplishments since joining the Company in 2014 and in order to increase Mr. Butz ownership stake in the Company comparably with his peer executives. |
2017 Annual Incentive Plan
The Committee established initial performance thresholds for the
2017 AIP of any of the following: more than $10 million of
EBITDA, $1 million of pretax operating earnings after interest
expense and before incentives, service fees and extraordinary or
special items, or $100 million of gross margin.
The 2017 AIP metrics and weightings remain unchanged from the
2016 AIP, as follows:
| Metric | Weighting | |||
| EBITDA | 50% | |||
| Cash Balance | 20% | |||
| HSE (TRIR) (a) | 15% | |||
| HSE (TPHR) (b) | 5% | |||
| Contracted Non-Productive Time (NPT) | 10% | |||
| Total | 100% | |||
| (a) | Total recordable incident rate. |
| (b) | Total potential hurt rate. |
Consistent with the prior year, achievement of these metrics will
determine 75% of the 2016 AIP payout, with the metrics component
capped at 150% for NEOs. The remaining 25% of the AIP payout will
be subject to the discretion of the Committee taking into account
various Company achievements and factors, such as absolute total
shareholder return performance, backlog additions, start-up of
the Companys joint venture with Saudi Aramco, other strategic
transactions, cost management initiatives, and allocation of
capital.
CEO Retention Award
The Board has been very pleased with Dr. Burkes outstanding
performance and leadership during his tenure as CEO, and as a
result, the Committee approved a one-time award to further align
Dr. Burkes stake in the Company with that of our shareholders. On
February 22, 2017, Dr. Burke received a grant value of
approximately $5 million in RSUs and value of approximately $2.5
million in options. Both awards cliff vest in four years and the
options have a seven year exercise term.
Policy for Vesting of Awards upon
Retirement
Beginning with awards granted in February 2017, the Board
modified the Companys retirement policy such that for employees
who have reached 60 years of age with five years of service, RSUs
will continue to vest and be settled on the regular vesting
schedule set forth in the applicable award notice (as opposed to
upon retirement date) and PUs will be pro-rated for the time
employed during the relevant performance periods and paid on the
regular payment date.
The vesting acceleration may be subject to any conditions or
limitations as the Committee may determine with respect to
specific awards, such as retirement notification requirements,
post-termination covenants relating to non-competition or
non-solicitation of employees or customers. The Committee may
determine in its sole discretion whether the policy will apply to
any award. The Committee may terminate, amend or modify the
policy with respect to future awards at any time.
| Item 9.01 | Financial Statements and Exhibits. |
| Exhibit No. | Description |
| 10.1 |
Forms of Restricted Share Unit Award Notice and Performance Unit Award Notice |
| 10.2 | Forms of Retention Award Notices |
About Rowan Companies plc (NYSE:RDC)
Rowan Companies plc is a provider of offshore contract drilling services to the international oil and gas industry. The Company operates through two segments: deepwater and jack-ups. Its deepwater segment consists of drillship operations. Its fleet consists of approximately 30 mobile offshore drilling units, including self-elevating jack-up rigs and ultra-deepwater drillships. Its drilling fleet consists of approximately four ultra-deepwater drillships; 20 high-specification cantilever jack-up rigs, including three N-Class rigs, four EXL class rigs, three 240C class rigs, four enhanced Super Gorilla class rigs, one Gorilla class rig, and four Tarzan Class rigs, and eight cantilever jack-up rigs, including two Gorilla class rigs and six 116-C class rigs. The Company’s fleet operates across the world, including the United States Gulf of Mexico, the United Kingdom and Norwegian sectors of the North Sea, the Middle East and Trinidad. Rowan Companies plc (NYSE:RDC) Recent Trading Information
Rowan Companies plc (NYSE:RDC) closed its last trading session down -0.60 at 18.02 with 4,517,183 shares trading hands.