UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐ Preliminary Proxy Statement |
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☐ Confidential, For Use of the Commission Only(as permitted by Rule 14a-6(e)(2)) |
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☒ Definitive Proxy Statement |
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☐ Definitive Additional Materials | ||
☐ Soliciting Material Under Rule 14a-12 |
Altria Group, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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(4) | Date Filed: April 6, 2017 |
6601 West Broad Street
Richmond, Virginia 23230
Dear Fellow Shareholder:
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I am pleased to invite you to join us at the 2017 Annual Meeting of Shareholders of Altria Group, Inc. to be held on Thursday, May 18, 2017 at 9:00 a.m., Eastern Time, at the Greater Richmond Convention Center, 403 North 3rd Street, Richmond, Virginia 23219.
At this years meeting, we will vote on the election of 11 directors, the ratification of the selection of PricewaterhouseCoopers LLP as Altrias independent registered public accounting firm and, if properly presented, one shareholder proposal. We will also conduct non-binding advisory votes on both the compensation of Altrias named executive officers and the frequency of future votes on named executive officer compensation. We will also report on our business, and shareholders will have an opportunity to ask questions.
To attend the meeting, an admission ticket and government-issued photo identification are required. To request an admission ticket, please follow the instructions on page 10 in response to Question 16. One immediate family member who is 21 years of age or older may accompany a shareholder as a guest. |
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We use the U.S. Securities and Exchange Commission rule that allows companies to furnish proxy materials to their shareholders over the Internet. We believe this expedites shareholders receiving proxy materials, lowers costs and conserves natural resources. We thus are mailing to many shareholders a Notice of Internet Availability of Proxy Materials, rather than a paper copy of the Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. The Notice of Internet Availability explains how to access the proxy materials online, vote online and obtain a paper copy of our proxy materials.
Your vote is very important. I encourage you to complete, sign and return your proxy card, or use telephone or Internet voting prior to the meeting, so that your shares will be represented and voted at the meeting even if you cannot attend.
April 6, 2017
Sincerely,
Martin J. Barrington Chairman, Chief Executive Officer and President |
For further information about the 2017 Annual Meeting, please call 1-804-484-8838
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NOTICE OF 2017 ANNUAL MEETING OF
SHAREHOLDERS OF ALTRIA GROUP, INC.
DATE AND TIME: |
Thursday, May 18, 2017 at 9:00 a.m., Eastern Time |
PLACE: |
The Greater Richmond Convention Center |
403 North 3rd Street
Richmond, Virginia 23219
ITEMS OF BUSINESS: |
1) | To elect as directors the 11 nominees named in the accompanying Proxy Statement. |
2) | To ratify the selection of PricewaterhouseCoopers LLP as Altrias independent registered public accounting firm for the fiscal year ending December 31, 2017. |
3) | To hold a non-binding advisory vote to approve the compensation of Altrias named executive officers. |
4) | To hold a non-binding advisory vote on whether future advisory votes to approve the compensation of Altrias named executive officers should occur every one, two or three years. |
5) | To vote on one shareholder proposal, if properly presented at the meeting. |
6) | To transact other business properly coming before the meeting. |
WHO CAN VOTE: |
You are entitled to vote if you were a shareholder of record at the close of business on Monday, March 27, 2017. |
VOTING: |
We urge you to participate in the meeting, either by attending and voting in person or by voting through other acceptable means as promptly as possible. You may vote by telephone, through the Internet or by mailing your completed and signed proxy card (or voting instruction form, if you hold your shares through a broker, bank or other nominee). Each share is entitled to one vote on each matter to be voted upon at the annual meeting. Your vote is important and we urge you to vote. |
MEETING ADMISSION: |
If you plan to attend the meeting, you must request an admission ticket in advance. To request an admission ticket, please follow the instructions on page 10 in response to Question 16 of the accompanying Proxy Statement. |
2016 ANNUAL REPORT: |
A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 accompanies this Proxy Statement. |
DATE OF DISTRIBUTION: |
This Notice, the Proxy Statement and proxy card are first being made available or mailed to shareholders on or about April 6, 2017. |
By Order of the Board of Directors, | ||
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W. Hildebrandt Surgner, Jr. | ||
Corporate Secretary |
April 6, 2017
Richmond, Virginia
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 18, 2017
Altrias Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K
for the fiscal year ended December 31, 2016 are available, free of charge, at www.altria.com/proxy.
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ALTRIA GROUP, INC. Proxy Statement i
PROXY STATEMENT TABLE OF CONTENTS
ii ALTRIA GROUP, INC. Proxy Statement
This summary highlights information about Altria Group, Inc. (Altria, we, our or us) and certain information contained elsewhere in this proxy statement (Proxy Statement) for Altrias 2017 Annual Meeting of Shareholders (the 2017 Annual Meeting or the meeting). This summary does not contain all of the information that you should consider in voting your shares. You should read the entire Proxy Statement carefully before voting.
VOTING MATTERS AND BOARD RECOMMENDATIONS
Proposal | Board Vote Recommendation |
Page Reference | ||||
Proposal 1
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Election of Directors
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FOR each nominee
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58
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Proposal 2 |
Ratification of the Selection of Independent Registered Public Accounting Firm
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FOR |
64 | |||
Proposal 3 |
Non-Binding Advisory Vote to Approve the Compensation of Altrias Named Executive Officers
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FOR |
65 | |||
Proposal 4 |
Non-Binding Advisory Vote on the Frequency of Future Advisory Votes to Approve the Compensation of Altrias Named Executive Officers
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1 YEAR |
66 | |||
Proposal 5 |
Shareholder Proposal Regarding Advertising in Minority/Low Income Neighborhoods
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AGAINST |
67 |
CASTING YOUR VOTE
How to Vote | Shareholders of Record (Shares registered in your name
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Street Name Holders (Shares held through a Broker, Bank or Other Nominee) | ||||
Internet
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Visit the applicable voting website:
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www.investorvote.com/altria
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www.proxyvote.com
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Mobile Device |
Scan the QR Code to vote using your mobile device: |
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Refer to voting instruction form.
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Telephone |
Within the United States, U.S. Territories and Canada, call toll-free:
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1-800-652-VOTE (8683)
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Refer to voting instruction form.
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Complete, sign and mail your proxy card or voting instruction form in the self-addressed envelope provided.
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In Person
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For instructions on attending the 2017 Annual Meeting in person, please see Question 16 on page 10. |
ALTRIA GROUP, INC. Proxy Statement 1
PROXY STATEMENT SUMMARY
BOARD NOMINEES
You are being asked to vote on the following 11 nominees for director. All directors are elected annually by a majority of the votes cast. Information about each directors experiences, qualifications and skills can be found beginning on page 58.
Name | Age | Director Since |
Principal Occupation | Independent | Board Committee Membership* | |||||
Gerald L. Baliles |
76 |
2008 |
Retired Director and Chief Executive Officer, Miller Center of Public Affairs
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Yes |
CC, EC, IC, NC | |||||
Martin J. Barrington |
63 |
2012 |
Chairman, Chief Executive Officer and President, Altria Group, Inc.
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No |
EC | |||||
John T. Casteen III
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73
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2010
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President Emeritus, University of Virginia
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Yes
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AC, IC, NC
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Dinyar S. Devitre
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69
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2008
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Former Chief Financial Officer, Altria Group, Inc.
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Yes
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FC, IC
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Thomas F. Farrell II |
62 |
2008 |
Chairman, President and Chief Executive Officer, Dominion Resources, Inc.
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Yes |
CC, EC, NC | |||||
Debra J. Kelly-Ennis |
60 |
2013 |
Retired President and Chief Executive Officer, Diageo Canada, Inc.
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Yes |
AC, IC, NC | |||||
W. Leo Kiely III
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70
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2011
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Retired Chief Executive Officer, MillerCoors LLC
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Yes
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CC, EC, FC, IC
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Kathryn B. McQuade |
60 |
2012 |
Retired Executive Vice President and Chief Financial Officer, Canadian Pacific Railway Limited
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Yes |
AC, CC, FC | |||||
George Muñoz |
65 |
2004 |
Principal, Muñoz Investment Banking Group, LLC and Partner, Tobin & Muñoz
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Yes |
AC, EC, FC, NC | |||||
Nabil Y. Sakkab |
69 |
2008 |
Retired Senior Vice President, Corporate Research and Development, The Procter & Gamble Company
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Yes |
EC, FC, IC, NC | |||||
Virginia E. Shanks |
56 |
Executive Vice President and Chief Administrative Officer, Pinnacle Entertainment, Inc.
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Yes |
* AC Audit Committee CC Compensation Committee |
EC Executive Committee FC Finance Committee |
IC Innovation Committee NC Nominating, Corporate Governance & Social Responsibility Committee |
CORPORATE GOVERNANCE HIGHLIGHTS
2 ALTRIA GROUP, INC. Proxy Statement
PROXY STATEMENT SUMMARY
SHAREHOLDER ENGAGEMENT
We value our shareholders perspective on our businesses and each year interact with shareholders through numerous engagement activities. In 2016, these included three investor road shows, six investor conferences, numerous individual investor meetings and our 2016 Annual Meeting of Shareholders (2016 Annual Meeting). We also sought the views of investors on our executive compensation program. We value the investor perspectives that we gain through these activities.
Our Investor Relations department is the contact point for shareholder interaction with us. Shareholders may also access investor information about Altria through our website at www.altria.com/investors. For questions concerning Investor Relations, please call 804-484-8222 or e-mail us from the Contact Us section available on our website (www.altria.com/ContactUs).
2016 BUSINESS HIGHLIGHTS
We had another outstanding year. We grew our earnings in line with our long-term objectives while returning a large amount of cash to shareholders, improving our balance sheet and strengthening our organizational capability. Highlights from 2016 include the following:
▪ | Our total shareholder return (TSR) of 20.5% outpaced both the S&P 500 and the S&P Food, Beverage & Tobacco Index, marking the fourth consecutive year that TSR exceeded 20%. |
Source: | Bloomberg Daily Return (December 31, 2015 - December 31, 2016) |
Source: | Bloomberg Daily Return (December 31, 2013 - December 31, 2016) | |||||||||
Note: | Assumes reinvestment of dividends as of the ex-dividend date. |
Note: | Assumes reinvestment of dividends as of the ex-dividend date. |
▪ | We continued to deliver against our two long-term financial goals of growing adjusted diluted earnings per share (EPS) (1) at an average annual rate of 7% to 9% and maintaining a target dividend payout ratio of approximately 80% of adjusted diluted EPS. |
▪ | Full-year adjusted diluted EPS, which excludes the impact of special items, grew 8.2%, in line with our long-term objectives. |
▪ | We paid over $4.5 billion in dividends in 2016, consistent with our goal of paying out approximately 80% of adjusted diluted EPS. |
▪ | In August 2016, our Board of Directors (Board of Directors or Board) raised the regular quarterly dividend by 8.0%, which was our 50th dividend increase in the last 47 years. |
▪ | Also during 2016, we repurchased 16.2 million shares at an average price of $63.48 for a total cost of approximately $1 billion. |
(1) | Adjusted diluted EPS is a financial measure that is not consistent with generally accepted accounting principles in the United States (GAAP). See Annex A to this Proxy Statement for information regarding non-GAAP financial measures used in this Proxy Statement and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures. |
ALTRIA GROUP, INC. Proxy Statement 3
PROXY STATEMENT SUMMARY
▪ | Our core businesses produced another year of excellent results on the strength and consistency of their leading premium brands. |
▪ | The smokeable products segment grew adjusted operating companies income (OCI) (2) by 5.3%, and Philip Morris USA Inc. (PM USA) maintained retail share of Marlboro near record levels at 44.0%. |
▪ | The smokeless products segment grew adjusted OCI by 11.0% and U.S. Smokeless Tobacco Company LLC (USSTC) grew retail share of Copenhagen and Skoal combined by 0.9 share points to 52.2%, the highest full-year share since we acquired USSTC. |
▪ | Ste. Michelle Wine Estates Ltd. (Ste. Michelle) grew adjusted OCI by 9.9% and is one of the fastest growing premium wine companies in the United States. |
▪ | In October 2016, Anheuser-Busch InBev SA/NV completed its business combination with SABMiller plc (ABI/SABMiller transaction), and we received shares representing a 9.6% ownership in the combined company. The newly formed Belgian company, which retained the name Anheuser-Busch InBev SA/NV (AB InBev), became the holding company for the combined companies businesses. Subsequently, we purchased approximately 12 million ordinary shares of AB InBev, increasing our ownership to approximately 10.2%. |
For more information regarding our 2016 performance, please review our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (2016 Annual Report on Form 10-K).
EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS
▪ | Annual incentive awards for our executive officers named in the Summary Compensation Table on page 44 (named executive officers or NEOs) reflect our excellent 2016 business performance and are consistent with or slightly higher than last years awards. Stock awards reflected in the Summary Compensation Table were granted in January 2016 and reflect the executives individual performance in 2015 and advancement potential. |
(2) | Adjusted OCI is a financial measure that is not consistent with GAAP. See Annex A to this Proxy Statement for information regarding non-GAAP financial measures used in this Proxy Statement and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures. |
4 ALTRIA GROUP, INC. Proxy Statement
PROXY STATEMENT SUMMARY
▪ | The 2014 2016 performance cycle for the Long-Term Incentive Plan (LTIP) concluded on December 31, 2016. The LTIP cash payments shown in the Summary Compensation Table on page 44 are based on performance over the entire three-year 2014 2016 LTIP cycle. The LTIP operates on an end-to-end basis without overlapping cycles or annual payments for the LTIP. Thus, the last LTIP awards were paid at the end of the 2011 2013 cycle. The footnotes to the Summary Compensation Table show LTIP payments had they been allocated over the three-year 2014 2016 performance cycle. |
▪ | At the 2016 Annual Meeting, 93% of the votes cast approved, on an advisory basis, the compensation of our NEOs demonstrating strong alignment of shareholder interests with our executive compensation program and philosophy. |
▪ | The Compensation Committee made the following changes to our executive compensation program in 2016: |
▪ | Added performance stock units (PSUs) beginning with the January 2017 annual grant of equity compensation. For that grant, executives received a mix of 60% restricted stock units (RSUs) and 40% PSUs. The addition of PSUs, combined with our existing cash LTIP, increases to over 60% the portion of our executives long-term incentives that is tied to business performance. |
▪ | Added a requirement that prohibits executive officers from selling shares received as compensation until they meet their stock ownership requirement. |
▪ | Added an anti-pledging policy. |
Key Governance Features of Our Executive Compensation Program
The following summary highlights our commitment to executive compensation practices that align the interests of our executives and shareholders:
What We Do | What We Dont Do | |||||||
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Pay for Performance - A significant portion of our NEOs compensation is at-risk variable compensation.
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No Excessive Perquisites - Perquisites represent less than 2% of our NEOs compensation.
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✓
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Multiple Performance Metrics - Variable compensation is based on more than one measure to encourage balanced incentives.
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û
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No Single-Trigger Change in Control - Our shareholder-approved 2015 Performance Incentive Plan includes a double-trigger change in control provision.
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✓
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Stock Holding and Ownership Requirements - All NEOs exceed our robust stock ownership requirements.
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û
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No Individual Supplemental Executive Retirement Plans
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✓
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Clawback Provisions - Our policy provides for the adjustment or recovery of compensation in certain circumstances.
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û
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No Hedging or Pledging - We do not permit our executive officers to engage in either hedging or pledging activities with respect to their Altria shares.
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✓
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Award Caps - All our variable compensation plans have caps on plan formulas.
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û
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No Employment Agreements - All of our NEOs are employed at-will.
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✓
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Below Average Share Utilization - We have below average run rates for equity compensation, as compared to S&P 500 companies.
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û
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No Tax Gross-Ups
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✓
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Tally Sheets - The Compensation Committee reviews compensation tally sheets at least annually as part of making individual compensation decisions for our NEOs.
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No Share Recycling
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✓
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Confidentiality & Non-Compete Agreements - All NEOs are subject to confidentiality and non-compete agreements.
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ALTRIA GROUP, INC. Proxy Statement 5
QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING
1. | WHY DID I RECEIVE THESE PROXY MATERIALS? |
2. | WHAT IS A PROXY? |
3. | WHAT IS THE RECORD DATE AND WHAT DOES IT MEAN? |
4. | WHAT IS THE DIFFERENCE BETWEEN A SHAREHOLDER OF RECORD AND A SHAREHOLDER WHO HOLDS SHARES IN STREET NAME? |
5. | WHAT ARE THE DIFFERENT METHODS THAT I CAN USE TO VOTE MY SHARES OF COMMON STOCK? |
6 ALTRIA GROUP, INC. Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING
6. | WHAT ITEMS WILL BE VOTED ON AT THE 2017 ANNUAL MEETING? |
Proposal
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Voting Choices, Board Recommendation and Voting Requirement
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Proposal 1 Election of Directors (pages 58 63) |
Voting Choices Vote for a nominee; Vote against a nominee; or Abstain from voting on a nominee.
Board Recommendation Our Board recommends a vote FOR each of the nominees named in the Proxy Statement.
Voting Requirement Directors will be elected by a majority of the votes cast. A majority of the votes cast means that the number of votes FOR a nominee must exceed the number of votes AGAINST that nominee.
Any director who receives a greater number of votes AGAINST his or her election than votes FOR such election is required to offer promptly in writing to submit his or her resignation to our Board in accordance with our Corporate Governance Guidelines. The Nominating, Corporate Governance and Social Responsibility Committee will consider the offer and recommend to our Board whether to accept the offer. The full Board will consider all factors it deems relevant to our best interests, make a determination and publicly disclose its decision and rationale within 90 days after confirmation of the election results.
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Proposal 2 Ratification of the Selection of Independent Registered Public Accounting Firm (page 64) |
Voting Choices Vote for the ratification; Vote against the ratification; or Abstain from voting.
Board Recommendation Our Board recommends a vote FOR this proposal.
Voting Requirement The selection of the independent registered public accounting firm will be ratified if the votes cast FOR exceed the votes cast AGAINST.
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Proposal 3 Non-Binding Advisory Vote to Approve the Compensation of Altrias Named Executive Officers (page 65) |
Voting Choices Vote for the compensation of our named executive officers; Vote against the compensation of our named executive officers; or Abstain from voting.
Board Recommendation Our Board recommends a vote FOR this proposal.
Voting Requirement The compensation of our named executive officers will be approved on an advisory basis if the votes cast FOR exceed the votes cast AGAINST.
This vote is not binding upon Altria, our Board or the Compensation Committee. Nevertheless, the Compensation Committee values the opinions expressed by shareholders through their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for our named executive officers.
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ALTRIA GROUP, INC. Proxy Statement 7
QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING
Proposal
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Voting Choices, Board Recommendation and Voting Requirement
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Proposal 4 Non-Binding Advisory Vote on the Frequency of Future Advisory Votes to Approve the Compensation of Altrias Named Executive Officers (page 66) |
Voting Choices Every year; Every two years; Every three years; or Abstain from voting.
Board Recommendation Our Board recommends a vote FOR 1 YEAR.
Voting Requirement If none of the frequency options receives a majority of the votes cast, the option receiving the greatest number of votes will be considered the frequency recommended by shareholders.
This vote is not binding on Altria, our Board or the Compensation Committee. Nevertheless, our Board values the opinions expressed by shareholders in their vote on this proposal and will consider the outcome of the vote when determining the frequency of future non-binding advisory votes to approve the compensation of our named executive officers.
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Proposal 5 Shareholder Proposal Regarding Advertising in Minority/Low Income Neighborhoods (pages 67 68) |
Voting Choices Vote for the proposal; Vote against the proposal; or Abstain from voting.
Board Recommendation Our Board recommends a vote AGAINST this shareholder proposal.
Voting Requirement The shareholder proposal will be approved if the votes cast FOR exceed the votes cast AGAINST.
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7. | ARE VOTES CONFIDENTIAL? |
8. | WHO COUNTS THE VOTES? |
9. | WHAT IF I DO NOT SPECIFY A CHOICE FOR A MATTER WHEN RETURNING A PROXY? |
10. | HOW DO I VOTE IF I PARTICIPATE IN THE DIVIDEND REINVESTMENT PLAN? |
8 ALTRIA GROUP, INC. Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING
11. | WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD? |
12. | WILL MY SHARES BE VOTED IF I DO NOT PROVIDE MY PROXY OR VOTING INSTRUCTIONS? |
13. | ARE ABSTENTIONS AND BROKER NON-VOTES COUNTED? |
14. | HOW CAN I REVOKE A PROXY OR CHANGE MY VOTE? |
15. | WHO WILL PAY THE COST OF THIS PROXY SOLICITATION? |
ALTRIA GROUP, INC. Proxy Statement 9
QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING
16. | HOW DO I OBTAIN ADMISSION TO THE 2017 ANNUAL MEETING? |
17. | MAY SHAREHOLDERS ASK QUESTIONS AT THE 2017 ANNUAL MEETING? |
18. | HOW MANY VOTES MUST BE PRESENT TO HOLD THE 2017 ANNUAL MEETING? |
10 ALTRIA GROUP, INC. Proxy Statement
BOARD AND GOVERNANCE MATTERS
The primary responsibility of our Board is to foster our long-term success. In fulfilling this role, each director must exercise his or her good faith business judgment of the best interests of Altria and our shareholders. Our Board has responsibility for establishing broad corporate policies, setting strategic direction and overseeing management, which is responsible for our day-to-day operations.
Our Board holds regular meetings typically during the months of January, February, May, August, October and December, and holds special meetings when necessary. Our Boards organizational meeting follows our annual meeting of shareholders. Another meeting focuses significantly on reviewing our strategic plan. Our Board held six meetings in 2016. Our Board meets in executive session at every in-person Board meeting, which is followed by a session of only independent directors led by the Presiding Director. Directors are expected to attend Board meetings, meetings of the Committees of our Board (the Committees) on which they serve and our annual meeting of shareholders, with the understanding that on occasion a director may be unable to attend a meeting. During 2016, all directors then in office attended at least 84% of the aggregate number of meetings of our Board during their respective terms of service and of all Committees on which they served. In addition, 10 of 11 directors then in office attended the 2016 Annual Meeting.
Board Composition and Succession Planning
Our Board consists of 11 directors. Directors are elected annually at each annual meeting to serve until the next annual meeting and until their successors are duly elected and qualified, subject to their earlier death, resignation or removal. Each of the nominees currently serves as a director and was elected by the shareholders at the 2016 Annual Meeting with the exception of Virginia E. Shanks. Ms. Shanks was brought to the attention of the Nominating, Corporate Governance and Social Responsibility Committee by an executive search firm, and was unanimously nominated for election as a director by our Board. On February 24, 2017, Thomas W. Jones notified Altria of his decision to retire from Board service following the completion of his current term. Consequently, Mr. Jones will not stand for re-election to our Board at the 2017 Annual Meeting. Biographical information and qualifications of the nominees for director are included under Proposal 1 Election of Directors on page 58.
Our Board has adopted retirement guidelines that require a director who will have attained the age of 75 as of the date of the next annual meeting to tender his or her written resignation to our Board at least six months prior to such annual meeting. If our Board determines that continued service by the director is in the best interests of Altria and our shareholders, our Board has the discretion not to accept the resignation. As required under the retirement guidelines, Governor Baliles tendered his resignation to our Board in October 2016; after due consideration, our Board did not accept his resignation.
We are committed to reviewing periodically our Boards composition to ensure that we continue to have the right mix of skills, background and tenure. The current tenure and age composition of our Board is as follows:
ALTRIA GROUP, INC. Proxy Statement 11
BOARD AND GOVERNANCE MATTERS
Our Boards composition represents a balanced approach to director tenure, allowing our Board to benefit from the experience of longer-serving directors combined with the perspectives of newer directors.
Our Board has a breadth of skills and experience. As detailed under Proposal 1 Election of Directors, we believe that our Board has demonstrated leadership in a variety of positions across various professions and industries. Our directors professional skills and experience include:
DIRECTOR SKILLS AND EXPERIENCE
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▪ Consumer goods experience
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▪ Public policy expertise
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▪ Regulated industries experience
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▪ Public company board experience
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▪ Chief executive officer experience
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▪ Leadership in innovation
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▪ Financial expertise, including chief financial officer experience
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▪ Information technology/cybersecurity experience
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The Nominating, Corporate Governance and Social Responsibility Committee has the primary responsibility for developing a succession plan for our Board. Using tools such as the annual Board and Committee self-evaluation and our Board retirement policy, it periodically reviews our Board composition and, as further discussed below under Director Qualifications and Board Diversity, identifies the appropriate mix of experiences, skills, attributes and tenure for our Board as a whole in light of our strategies and needs with the objective of recommending a group of directors that can best continue our success and represent shareholder interests. The Committee and our Board are committed to developing a diverse pool of potential candidates for consideration for future Board service.
Board Leadership Structure and Governance
Our Board believes that it is important to retain the flexibility to allocate the responsibilities of the Chairman of the Board (the Chairman) and the Chief Executive Officer (CEO) in a way that it considers to be in the best interests of Altria and our shareholders. After due consideration by the Nominating, Corporate Governance and Social Responsibility Committee and our Board, our Board has concluded that presently combining the roles of Chairman and CEO is in the best interests of Altria and our shareholders. Our Mission is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. Our Board believes that the combination of the roles of Chairman and CEO promotes the pursuit of our Mission by allowing the senior-most executive with accountability for our day-to-day operations and execution of our strategic plan, who also possesses significant business, regulatory and industry knowledge, to set Board meeting agendas (in consultation with the Presiding Director), to lead the related discussions and to communicate with one voice to employees, shareholders and other stakeholders. Our Board considers this effective and efficient structure to be particularly appropriate for us given the unique challenges that we have faced and continue to face in our businesses, particularly domestic tobacco, and the enhanced regulatory environment.
Our Boards strict adherence to sound corporate governance practices, as reflected in our Corporate Governance Guidelines, has promoted, and continues to promote, the effective and independent exercise of Board leadership for Altria and our shareholders. We have a strong and experienced independent Presiding Director who, in discharging his responsibilities, promotes dialogue among independent members of our Board and directly, clearly and regularly communicates the views of our Board to management. Moreover, our independent directors convene at each Board meeting in an executive session led by the Presiding Director. |
RESPONSIBILITIES OF OUR PRESIDING DIRECTOR
▪ Preside over executive sessions of the independent directors and at all meetings at which the Chairman is not present
▪ Call meetings of the independent directors as he or she deems necessary
▪ Serve as a liaison between the Chairman and the independent directors
▪ Together with the Chairman, approve agendas and schedules for Board meetings
▪ Advise the Chairman of the Boards informational needs and, where appropriate, approve information sent to the Board
▪ Together with the Chair of the Compensation Committee, communicate goals and objectives to the CEO and the results of the evaluation of the CEOs performance
▪ Be available for consultation and communication if requested by major shareholders
|
12 ALTRIA GROUP, INC. Proxy Statement
BOARD AND GOVERNANCE MATTERS
Board and Committee Self-Evaluations
Our Board assesses annually its effectiveness and that of its Committees in advancing our Mission. The method for conducting the annual Board and Committee self-evaluations has consisted of interviews conducted by the Presiding Director, interviews conducted by the Chair of the Nominating, Corporate Governance and Social Responsibility Committee, third-party interviews and written surveys. More recently, our Board has determined that interviews by the Presiding Director or the Chair of the Nominating, Corporate Governance and Social Responsibility Committee is a highly effective method of conducting the self-evaluations. The Nominating, Corporate Governance and Social Responsibility Committee oversees the evaluation process, including determining the format, and presents to our Board the results of the self-evaluations to identify opportunities to enhance effectiveness. Self-evaluation topics generally include, among other matters, Board composition and structure, meeting topics and process, information flow, Board oversight of risk management and strategic planning, succession planning and access to management. Our Board discusses the results of each annual self-evaluation and, as appropriate, implements enhancements and other modifications identified during the self-evaluation.
Advancement Planning and CEO Succession
Our Board believes that senior executive advancement and succession is one of its most important responsibilities. The Compensation Committee is responsible for overseeing the development of executive succession plans and reviewing such plans, evaluating and making recommendations to our Board regarding potential candidates to become CEO, and evaluating and approving candidates to fill other senior executive positions. At least annually, the Chairman and CEO meets with the Compensation Committee and our Board to discuss CEO succession planning (including specific candidates). The Compensation Committee also considers the procedure for the timely and efficient transfer of CEO responsibilities in the event of an emergency or the sudden incapacitation, departure or death of the Chairman and CEO. The Chairman and CEO meets with the Compensation Committee at least annually to discuss the performance of key members of our senior management. These matters are regularly communicated to our Board by the Chair of the Compensation Committee.
Governance Guidelines, Policies and Codes
Our Board has adopted Corporate Governance Guidelines. In addition, our Board has adopted a Code of Business Conduct and Ethics for Directors (Director Code) that applies to our directors and a policy with regard to reviewing certain transactions in which we are a participant and an officer, director or nominee for director has had or may have a direct or indirect material interest. These documents are available on our website at www.altria.com/governance. We have also adopted the Altria Code of Conduct (Code of Conduct) that applies to all of our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code of Conduct is available on our website at www.altria.com/codeofconduct.
Information on, or that can be accessed through, our website is not, and shall not be deemed to be, a part of this Proxy Statement or incorporated into any other filings we make with the U.S. Securities and Exchange Commission (SEC).
ALTRIA GROUP, INC. Proxy Statement 13
BOARD AND GOVERNANCE MATTERS
Committees of Our Board of Directors
Our Board has established various standing Committees to assist it with the performance of its responsibilities. Our Board designates the members of these Committees and the Committee Chairs annually at its organizational meeting following our annual meeting of shareholders, based on the recommendations of the Nominating, Corporate Governance and Social Responsibility Committee. The Chair of each Committee develops the agenda for that Committee and determines the frequency and length of Committee meetings. After each meeting, each Committee provides a full report to our Board.
Our Board has adopted written charters for each of these Committees. These charters are available on our website at www.altria.com/governance. The following table summarizes the primary responsibilities of the Committees:
Committee | Primary Responsibilities | |
Audit |
The Audit Committee assists our Board in its oversight of (i) the integrity of our financial statements and financial reporting processes and systems of internal control, (ii) the qualifications, independence and performance of our independent registered public accounting firm, (iii) the internal auditors and the internal audit function and (iv) our compliance with legal and regulatory requirements. The Audit Committee also prepares the Audit Committee report that SEC rules require us to include in our proxy statement. See pages 21 to 22 for further matters related to the Audit Committee, including its report for the year ended December 31, 2016.
| |
Compensation |
The Compensation Committee determines and approves CEO compensation and reviews and approves the compensation of the other executive officers, including salary, annual incentive awards and long-term incentive awards. The Compensation Committee also oversees the development of executive succession plans and evaluates and makes recommendations to our Board regarding potential CEO candidates. In addition, the Compensation Committee evaluates the design and effectiveness of our incentive programs. See pages 23 to 24 for further matters related to the Compensation Committee, including a discussion of its procedures and its report on the Compensation Discussion and Analysis appearing on pages 26 through 43.
| |
Executive |
The Executive Committee has authority to act for our Board during intervals between Board meetings to the extent permitted by law.
| |
Finance |
The Finance Committee monitors our financial condition, oversees the sources and uses of cash flow and advises our Board with respect to financing needs, dividend policy, share repurchase programs and other financial matters.
| |
Innovation |
The Innovation Committee assists our Board in its oversight of the strategic goals and objectives of our subsidiaries innovation and marketing strategies, consumer/market understanding and brand plans, technological initiatives and research, development and engineering programs.
| |
Nominating, Corporate Governance and Social Responsibility |
The Nominating, Corporate Governance and Social Responsibility Committee identifies individuals qualified to become Board members consistent with the criteria established by our Board and described in our Corporate Governance Guidelines, and recommends a slate of nominees for election at each annual meeting of shareholders; makes recommendations to our Board concerning the appropriate size, function, needs and composition of our Board and its Committees; reviews non-employee director compensation and recommends changes in compensation to our Board; advises our Board on corporate governance matters; oversees the annual self-evaluation process of our Board and its Committees; and provides oversight of our public affairs, corporate reputation and societal alignment strategies.
|
14 ALTRIA GROUP, INC. Proxy Statement
BOARD AND GOVERNANCE MATTERS
The following table sets forth the current members of each of the Committees and the number of meetings held during 2016:
Name
|
Audit (1)
|
Compensation (2)
|
Executive
|
Finance
|
Innovation
|
Nominating, Corporate Governance and Social Responsibility (3)
| ||||||
Gerald L. Baliles*
|
✓
|
✓
|
✓
|
Chair
| ||||||||
Martin J. Barrington
|
Chair
|
|||||||||||
John T. Casteen III*
|
✓
|
✓
|
✓
| |||||||||
Dinyar S. Devitre*
|
✓
|
✓
|
||||||||||
Thomas F. Farrell II* (4)
|
✓
|
✓
|
✓
| |||||||||
Thomas W. Jones*
|
✓
|
✓
|
✓
|
Chair
|
||||||||
Debra J. Kelly-Ennis*
|
✓
|
✓
|
✓
| |||||||||
W. Leo Kiely III*
|
Chair
|
✓
|
✓
|
✓
|
||||||||
Kathryn B. McQuade*
|
✓
|
✓
|
✓
|
|||||||||
George Muñoz*
|
Chair
|
✓
|
✓
|
✓
| ||||||||
Nabil Y. Sakkab*
|
✓
|
✓
|
Chair
|
✓
| ||||||||
2016 Meetings
|
7
|
5
|
0
|
5
|
4
|
4
|
* | Independent Director. |
(1) | The Audit Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the Exchange Act). Our Board has determined that all members of the Audit Committee are financially literate and that George Muñoz is an audit committee financial expert within the meaning set forth in the regulations of the SEC. |
(2) | The Compensation Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE; are non-employee directors for the purposes of Rule 16b-3 of the Exchange Act; and satisfy the requirements of Internal Revenue Code Section 162(m) for outside directors. |
(3) | The Nominating, Corporate Governance and Social Responsibility Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE. |
(4) | Presiding Director. |
Our Boards Risk Oversight Role
Our Board believes it has in place effective processes to identify and oversee the material risks facing Altria and our businesses and that these processes are consistent with, and provide additional support for, the current leadership structure of our Board. Our Board, both acting as a full Board and through its Committees, plays an important oversight role in our risk management processes. Regular Board and Committee meetings cover multiple days. Management from Altria and our subsidiaries and business functions attend each meeting. Board members also conduct periodic site visits to locations of our subsidiaries both in and outside our Richmond, Virginia headquarters. These meetings and site visits and, as appropriate, communications between Board meetings, allow our Board to discuss with management the operational risks facing the businesses of our subsidiaries.
We conduct an enterprise risk management process to identify, prioritize and manage risks that have the potential to present the most significant obstacles to achieving business objectives. Management reports annually to our Board on this process.
ALTRIA GROUP, INC. Proxy Statement 15
BOARD AND GOVERNANCE MATTERS
Our Board, directly or through its Committees, also oversees management of the following risk areas:
Process for Nominating Directors
The Nominating, Corporate Governance and Social Responsibility Committee is responsible for identifying and evaluating nominees for director and for recommending to our Board a slate of nominees for election at the annual meeting of shareholders.
In identifying potential candidates for Board membership, the Committee relies on suggestions and recommendations from directors, shareholders, management and others, including from time to time executive search and board advisory firms. The
16 ALTRIA GROUP, INC. Proxy Statement
BOARD AND GOVERNANCE MATTERS
Committee does not distinguish between nominees recommended by shareholders and other nominees. Shareholders wishing to suggest candidates to the Nominating, Corporate Governance and Social Responsibility Committee for consideration as directors must submit a written notice to our Corporate Secretary following the procedures set forth in this Proxy Statement under Questions and Answers about Communications, Altria Documents and Shareholder Proposals How Do I Communicate with Our Board of Directors? on page 72. Our By-Laws set forth the procedures that a shareholder must follow to nominate directors. The procedures are summarized under the same section in response to the question How Can a Shareholder Nominate a Director or Submit a Proposal for Next Years Annual Meeting? on page 72.
Director Qualifications and Board Diversity
In reviewing nominee candidates, the Nominating, Corporate Governance and Social Responsibility Committee follows the process described above and, in so doing, considers both (i) our Mission to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products and (ii) its four related Mission goals Invest in Leadership; Align with Society; Satisfy Adult Consumers; and Create Substantial Value for Shareholders. The Committee has not established any specific minimum qualification standards for nominees to our Board; rather, in evaluating the suitability of individuals for Board membership, the Committee considers the ways in which it believes each nominee can assist Altria in pursuing its Mission and advancing one or more Mission goals.
The Committee evaluates each individual in the context of our Board as a whole, with the objective of recommending a group of directors that can best continue our success and represent shareholder interests through the exercise of sound judgment. The Committee takes into account many factors, including whether the individual meets requirements for independence and whether the individual will enhance the diversity of views and experiences available to our Board in its deliberations. In determining whether to recommend a director for re-election, the Committee also considers the directors past attendance at meetings and participation in and contributions to the activities of our Board. In addition, the Committee considers whether our Board has specific needs for certain skills or attributes at a given time (for example, financial or chief executive officer experience). Other criteria for Board membership are set forth in our Corporate Governance Guidelines.
Under Proposal 1 Election of Directors, we provide an overview of each nominees principal occupation, business experience and other directorships, together with the key attributes, experience and skills considered by the Committee and our Board as being particularly meaningful in pursuing our Mission and advancing one or more Mission goals. |
EVALUATING BOARD DIVERSITY
We are committed to diversity, as reflected in our Mission goals, our Code of Conduct, our leadership development system and our various other policies.
The Nominating, Corporate Governance and Social Responsibility Committee has a long-standing commitment to diversity, rather than a formal diversity policy, and is guided by our diversity philosophy in its review and consideration of potential director nominees. In this regard, our Board and the Committee view diversity holistically. As set forth in our Corporate Governance Guidelines, the Board and the Committee consider:
▪ whether the individual meets the requirements for independence;
▪ the individuals general understanding of the various disciplines relevant to the success of a large publicly-traded company in todays global business environment;
▪ the individuals understanding of our businesses and markets;
▪ the individuals professional expertise and educational background; and
▪ other factors that promote diversity of views and experiences.
|
Director Independence Determinations
Under the listing standards of the NYSE, our Board must consist of a majority of independent directors. In making independence determinations, our Board observes NYSE and SEC criteria and considers all relevant facts and circumstances. Our Board has also adopted categorical standards of director independence to further assist it in making these determinations. These standards are set forth in Annex A of our Corporate Governance Guidelines, which are available on our website at www.altria.com/governance.
On the recommendation of the Nominating, Corporate Governance and Social Responsibility Committee, our Board has affirmatively determined that each of the following nominees is independent in that such nominee has no material relationship with us: Gerald L. Baliles, John T. Casteen III, Dinyar S. Devitre, Thomas F. Farrell II, Debra J. Kelly-Ennis, W. Leo Kiely III, Kathryn B. McQuade, George Muñoz, Nabil Y. Sakkab and Virginia E. Shanks. Our Board has also affirmatively
ALTRIA GROUP, INC. Proxy Statement 17
BOARD AND GOVERNANCE MATTERS
determined, on the recommendation of the Committee, that Thomas W. Jones, who is not standing for re-election to our Board at the 2017 Annual Meeting, is independent. In making its recommendation to our Board, the Committee considered the following business relationships and transactions:
Business Relationships and Transactions Considered |
Mr. Farrell is the Chief Executive Officer of Dominion Resources, Inc. (Dominion). A subsidiary of Dominion is a regulated public utility with which Altria or our subsidiaries has a commercial relationship for energy procurement. Amounts paid by Altria or our subsidiaries are set at rates fixed in accordance with the applicable regulatory authority. One of our subsidiaries has an agreement with the same utility under which the subsidiary receives nominal payments in connection with a solar energy program overseen and approved by the same regulatory authority. The terms of the agreement are comparable to those the utility offers to other third parties. Mr. Farrell is neither responsible for, nor involved in, the utilitys dealings with us or our subsidiaries, nor does Mr. Farrell materially benefit directly or indirectly from this relationship.
|
Altria or our subsidiaries from time to time do business in the ordinary course on terms comparable to those provided to unrelated third parties with entities where Mr. Casteen, Mr. Jones, Ms. Kelly-Ennis and Mr. Muñoz serve as non-executive directors or where immediate family members (as defined in the our Policy on Related Person Transactions, which is discussed in Related Person Transactions and Code of Conduct on page 71) of Mr. Casteen, Mr. Devitre, Mr. Farrell, Mr. Kiely and Dr. Sakkab are employed in non-executive officer capacities. In each case, neither the director nor the immediate family member is responsible for, or involved in, the entitys day-to-day dealings with Altria or our subsidiaries, and the respective payments made by Altria or our subsidiaries to the entities in the last three fiscal years were significantly less than the greater of $1 million or 2% of any such entitys consolidated gross revenues. None of Mr. Casteen, Mr. Devitre, Mr. Farrell, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely, Mr. Muñoz or Dr. Sakkab, or their respective immediate family members, materially benefits directly or indirectly from these relationships.
|
The Committee has determined that the foregoing business relationships and transactions did not affect the independence of any nominee for director.
In making its recommendation to our Board, the Committee also considered the following philanthropic relationships and transactions between Altria and our subsidiaries and various educational and other charitable entities located in or near our locations or facilities of our subsidiaries. We believe that corporate philanthropy furthers our Mission goal of investing in leadership, which includes investing meaningfully in the communities in which our employees live and work with the objective of making those communities leading environments where our businesses can succeed. In some cases, these relationships date back for many decades.
Philanthropic Relationships and Transactions Considered |
Altria and the University of Virginia (the University) have a long-standing relationship that has included employment recruiting and charitable donations. In 2016, Altria or our subsidiaries made certain charitable donations to the University in an aggregate amount of $1,367,000, with the significant majority supporting the Universitys Youth-Nex Center that promotes positive youth development and scholarships. In addition, we made ordinary course trade payments to the University in the aggregate amount of $227,606. The sum of these 2016 contributions and payments represent significantly less than 2% of the Universitys consolidated gross revenues. Mr. Casteen is a former President of the University. He now serves as President Emeritus of the University. Mr. Casteens son, John T. Casteen IV, joined the University as a lecturer in 2016, and his daughter-in-law, Laura Casteen, is employed by the University as an Associate Dean. Neither Mr. Casteen nor his son or daughter-in-law materially benefits directly or indirectly from this relationship.
We also have long-standing relationships with other educational and charitable organizations in the Richmond, Virginia region, where Altria and several of our subsidiaries are headquartered and employ approximately 3,600 people. In 2016, we made a contribution to the following Richmond area charitable organization that exceeded $150,000:
$406,167 to the Virginia Museum of Fine Arts (VMFA) in support of exhibitions.
Messrs. Farrell and Barrington are non-employee trustees of the VMFA. The contributions identified did not exceed the greater of $1 million or 2% of the VMFAs consolidated gross revenues. Neither Mr. Farrell nor Mr. Barrington materially benefits directly or indirectly from these contributions.
|
18 ALTRIA GROUP, INC. Proxy Statement
BOARD AND GOVERNANCE MATTERS
Philanthropic Relationships and Transactions Considered
|
In addition, we make various grants and charitable contributions, including matching gifts under our Matching Gift Program, to entities where Governor Baliles, Mr. Casteen, Mr. Farrell, Mr. Jones, Ms. Kelly-Ennis and Mr. Muñoz and immediate family members of Governor Baliles, Mr. Jones, Mr. Kiely and Ms. McQuade serve as non-executive directors or trustees or non-executive employees. A substantial majority of these grants and contributions were made to non-profit entities that serve the communities in which Altria and our subsidiaries operate and to non-profit educational programs and institutions located in and around these communities. In each case, payments by us in the last three fiscal years were significantly less than the greater of $1 million or 2% of any such entitys consolidated gross revenues. None of Governor Baliles, Mr. Casteen, Mr. Farrell, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely, Ms. McQuade or Mr. Muñoz, or their respective immediate family members, materially benefits directly or indirectly from these contributions. |
The Committee has determined that the foregoing philanthropic relationships and transactions did not affect the independence of any nominee for director.
Our philosophy is to provide competitive compensation necessary to attract and retain high-quality non-employee directors. Our Board believes that a substantial portion of director compensation should consist of equity-based compensation to assist in aligning directors interests with the interests of shareholders. Directors who are employees of Altria (currently, only Mr. Barrington) receive no additional compensation for service as a director.
The Nominating, Corporate Governance and Social Responsibility Committee periodically reviews the competitiveness of director compensation (taking into account our Compensation Survey Group (CSG) described on page 35), considers the appropriateness of the form, mix and amount of director compensation and makes recommendations to our Board concerning such compensation with a view toward attracting and retaining qualified directors. Effective in 2016, our Board, on the recommendation of the Nominating, Corporate Governance and Social Responsibility Committee, increased the annual cash board retainer for non-employee directors by $10,000 and the annual cash retainers for the Presiding Director and each Committee Chair by $5,000, representing the first increase to the cash component of our directors compensation since 2008. The annual cash Committee membership retainer and the annual equity award remain unchanged.
The following table presents the 2016 components of compensation for our non-employee directors:
Type of Compensation | Amount ($) |
|||
Annual Cash Board Retainer (1)
|
|
110,000
|
| |
Annual Cash Retainer for Presiding Director
|
|
25,000
|
| |
Annual Cash Retainer for Committee Chairs
|
||||
Audit Compensation Finance Innovation Nominating, Corporate Governance and Social Responsibility
|
|
25,000 25,000 15,000 15,000 15,000
|
| |
Annual Cash Membership Retainer for each member of each Committee above
|
|
5,000
|
| |
Annual Equity Award (2)
|
|
175,000
|
|
(1) | Paid in quarterly installments. |
(2) | The annual equity award is in the form of fully vested shares of Altria common stock. |
A non-employee director may elect to defer all or part of the award of shares of common stock and all or part of his or her cash retainers. Pursuant to the Deferred Fee Plan for Non-Employee Directors, deferred retainers are credited to an unfunded bookkeeping account and may be invested in various investment choices, including an Altria common stock equivalent
ALTRIA GROUP, INC. Proxy Statement 19
BOARD AND GOVERNANCE MATTERS
account. These investment choices parallel the investment options offered under the Deferred Profit-Sharing Plan for Salaried Employees and determine the earnings that are credited for bookkeeping purposes to a non-employee directors account. The non-employee director will receive deferred awards of common stock and cash distributions of deferred retainers either prior to or following termination of service from our Board, as elected by the non-employee director.
In addition to cash payments and stock awards, non-employee directors are covered under our Business Travel Accident Insurance Plan, which is available generally to all employees.
Non-employee directors may also participate in our Matching Gift Program. This program is available to all employees and non-employee directors. We will match eligible donations of a minimum of $25 up to $30,000 per year per employee or non-employee director on a dollar-for-dollar basis to eligible non-profit organizations. In 2016, the following non-employee directors participated in this program: Governor Baliles, Mr. Casteen, Mr. Devitre, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely and Ms. McQuade. The aggregate amount of matching payments for these seven directors in 2016 was $165,585.
The following table presents the compensation received by the non-employee directors for service as directors in fiscal year 2016:
Non-Employee Director Compensation Table
Name | Fees Earned or Paid in Cash ($) |
Stock Awards ($) (1) |
All Other Compensation ($) (2) |
Total ($) | ||||
Gerald L. Baliles
|
140,000
|
175,008
|
21,000
|
336,008
| ||||
John T. Casteen III
|
125,000
|
175,008
|
14,750
|
314,758
| ||||
Dinyar S. Devitre
|
120,000
|
175,008
|
30,000
|
325,008
| ||||
Thomas F. Farrell II
|
145,000
|
175,008
|
0
|
320,008
| ||||
Thomas W. Jones
|
140,000
|
175,008
|
29,585
|
344,593
| ||||
Debra J. Kelly-Ennis
|
125,000
|
175,008
|
10,000
|
310,008
| ||||
W. Leo Kiely III
|
150,000
|
175,008
|
30,000
|
355,008
| ||||
Kathryn B. McQuade
|
125,000
|
175,008
|
30,250
|
330,258
| ||||
George Muñoz
|
150,000
|
175,008
|
0
|
325,008
| ||||
Nabil Y. Sakkab
|
140,000
|
175,008
|
0
|
315,008
|
(1) | Pursuant to the Stock Compensation Plan for Non-Employee Directors, on May 19, 2016, each non-employee director received 2,779 shares of Altria common stock with an aggregate grant date fair market value of $175,008. The dollar value is slightly higher than $175,000 because the grant is made in whole shares. The fair market value of the shares of $62.975 per share was based on the average of the high and low trading prices of Altria common stock on May 19, 2016. |
(2) | All Other Compensation consists of matching gifts paid in 2016 under our Matching Gift Program to charitable entities designated by the non-employee director, as more particularly described above. In the case of Ms. McQuade, the amount includes a match overage of $250.00 by Altria due to an oversight by our Matching Gift Program third-party administrator. |
Stock Ownership Guidelines for Non-Employee Directors and Prohibition on Hedging and Pledging
Our Board believes that stock ownership guidelines further align the interests of our Board with those of our shareholders. Our non-employee directors are expected to hold shares of our common stock in an amount equal to the lesser of five times the then-current annual cash retainer or 26,000 shares. Directors are expected to reach this ownership level within five years of being elected to Board membership and to hold the requisite number of shares until retirement. The ownership requirement for non-employee directors may be satisfied with all beneficially owned shares, including deferred shares and share equivalents. As of December 31, 2016, all of our directors who had served on our Board for five or more years since their election held a sufficient number of shares to satisfy these guidelines.
Our non-employee directors are not permitted to engage in hedging and pledging activities with respect to our stock.
20 ALTRIA GROUP, INC. Proxy Statement
AUDIT COMMITTEE MATTERS
Audit Committee Report for the Year Ended December 31, 2016
Management has the primary responsibility for Altrias financial statements and the reporting process, including the systems of internal accounting control. The Audit Committee monitors Altrias financial reporting processes and systems of internal accounting control, the independence and the performance of the independent registered public accounting firm and the performance of the internal auditors.
The Audit Committee has received representations from management that Altrias consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and that Altria maintained effective internal control over financial reporting, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Audit Committee has discussed with the independent registered public accounting firm their evaluation of the accounting principles, practices and judgments applied by management, and the Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by applicable standards adopted by the Public Company Accounting Oversight Board (PCAOB).
The Audit Committee has received from the independent registered public accounting firm written disclosures and a letter required by applicable requirements of the PCAOB regarding the independent registered public accounting firms communications with the Audit Committee concerning independence and has discussed with the independent registered public accounting firm the independent registered public accounting firms independence from Altria and its management. The Audit Committee pre-approved all fiscal year 2016 audit and permissible non-audit services provided by the independent registered public accounting firm and the fees for those services included on page 22. As part of this process, the Audit Committee reviewed non-audit services and fees to assure compliance with regulations prohibiting the independent registered public accounting firm from performing specified services that might impair their independence.
The Audit Committee discussed with Altrias internal auditors and independent registered public accounting firm the overall scope of and plans for their respective audits. The Audit Committee has met with the internal auditors and the independent registered public accounting firm, separately and together, with and without management present, to discuss Altrias financial reporting processes and internal control over financial reporting. The Audit Committee has reviewed significant audit findings prepared by the independent registered public accounting firm and those prepared by the internal auditors, together with managements responses.
Based on the reviews and discussions referred to above, the Audit Committee recommended to our Board the inclusion of the audited consolidated financial statements in Altrias 2016 Annual Report on Form 10-K.
Audit Committee:
George Muñoz, Chair
John T. Casteen III
Thomas W. Jones
Debra J. Kelly-Ennis
Kathryn B. McQuade
ALTRIA GROUP, INC. Proxy Statement 21
AUDIT COMMITTEE MATTERS
Independent Registered Public Accounting Firms Fees
Aggregate fees, including out-of-pocket expenses, for professional services rendered by our independent registered public accounting firm, PricewaterhouseCoopers, for fiscal years ended December 31, 2016 and 2015 were comprised of the following (in thousands):
2016 ($) |
2015 ($) |
||||||||||||||
Audit Fees (1)
|
|
6,928
|
|
6,289
|
|||||||||||
Audit-Related Fees (2)
|
|
665
|
|
735
|
|||||||||||
Tax Fees (3)
|
|
1,397
|
|
960
|
|||||||||||
All Other Fees (4)
|
|
0
|
|
36
|
|||||||||||
TOTAL
|
|
8,990
|
|
8,020
|
(1) | Fees and expenses associated with professional services rendered by PricewaterhouseCoopers in connection with (a) the audit of our consolidated financial statements and internal control over financial reporting, including statutory audits of the financial statements of our subsidiaries; (b) reviews of our unaudited condensed consolidated interim financial statements; and (c) reviews of documents filed with the SEC. |
(2) | Fees and expenses for professional services rendered by PricewaterhouseCoopers for audit-related services, which include certain employee benefit plan audits, accounting consultations and procedures relating to various other audit and special reports. |
(3) | Fees and expenses for professional services rendered by PricewaterhouseCoopers in connection with U.S. and foreign tax compliance and planning, and consultation and advice on tax examinations. |
(4) | Other fees in 2015 were related to a cybersecurity simulation exercise. |
The Audit Committees policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of service and is subject to a specific budget. The Audit Committee requires the independent registered public accounting firm and management to report on the actual fees charged for each category of service at Audit Committee meetings throughout the year.
During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm. The Audit Committee has delegated pre-approval authority to the Chair of the Audit Committee for those instances when pre-approval is needed prior to a scheduled Audit Committee meeting. The Chair of the Audit Committee must report on such approvals at the next scheduled Audit Committee meeting.
22 ALTRIA GROUP, INC. Proxy Statement
COMPENSATION COMMITTEE MATTERS
The Compensation Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE. The current members of the Committee are: W. Leo Kiely III (Chair); Gerald L. Baliles; Thomas F. Farrell II; Thomas W. Jones; and Kathryn B. McQuade. The Committees responsibilities are described below and set forth in the Compensation Committee Charter, which is available on our website at www.altria.com/governance.
Compensation Committee Interlocks and Insider Participation
During 2016, none of our executive officers served on the board of directors or compensation committee of another entity one or more of whose executive officers served as a member of our Board or the Compensation Committee. No member of the Compensation Committee at any time during 2016 or at any other time had any relationship with us that would be required to be disclosed as a related person transaction.
Compensation Committee Procedures
Scope of Authority
The responsibilities of the Compensation Committee are set forth in its Charter and include, among other duties, the responsibility to:
| review and approve our overall executive compensation philosophy and design; |
| review and approve corporate goals and objectives relevant to the compensation of our CEO, evaluate the performance of our CEO in light of these goals and objectives and determine and approve the compensation of our CEO based on this evaluation; |
| review and approve the compensation of all executive officers; |
| make recommendations to our Board with respect to incentive compensation plans and equity-based plans, administer and make awards under such plans and review the cumulative effect of its actions; |
| monitor compliance by executives with our stock ownership guidelines; |
| monitor risks related to the design of our compensation program; |
| review and assist with the development of executive succession plans, evaluate and make recommendations to our Board regarding potential candidates to become CEO and evaluate and approve candidates to fill other senior executive positions; |
| review and discuss with management our Compensation Discussion and Analysis; and |
| prepare and approve the Compensation Committees annual report for inclusion in our annual proxy statement. |
In addition, the Compensation Committee determines ratings for Altrias performance for the annual and long-term cash incentive awards formulas.
In accordance with its Charter, the Compensation Committee may delegate its authority to subcommittees or the Chair of the Committee when it deems appropriate, unless prohibited by law, regulation or NYSE listing standards.
Processes and Procedures for Establishing Executive Compensation
The primary processes and procedures for establishing and overseeing executive compensation include:
Compensation Committee Meetings. The Compensation Committee meets several times each year, including five times in 2016. The Chair of the Committee, in consultation with management and the other members, sets meeting agendas. The Committee reports its actions and recommendations to our Board.
ALTRIA GROUP, INC. Proxy Statement 23
COMPENSATION COMMITTEE MATTERS
Role of Consultants. As part of our annual compensation process, management engages Hewitt Associates, LLC d/b/a Aon Hewitt (Aon Hewitt).
| Aon Hewitt conducts a survey of CSG companies. See page 35 for a description of the companies included in the CSG and the criteria and process for their selection. The survey collects compensation data and competitive practices. The Committee reviews the data to help it assess competitive levels of pay and the competitive mix of pay elements. |
| Based on parameters developed by management, Aon Hewitt provides competitive compensation information focused on chief executive officer pay primarily from public filings, including annual proxy filings, by companies within our CSG. The Committee also reviews this data. |
| Aon Hewitt provides background information on companies as reference for evaluating our CSG. |
Aon Hewitt also reviews our risk assessment process with respect to its executive compensation program as described on page 35. Aon Hewitt provides neither advice nor recommendations on the form or amount of our executive or director compensation, nor does Aon Hewitt attend any Board or Committee meetings.
Role of Management.
| Our management provides input on overall executive compensation program design for the Compensation Committees consideration. |
| Each year, our Chairman and CEO presents to the Compensation Committee compensation recommendations for our named executive officers other than himself, as well as certain other officers. The Committee reviews and discusses these recommendations with our CEO and, exercising its discretion, makes the final decision with respect to the compensation of these individuals. Our CEO has no role in setting his own compensation. |
| At the beginning of each year, our Chairman and CEO presents his proposed annual performance goals to the Compensation Committee for its consideration. |
Compensation Committee Report for the Year Ended December 31, 2016
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained on pages 26 through 43 of this Proxy Statement with management. Based on its review and discussions with management, the Committee recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Compensation Committee:
W. Leo Kiely III, Chair
Gerald L. Baliles
Thomas F. Farrell II
Thomas W. Jones
Kathryn B. McQuade
24 ALTRIA GROUP, INC. Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
|
|
26
|
| |
|
26 | |||
|
26 | |||
26 | ||||
26 | ||||
26 | ||||
|
|
29
|
| |
|
|
29
|
| |
|
31 | |||
|
31 | |||
|
|
32
|
| |
|
35 | |||
|
35 | |||
|
|
35
|
| |
|
36 | |||
|
36 | |||
37 | ||||
38 | ||||
39 | ||||
Long-Term Incentives: 2014 2016 Long-Term Incentive Plan Awards |
40 | |||
42 | ||||
Post-Termination Benefits and Change in Control Payments
|
|
42
|
| |
|
42 | |||
Stock Ownership and Holding Requirements and Prohibition on Hedging and Pledging |
42 | |||
Clawback Policy Regarding the Adjustment or Recovery of Compensation |
43 | |||
Tax and Accounting Considerations
|
|
43
|
|
COMPENSATION TABLES
ALTRIA GROUP, INC. Proxy Statement 25
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
In this section, we provide a detailed description of our executive compensation program, with a focus on the Compensation Committees decisions with respect to our NEOs:
Name
|
Position during 2016
| |
Martin J. Barrington
|
Chairman of the Board, Chief Executive Officer and President, Altria Group, Inc.
| |
William F. Gifford, Jr.
|
Executive Vice President and Chief Financial Officer, Altria Group, Inc.
| |
Howard A. Willard
|
Executive Vice President and Chief Operating Officer, Altria Group, Inc.
| |
Denise F. Keane
|
Executive Vice President and General Counsel, Altria Group, Inc.
| |
Craig A. Johnson
|
President and Chief Executive Officer, Altria Group Distribution Company
|
Our executive compensation program aligns with our Mission, Mission goals and Values, including investing in leadership. We believe that such an investment requires:
| clear alignment of the interests of our executives and shareholders; |
| clear articulation of corporate and individual performance goals; |
| transparent measurement of performance against those goals; and |
| a competitive, financially disciplined executive compensation program that rewards past success and creates the appropriate incentives for future conduct. |
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) provides shareholders with an advisory vote (Say on Pay) on the compensation of a companys named executive officers, as disclosed in the companys annual proxy statement. We hold this vote annually. At the 2016 Annual Meeting, 93% of the votes cast approved our NEO compensation on an advisory basis. While the Committee acknowledges the consistently strong shareholder support for our executive compensation program, it is also committed to regularly reviewing the program in the context of our compensation philosophy. In reviewing the program in 2016, the Committee implemented changes that are highlighted under Executive Compensation Program Highlights on page 4 and in Long-Term Incentives beginning on page 38.
We periodically engage with large investors, including in 2016 and early 2017, to gain their perspectives on our executive compensation programs and corporate governance policies. Shareholders feedback has been generally positive and no significant concerns have been raised.
Our business performance is a key factor in determining executive compensation. We delivered excellent business performance in 2016 and with respect to the LTIP, over the three-year performance period, as reflected in the 2016 Business Highlights section beginning on page 3. The following graphs summarize our one and three-year performance against key financial measures:
26 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
2016 Total Shareholder Return
(1) | See Decision-Making ProcessBenchmarkingCompensation Survey Group and Altria Peer Group for more information on the 2016 Altria Peer Group. |
Source: | Bloomberg Daily Return (December 31, 2015 December 31, 2016) |
Note: | Assumes reinvestment of dividends as of the ex-dividend date. |
Three-Year Total Shareholder Return
(2014 2016)
(1) | See Decision-Making ProcessBenchmarkingCompensation Survey Group and Altria Peer Group for more information on the 2016 Altria Peer Group. |
Source: | Bloomberg Daily Return (December 31, 2013 December 31, 2016) |
Note: | Assumes reinvestment of dividends as of the ex-dividend date. |
ALTRIA GROUP, INC. Proxy Statement 27
EXECUTIVE COMPENSATION
Adjusted Diluted EPS
(12/31/201312/31/2016)
(1) | Three-year compound annual growth rate (CAGR) based on 2013 adjusted diluted EPS of $2.38. |
Dividend Rate (1)
(1) | Annualized dividend based on quarterly dividend rate per common share declared in August of each year. |
(2) | Three-year CAGR based on the annualized dividend rate per common share of $1.92 that was declared in August 2013, with each August dividend similarly annualized. |
28 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
The following graph illustrates the relationship between Mr. Barringtons total pay (including annualized LTIP compensation) and our indexed TSR:
CEO Pay (1) vs. Indexed TSR (2)
(1) | CEO pay is calculated using an annualized allocation of the 2014 2016 LTIP award. All other pay elements are based on the Summary Compensation Table values. |
(2) | Indexed TSR reflects a December 31, 2013 starting point (with a nominal value of 100) and represents the total growth (including dividends) from that date through each December 31. |
The Compensation Committee considered several factors in approving each element of compensation. For example, the Compensation Committee evaluated our financial and strategic performance, as described above and beginning on page 26, in the context of the 2016 Annual Incentive Award program and the 2014 2016 LTIP (discussed under 2016 Executive Compensation Program Decisions Annual Incentives on page 37 and 2016 Executive Compensation Program Decisions Long-Term Incentives on page 38). The Compensation Committee also considered the individual performance of each NEO for purposes of approving salary increases, annual cash incentive awards, equity awards and LTIP awards. Each executive, including our NEOs, is evaluated on a five-point scale of Extraordinary, Outstanding, Valued, More Expected or Unacceptable. Executives receive variable elements of compensation only after the relevant performance period whether short- or long-term has ended and the Compensation Committee has assessed Altrias actual performance and considered executive performance relative to stated goals.
ALTRIA GROUP, INC. Proxy Statement 29
EXECUTIVE COMPENSATION
The Compensation Committee concluded that our NEOs successes in achieving their performance goals contributed significantly to our strong overall 2016 performance. We discuss the performance of each NEO below.
| Martin J. Barrington. Mr. Barrington provided extraordinary strategic leadership to our Board, the executive team and employees in a dynamic competitive and regulatory environment. Among other accomplishments, Mr. Barrington drove execution of our strategy to maximize the core business while innovating for future value creation; pursued long-term strategic options for new revenue and income growth; strengthened our culture; and maintained strong relationships with external stakeholders. Specifically, Mr. Barrington guided the efforts of Altria and our companies to: |
| deliver 2016 TSR of 20.5%, outpacing both the S&P 500 and the S&P Food, Beverage & Tobacco Index and marking the fourth consecutive year that TSR exceeded 20%; |
| reward our shareholders by paying out over $4.5 billion in dividends, raising our dividend by 8% and repurchasing approximately $1 billion of Altria stock under an expanded $3 billion share repurchase program; |
| strengthen our cost competitiveness with a productivity initiative and manufacturing facility consolidation that are expected to deliver approximately $350 million in annualized savings by year-end 2018; |
| oversee the building of infrastructure to pursue U.S. Food and Drug Administration (FDA) approval of reduced-harm products; |
| lead the cultural and system changes to improve our leadership and organizational capabilities, particularly regarding diversity and inclusion, business simplification and innovation; and |
| support the ABI/SABMiller transaction, which ultimately led to Altrias 10.2% ownership interest in AB InBev and enhanced the value of our beer investment and our position in the global brewing profit pool. |
| William F. Gifford, Jr. Mr. Giffords responsibilities included oversight of the Finance function, Strategy and Business Development, Procurement, Investor Relations and Philip Morris Capital Corporation. He effectively managed the balance sheet and helped deliver adjusted diluted EPS growth of 8.2% and strong returns for our shareholders. Under his leadership, we continued to manage our debt profile by purchasing through a tender offer over $0.9 billion of 2038 and 2039 high-coupon debt and repurchased approximately $1 billion of Altria stock under an expanded $3 billion share repurchase program. Mr. Gifford also had extensive involvement in supporting the complex ABI/SABMiller transaction, working to secure attractive terms for Altria. |
| Howard A. Willard. Mr. Willard oversaw PM USA, John Middleton Co. (Middleton), USSTC, Nu Mark LLC (Nu Mark), Ste. Michelle and Altria Group Distribution Company (AGDC), along with the Consumer & Marketplace Insights function of Altria Client Services LLC. Under his leadership, the operating companies continued to deliver strong adjusted OCI growth and grow retail share in the smokeable and smokeless segments. The smokeable products segment grew adjusted OCI by 5.3% while growing cigarette retail share to 51.4%. Mr. Willard also oversaw the successful acquisition of Sherman Group Holdings, LLC and its subsidiaries (manufacturer of super-premium cigarettes and premium cigars), which closed in January 2017. The smokeless products segment grew adjusted OCI by 11.0% and the combined retail share of Copenhagen and Skoal by 0.9 share points with an enhanced brand portfolio strategy in a highly competitive environment. Nu Mark continued its expansion of MarkTen, which at year-end was available in stores representing about 55% of the e-vapor category volume in retail channels, including convenience stores. Ste. Michelle had a strong year, growing net revenues by 7.8%, adjusted OCI by nearly 10% and shipment volume by 5.3%. Ste. Michelle continued to expand and diversify its brand portfolio with the acquisition of Patz & Hall Winery and the development of five new innovation brands. |
| Denise F. Keane. Ms. Keanes responsibilities included managing diverse litigation challenges and efficiently deploying the resources of the Law department to help Altria and its subsidiaries meet regulatory and business requirements. Under her leadership, the Law department concluded the Miles/Price lights class action, obtained defense verdicts in the Missouri lights class action and the Massachusetts medical monitoring case and settled favorably the Arkansas lights case. Ms. Keane also oversaw the management of a number of state Engle-progeny trials and post-verdict matters and supervised the non-participating manufacturer arbitration and litigation process. In addition, Ms. Keane oversaw the Law departments outstanding delivery of legal services to our companies on a wide range of complex legal and regulatory issues. Ms. Keane also had extensive involvement in supporting the complex ABI/SABMiller transaction, working to capture attractive terms for Altria. |
30 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
| Craig A. Johnson. Mr. Johnsons responsibilities included providing sales, distribution and consumer engagement services to our tobacco operating companies. Under his leadership, AGDC: |
| formed a Digital & Marketing Services organization to drive engagement with adult tobacco consumers through enhanced digital marketing platforms, resulting in significant increases in consumer interactions and mobile coupon redemptions; |
| completed a major redesign of its field sales, key account and headquarters structure to enhance services to Altrias tobacco operating companies, while better aligning with our trade partners; and |
| enhanced PM USAs retail trade programs. |
In addition to assessing Altrias and individual performance against stated goals to determine incentive compensation, the Compensation Committee looks at industry compensation market data and tally sheets for each of the NEOs that include their total cash and long-term compensation for the last three years.
We strategically design our executive compensation program to promote our Mission, which is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. In pursuing our Mission, we remain focused on four goals: Invest in Leadership, Align with Society, Satisfy Adult Consumers and Create Substantial Value for Shareholders.
Our Values guide our behavior as we pursue our Mission and our goals. Our Values are Integrity, Trust and Respect; Passion to Succeed; Executing with Quality; Driving Creativity into Everything We Do; and Sharing with Others.
Our executive compensation program includes multiple performance metrics to assess the efforts of all executives in pursuing our Mission and goals, while assuring that such efforts are guided by our Values. Specifically, our program is designed to satisfy the following objectives:
| promote pursuit of business strategies that create substantial value for shareholders and are executed with integrity; |
| reward quality execution by making a significant portion of the compensation of our executives dependent on the achievement by Altria of key financial and strategic goals and their individual performance; |
| align the interests of shareholders and executives through equity and cash-based long-term incentive awards, stock ownership and retention guidelines and anti-hedging and anti-pledging policies with respect to our stock; |
| support the attraction, development and retention of world-class leaders; and |
| promote internal fairness and a disciplined qualitative and quantitative assessment of performance. |
The elements of our executive compensation program serve these objectives with the following design principles (as shown in the chart below):
| a mix of fixed and at-risk variable and performance-based compensation, with executives at higher levels having a higher proportion of variable compensation; |
| a mix of short- and long-term compensation to appropriately reward and motivate the achievement of both annual and long-term goals and objectives; and |
| a mix of cash and equity compensation that seeks to discourage actions solely driven by our stock price to the detriment of strategic goals and to minimize the potentially dilutive nature of equity compensation on shareholder value. |
ALTRIA GROUP, INC. Proxy Statement 31
EXECUTIVE COMPENSATION
2016 CEO and NEO Pay Mix (1)
(1) | Includes 2016 actual salary, annual incentive award, grant date fair value of long-term equity awards and annualized cash LTIP award. Pay components may not add to 100% due to rounding. |
The table below provides a brief side-by-side comparison of the elements of our 2016 executive compensation program.
Long-Term Incentive Awards | ||||||||||
Salary | Annual Incentive | Equity | Cash | |||||||
Form of Compensation
|
Cash
|
Cash | RSUs | Cash | ||||||
Performance Period |
Ongoing | Annual | Annual with three-year vesting periods
|
Three years; end-to-end cycles | ||||||
Award Criteria |
Individual performance |
Company and individual performance |
Individual performance and advancement potential
|
Company and individual performance | ||||||
Company Performance Alignment |
Adjusted diluted EPS growth Adjusted discretionary cash flow Strategic initiatives
|
Stock price appreciation for RSUs |
Adjusted diluted EPS growth Relative TSR Strategic initiatives |
32 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
The table below summarizes the elements and objectives of the 2016 executive compensation program for the NEOs. In addition, the general objective of each element is to attract and retain world-class leaders.
2016 Executive Compensation Program
Element | Summary Description | Objective | ||||||
Annual Compensation |
Salary | Fixed cash compensation based on role at Altria. |
Provide financial stability
Recognize individual role, experience, responsibility and performance
| |||||
Annual Incentive Awards | Cash-based incentive plan based on prior years performance. |
Recognize annual financial and strategic performance after it is delivered
Recognize annual individual performance after it is delivered
| ||||||
Long-Term Incentive Compensation |
Equity Awards | RSU awards based on prior years individual performance and advancement potential, vesting over a three-year period. |
Align NEOs interests with shareholders through stock ownership
Recognize individual performance after it is delivered and advancement potential
Build stock ownership
Retain talented leaders
| |||||
Long-Term Incentive Plan |
Cash-based incentive plan based on three-year financial and strategic goals. |
Align NEOs interests with shareholders
Recognize long-term financial and strategic performance after it is delivered
Retain talented leaders
No dilutive impact
| ||||||
Post-Termination Benefits and Change in Control Payments |
Defined Benefit Plans |
Retirement plans providing for the continuation of a portion of compensation upon retirement or separation from service. Generally, employees hired prior to January 1, 2008 are eligible.
|
Provide opportunity for financial security in retirement | |||||
Defined Contribution Plans |
Annual cash contribution based on a formula related to adjusted diluted EPS growth for 2016 and, for employees not participating in a defined benefit plan, a supplemental contribution and matching contributions. Includes an Altria stock investment option.
|
Provide opportunity for financial security in retirement
Provide additional opportunity to build stock ownership |
ALTRIA GROUP, INC. Proxy Statement 33
EXECUTIVE COMPENSATION
Element | Summary Description | Objective | ||||||
Post-Termination Benefits and Change in Control Payments
|
Change in Control Payments |
Payments to executives in connection with a defined change in the ownership of Altria. Change in control provisions are contained in the 2010 and 2015 Performance Incentive Plans. |
Allow NEOs to focus on delivering shareholder value in a period of uncertainty
Allow NEOs to receive awards granted for periods of performance before a change in control
| |||||
Termination Payments |
For certain types of involuntary separations, potential for severance benefits (including continuation of salary and health insurance based on years of service). Our NEOs are eligible for the same severance benefits as our other salaried employees.
|
Provide opportunity for protection upon an unexpected event | ||||||
Perquisites
|
For the Chairman, CEO and President for safety and security purposes, home security system and personal use of our aircraft subject to an annual allowance.
For all NEOs, Altria-paid executive physical and leased vehicle (not used by the Chairman, CEO and President).
|
Provide security
Provide comprehensive annual preventive health screening
Effective January 1, 2016, we discontinued reimbursement for financial counseling services | ||||||
Other Benefits
|
Medical coverage, group life insurance and other welfare benefits generally available to all salaried employees.
|
Promote health and financial security |
34 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
A cross-functional team of executives in the Human Resources & Compliance, Law, Corporate Audit and Finance departments annually reviews Altrias compensation program (executive and non-executive) to identify features that could encourage excessive risk-taking by program participants and to assess the potential of such risks to have a material adverse effect on Altria. Management requested that the external compensation consultant, Aon Hewitt, review this risk assessment process specifically, the features identified as potentially encouraging excessive risk-taking, features that mitigate risk and managements assessment of those features to confirm consistency with prevailing best practices.
After reviewing managements assessment, the Compensation Committee believes that neither the compensation programs design nor the individual elements of executive compensation encourage employees, including our NEOs, to take unnecessary or excessive risks. The executive compensation program also incorporates risk-mitigating features such as those shown in the chart on the right, which the Compensation Committee considered as part of its assessment. We believe that any risks arising from our compensation policies and practices are not likely to have a material adverse effect on Altria.
Compensation Strategy |
RISK-MITIGATING FEATURES
▪ Appropriate compensation mix of fixed versus at-risk variable pay, annual versus long-term pay, cash versus equity and performance-based versus non-performance-based pay
▪ Multiple objective performance factors used for annual and long-term cash incentive awards, coupled with the Compensation Committees discretion to approve awards at lower than target
▪ Caps on annual and long-term incentive plan formulas
▪ Peer company benchmarking
▪ Significant stock ownership, holding requirements and anti-hedging/anti-pledging policies
▪ A clawback policy providing for the adjustment or recovery of executive compensation upon the restatement of our financial statements
▪ Individual performance assessments that emphasize behavior consistent with our Mission goals and Values
|
We design our executive compensation program to deliver total compensation (salary, annual and long-term cash awards, equity awards and benefits) upon attainment of performance targets at levels between the 50th and the 75th percentiles of compensation paid to executives in the CSG, discussed below. We believe that this approach is critical to attracting and retaining world-class leaders to pursue our Mission goals, particularly given the unique challenges of our industry. We also believe this approach contributes to low executive turnover across all of our businesses. Actual total compensation can exceed the 75th percentile or be below the 50th percentile depending on business and individual performance in relation to performance targets.
Compensation Survey Group and Altria Peer Group
We annually compare our executive compensation program with the programs of the companies in the CSG. The purpose of this annual review is to assure that our executive compensation program supports our ability to attract and retain executive talent. When determining the companies to include in the CSG, the Compensation Committee identifies companies that compete with us for talent and:
| are direct competitors; |
| have similar market capitalization; |
| are primarily focused on consumer products; or |
| have businesses generally focused within the United States. |
The Altria Peer Group is a subset of the CSG that we use, along with major external indices, to assess financial performance for purposes of determining variable compensation payments. The Altria Peer Group consists of U.S.-headquartered consumer product companies that compete with our tobacco operating subsidiaries or that we believe otherwise provide useful financial performance comparisons on the basis of market capitalization or reported revenue.
ALTRIA GROUP, INC. Proxy Statement 35
EXECUTIVE COMPENSATION
Based on these criteria, the Compensation Committee included the following companies in the 2016 CSG and the 2016 Altria Peer Group and used this list for compensation-related decisions during 2016. The list is sorted by market capitalization as of December 31, 2016.
Compensation Survey Group Companies
|
Market Capitalization (1) ($B)
|
Altria Peer Group
| ||
The Coca-Cola Company
|
179
|
✓
| ||
Merck & Co., Inc.
|
162
|
|||
PepsiCo, Inc.
|
150
|
✓
| ||
Philip Morris International Inc. (2)
|
142
|
|||
Altria
|
132
|
|||
3M Company
|
107
|
|||
The Kraft Heinz Company
|
106
|
✓
| ||
McDonalds Corporation
|
101
|
|||
Bristol-Myers Squibb Company
|
98
|
|||
Eli Lilly and Company
|
81
|
|||
Median
|
81
|
|||
Reynolds American Inc.
|
80
|
✓
| ||
Mondelēz International, Inc.
|
68
|
✓
| ||
Colgate-Palmolive Company
|
58
|
✓
| ||
Kimberly-Clark Corporation
|
41
|
✓
| ||
General Mills, Inc.
|
36
|
✓
| ||
Kellogg Company
|
26
|
✓
| ||
The Hershey Company
|
22
|
✓
| ||
Campbell Soup Company
|
19
|
✓
| ||
ConAgra Brands, Inc.
|
17
|
✓
|
(1) | Market capitalization is calculated using shares outstanding as of the most recent public disclosure as of January 3, 2017 per Bloomberg multiplied by the closing stock price as of December 30, 2016. |
(2) | Although Philip Morris International Inc. does not meet all of the criteria set forth above, we compete for executive talent. |
2016 Executive Compensation Program Decisions
The Compensation Committee considers a number of factors when reviewing and setting salaries for our NEOs, including each executives individual performance, level of responsibility, experience, the relationship between salaries paid to other Altria executives and the position of the executives salary within the applicable salary range. Additionally, as appropriate, the Compensation Committee compares the salaries of our NEOs to others holding comparable positions at CSG companies. The Compensation Committee analyzes all these factors in the aggregate in determining NEO salaries.
Salaries are relevant in establishing annual and long-term incentive target awards and factor into retirement, group life insurance and certain other benefits available to all salaried employees. The Compensation Committee reviews salaries on an annual basis and any increases generally are effective March 1.
The 2016 salary ranges for our NEOs were as follows:
36 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
2016 Salary Range
| ||||
Band
|
Minimum ($)
|
Maximum ($)
| ||
A (Mr. Barrington)
|
910,000
|
2,090,000
| ||
B (Other NEOs)
|
480,000
|
1,100,000
|
The Compensation Committee increased the salaries of our NEOs based on the criteria noted above as follows, effective March 1, 2016:
2016 Salary Increases
Name | 2015 Salary ($) |
2016 Salary ($) | ||
Martin J. Barrington
|
1,350,000
|
1,420,000
| ||
William F. Gifford, Jr.
|
610,000
|
647,000
| ||
Howard A. Willard
|
800,000
|
840,000
| ||
Denise F. Keane
|
916,000
|
943,000
| ||
Craig A. Johnson
|
875,000
|
907,000
|
The Annual Incentive Award program is a cash-based, pay-for-performance plan for management employees, including our NEOs. Participants have an annual award target based on salary band and expressed as a percentage of salary. Our benchmarking process establishes award targets, which are paid only after both business and individual results are assessed against targeted levels of performance. While the Compensation Committee reviews and approves the targets annually, no individual is guaranteed an award.
Each December, the Compensation Committee reviews the financial and strategic performance of Altria as well as the performance of each of our tobacco and wine businesses for that year. The Compensation Committee uses adjusted diluted EPS growth and adjusted discretionary cash flow as the key financial measures in determining Annual Incentive Awards because these measures link to our long-term financial goals to:
| grow adjusted diluted EPS at an average annual rate of 7% to 9%; and |
| maintain a target dividend payout ratio of approximately 80% of adjusted diluted EPS. |
The Compensation Committee believes that the combination of these metrics provides the best alignment between Altrias business strategy and our shareholders interests: our executives are rewarded when our shareholders are rewarded.
In determining Altrias financial performance for 2016, the Compensation Committee considered the following:
Key Financial Measures
(millions, except per share data)
Target Range
|
2016 Results
|
Rating (from 0% - 130%)
|
Weighting
|
Weighted
| ||||||
Adjusted Diluted EPS Growth (1) (2) | $2.97 - $3.02 | $3.03 | 114% | 75% | 86% | |||||
(Rating Range)
|
(90% - 110%)
|
|||||||||
Adjusted Discretionary Cash Flow (2) | $4,993 - $5,518 | $5,653 | 117% | 25% | 29% | |||||
(Rating Range) |
(90% - 110%) | |||||||||
Rating for Financial Metrics
|
115%
|
(1) | In early 2016, when the Compensation Committee approved an original target range of $3.00 to $3.05 (based on the initial guidance that we disclosed for 2016 full-year adjusted diluted EPS), the ABI/SABMiller transaction had not closed and the Committee acknowledged that if the transaction closed in 2016 the target range would be adjusted to reflect the absence of fourth quarter equity earnings from AB InBev due to the application of lag accounting for such earnings. The ABI/SABMiller transaction closed in October 2016 and the original target range was so adjusted. |
ALTRIA GROUP, INC. Proxy Statement 37
EXECUTIVE COMPENSATION
(2) | Adjusted diluted EPS growth and adjusted discretionary cash flow are non-GAAP financial measures. See Annex A to this Proxy Statement for information regarding non-GAAP financial measures and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures. |
In addition to financial metrics, the Compensation Committee evaluates our performance and the performance of each of our tobacco and wine businesses against key strategic initiatives that are designed to promote our long-term success, as well as any significant events during the year. The key strategic initiatives in 2016 included:
| brand-building initiatives in our core businesses; |
| enhancing adult tobacco consumer engagement through digital marketing technologies and consumer insights; |
| advancing our innovation and harm reduction strategies; |
| enhancing our information technology; |
| enhancing our retail engagement system; |
| productivity and business simplification initiatives; and |
| developing organizational talent and enhancing our culture to improve diversity and inclusion. |
The Compensation Committee also considers TSR in its evaluation of overall performance. Our 2016 TSR of 20.5% exceeded the 8.8% TSR of the 2016 Altria Peer Group, the 8.8% TSR of the S&P Food, Beverage & Tobacco Index and the 12.0% TSR of the S&P 500 Index.
Based on its overall review of financial measures and strategic initiatives, the Compensation Committee assigns an Annual Incentive Award business performance rating for us and each of our business segments. Performance at planned levels receives a rating of 100%. Depending on performance, Annual Incentive Award ratings for business performance can range from 0% to 130%. Performance against the financial metrics reflected above resulted in a rating of 115% for 2016. The Committee also considered performance against the 2016 strategic measures described above and our TSR relative to our Peer Group and major indexes and assigned an overall Annual Incentive Award business performance rating of 123%. The Committee used this rating, together with individual performance (see 2016 Performance of NEOs on page 29), in determining the 2016 awards below. The following formula is the basis for determining Annual Incentive Awards:
Salary
|
|
X
|
|
Target (% of salary)
|
|
X
|
|
Business Performance Rating
|
|
X
|
|
Individual Performance Factor
|
|
=
|
|
Annual Incentive Award
|
2016 Annual Incentive Award Target Percentages, Award Ranges and Actual Awards
Name
|
Band
|
Salary ($)
|
Target
|
2016 Business Performance Rating (0 - 130%)
|
Individual Performance Factor Range (1) (% of target)
|
Award Range for 2016 Performance ($)
|
Actual for 2016 Performance ($)
|
|||||||||||||
Minimum
|
Maximum
|
|||||||||||||||||||
Martin J. Barrington
|
A
|
1,420,000
|
150
|
123
|
85
|
175
|
|
2,226,915 - 4,584,825
|
|
|
3,900,000
|
| ||||||||
William F. Gifford, Jr.
|
B
|
647,000
|
95
|
123
|
85
|
155
|
|
642,617 - 1,171,830
|
|
|
950,000
|
| ||||||||
Howard A. Willard
|
B
|
840,000
|
95
|
123
|
85
|
155
|
|
834,309 - 1,521,387
|
|
|
1,300,000
|
| ||||||||
Denise F. Keane
|
B
|
943,000
|
95
|
123
|
85
|
155
|
|
936,611 - 1,707,938
|
|
|
1,450,000
|
| ||||||||
Craig A. Johnson
|
B
|
907,000
|
95
|
123
|
85
|
155
|
|
900,855 - 1,642,736
|
|
|
1,219,000
|
|
(1) | The individual performance ranges are stated as a percentage of target and are based on individual performance between Valued and Extraordinary. |
We have historically awarded long-term incentives to senior executives through a combination of RSU awards and performance-based long-term cash incentive awards. The mix of these awards focuses executives on TSR, adjusted diluted EPS growth, long-term operational performance and progress against strategic and societal alignment objectives, while minimizing shareholder dilution.
38 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
Long-Term Incentives: Equity Awards
Equity awards in the form of RSUs focus executives on increasing long-term shareholder value, enhance executive retention and promote executive stock ownership. Awards recognize prior year performance and advancement potential and generally vest three years after the date of the award, subject to earlier vesting on death, disability or retirement on or after age 65 or in connection with a change in control. This vesting period is intended to retain and motivate executives, while promoting long-term performance. Recipients receive cash dividend equivalents during the vesting period. The Compensation Committee annually reviews equity award targets against competitive data and decided to maintain the current targets for each salary band for the 2016 grants. The awards are granted on the date of Compensation Committee approval, and no individual is guaranteed an award.
The Compensation Committee exercises discretion in making equity awards to our Chairman, CEO and President (salary band A) based on its assessment of competitive data and its review of our Chairman, CEO and Presidents individual performance. The Compensation Committee reviews various equity award scenarios, including past practices of those companies within the 2016 CSG, to establish an appropriate range of awards. |
2016 EQUITY AWARD HIGHLIGHTS
▪ RSUs
▪ Vesting period of three years
▪ Cash dividend equivalent payments
▪ NEO awards based on:
Executives individual performance in year prior to the grant;
Executives advancement potential;
Compensation Committee discretion; and
Competitive benchmarking
▪ Number of shares awarded is based on fair market value of our stock on the date of the grant
|
The equity awards granted to our NEOs in 2016 were as follows:
2016 Equity Awards
Name | Band | Equity Target ($) |
Equity Award Range (1) ($) |
Actual Equity ($) | ||||
Martin J. Barrington
|
A
|
|
|
6,500,010
| ||||
William F. Gifford, Jr.
|
B
|
1,275,000
|
765,000 - 1,912,500
|
1,700,038
| ||||
Howard A. Willard
|
B
|
1,275,000
|
765,000 - 1,912,500
|
1,700,038
| ||||
Denise F. Keane
|
B
|
1,275,000
|
765,000 - 1,912,500
|
1,700,038
| ||||
Craig A. Johnson
|
B
|
1,275,000
|
765,000 - 1,912,500
|
1,275,058
|
(1) | Ranges and actual awards are a function of individual performance and, for our NEOs other than Mr. Barrington, advancement potential. |
(2) | Represents the grant date fair value of stock awards granted in 2016 pursuant to Financial Accounting Standards Board (FASB) Codification Topic 718. Please see footnote 1 to the Summary Compensation Table on page 44. |
The Committee decided that for the equity awards granted in January 2017, executives will receive a mix of 60% RSUs and 40% PSUs. The addition of PSUs, combined with our existing cash LTIP, will increase to over 60% the portion of our executives long-term incentives that is tied to business performance.
Target Long-Term Incentive Mix
ALTRIA GROUP, INC. Proxy Statement 39
EXECUTIVE COMPENSATION
Long-Term Incentives: 2014 2016 Long-Term Incentive Plan Awards
The LTIP is a long-term cash performance plan that uses a three-year, end-to-end performance cycle, an approach consistent with our long-term strategic planning process. At the beginning of each three-year cycle, the Compensation Committee approves long-term financial and strategic performance goals for us that can only be measured effectively after completion of the cycle. Awards are payable in cash after the end of each three-year cycle, based on an assessment of actual overall business and individual performance during the entire award cycle. Each executive has an award target based on his or her salary band, expressed as a percentage of each year-end salary over the three-year cycle. The Compensation Committee retains the discretion to adjust awards upward or downward, and no individual is guaranteed an award.
|
LTIP HIGHLIGHTS
▪ Three-year, end-to-end performance cycle
▪ Awards based on our performance against long-term financial and strategic goals and individual performance
▪ The lump sum cash payment of the three-year 2014 2016 LTIP award significantly increases the NEOs 2016 total compensation when compared to 2015 and 2014, when no LTIP awards were made.
|
Although the Compensation Committee takes our executives earnings opportunity under the LTIP into account when setting their compensation each year, those opportunities remain at risk until the end of the three-year performance cycle.
The Compensation Committee has previously considered alternative LTIP design approaches, such as overlapping three-year cycles (with a new three-year cycle beginning each year), resulting in annual payouts versus payouts every three years. Although such an approach would result in less fluctuation in the annual compensation of executives, the Compensation Committee has concluded that reducing fluctuations is outweighed by the clarity of long-term performance incentives and the retention value of end-to-end performance cycles.
2014 2016 LTIP Performance Measures
The 2014 2016 LTIP performance cycle concluded on December 31, 2016. This performance cycle rewarded achievement of key financial and strategic performance measures intended to create substantial value for shareholders. Financial and strategic measures each were weighted 50% in evaluating performance.
The following table illustrates our performance against the financial measures:
Financial Measures (50%) | Performance Against Financial Measures | |||
Relative 2014 2016 TSR growth versus Altria Peer Group and major indices |
Altria
|
99.5%
| ||
S&P 500 Food, Beverage & Tobacco Index
|
42.3%
| |||
S&P 500 Index
|
29.0%
| |||
2016 Altria Peer Group
|
42.0%
| |||
Adjusted Diluted EPS 2014 - 2016 compound annual growth rate of 6.7% - 8.6% (1)
|
8.4%
|
(1) | In early 2016, when the Compensation Committee reviewed the original target range of 7% to 9%, the ABI/SABMiller transaction had not closed and the Committee acknowledged that if the transaction closed in 2016 the target range would be adjusted to reflect the absence of fourth quarter equity earnings from AB InBev due to the application of lag accounting for such earnings. The ABI/SABMiller transaction closed in October 2016 and the original target range was so adjusted. |
40 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
The following table illustrates our performance against the strategic measures:
Strategic Measures (50%) | Performance Against Strategic Measures | |||
Enhance our infrastructure to maintain or improve our operating companies major brands franchises among adult tobacco consumers.
|
Our tobacco companies enhanced branded websites, and developed mobile apps and digital coupons to increase adult tobacco consumer engagement. PM USA also successfully expanded product offerings and enhanced packaging to exceed adult smoker expectations.
| |||
Build the infrastructure to pursue regulatory pathways for innovative reduced harm products and effective engagement and advocacy with the FDA.
|
We made significant progress in preparing FDA applications related to reduced harm products and developing a scientific framework to support such applications.
| |||
Build the infrastructure to achieve a leading position in the U.S. e-vapor market by year-end 2017.
|
Nu Mark launched in approximately 54,000 stores making good progress toward establishing MarkTen as a leading brand in the e-vapor market.
| |||
Build an innovation system and culture that provides sustainable competitive advantage.
|
Our operating companies developed five-year product portfolio plans with a sharper focus on innovation, including harm reduction.
| |||
Simplify the business, streamline business process and improve productivity.
|
We significantly streamlined business processes to reduce costs and announced a productivity initiative and a manufacturing consolidation plan to reduce costs and streamline operations and achieve greater efficiencies.
| |||
Enhance our talent system, including diversity and inclusion, to improve our leadership capability.
|
We developed and launched programs to build leadership capability around our culture change initiatives of innovation, business simplification and diversity and inclusion.
|
The Compensation Committee also considered our support of the ABI/SABMiller transaction that resulted in ultimately securing 10.2% ownership in the new AB InBev. We believe this transaction enhances the value of our beer investment and will deliver strong long-term financial returns to shareholders.
Following the conclusion of the 2014 2016 LTIP cycle, the Compensation Committee assessed our performance on each of the above financial and strategic measures to determine the final LTIP rating, which could have ranged from 0% to 130%. The Compensation Committee assigned an LTIP business performance rating of 120% to Altria, then used that rating to determine the 2014 2016 award ranges and actual awards below. The Compensation Committee determined that all LTIP awards would be based on the business performance factor with no adjustment for individual performance, reflecting an emphasis on the collaboration required to pursue the financial and strategic measures rather than individual efforts. The following formula is the basis for determining LTIP awards:
Year-end Salaries for Each Plan Year
|
|
X |
|
Award Target (prorated for time in Band)
|
|
X |
|
Business Performance Rating
|
|
X |
|
Individual Performance Factor
|
|
= |
|
Three-Year LTIP Award
|
ALTRIA GROUP, INC. Proxy Statement 41
EXECUTIVE COMPENSATION
2014 2016 Long-Term Incentive Plan Award Target Percentages and Actual Awards
Name | Band | Award Target (%) (1) |
Business Performance Rating (%) |
2014 - 2016 Actual Award (2) ($) | ||||||||||||||||
Martin J. Barrington
|
|
A
|
|
250
|
120
|
|
12,060,000
|
| ||||||||||||
William F. Gifford, Jr.
|
|
B
|
(3)
|
200
|
120
|
|
3,700,600
|
| ||||||||||||
Howard A. Willard
|
|
B
|
|
200
|
120
|
|
5,572,800
|
| ||||||||||||
Denise F. Keane
|
|
B
|
|
200
|
120
|
|
6,612,000
|
| ||||||||||||
Craig A. Johnson
|
|
B
|
|
200
|
120
|
|
6,331,200
|
|
(1) | The award target is stated as a percentage of each year-end salary over the three-year performance cycle. |
(2) | The Compensation Committee did not make adjustments for individual performance. |
(3) | Per plan rules, Mr. Giffords LTIP award was prorated for 424 days as a salary band C employee and 672 days as a salary band B employee. |
The Compensation Committee believes that a competitive executive compensation package includes reasonable perquisites that supplement our retention efforts. The perquisites we provided to our NEOs in 2016 are set forth in the All Other Compensation table on page 46. In addition to these perquisites, our NEOs received the same benefits that were available to our salaried employees generally. Mr. Barrington is required to use our aircraft for all air travel for purposes of security. For Mr. Barrington, the Compensation Committee considers the potential value of personal aircraft usage in determining the other components of his total compensation. Mr. Barrington did not accept the Altria-paid automobile and executive physical in 2016. Effective January 1, 2016, we discontinued reimbursement for financial counseling services.
Post-Termination Benefits and Change in Control Payments
We provide post-termination benefits to our NEOs, including retirement benefits and termination payments if applicable, as well as payments in connection with a change in control.
| Retirement Benefits. Our NEOs participate in certain qualified and non-qualified retirement plans, which we believe promote executive retention and provide the opportunity for financial security in retirement. These retirement benefits are discussed in more detail in the narrative following the Pension Benefits table (pages 51 to 52) and the Non-Qualified Deferred Compensation table (page 54). |
| Change in Control Payments. Our 2015 Performance Incentive Plan (2015 PIP) includes a double-trigger provision for annual incentive awards, equity awards and long-term incentive cash awards, provided that the successor entity continues or assumes the plans and awards or replaces them with substantially similar awards. In contrast, our 2010 Performance Incentive Plan (2010 PIP), under which some awards remain unvested, provides for the vesting and acceleration of certain elements of compensation immediately upon a change in control. The details of these provisions are discussed in the Payments upon Change in Control or Termination of Employment section (pages 54 to 57). |
| Termination Payments. The Severance Pay Plan for Salaried Employees provides an opportunity for financial protection against the unexpected event of an involuntary termination of employment. The details of this plan are discussed in the Payments upon Change in Control or Termination of Employment section (pages 54 to 57). |
Stock Ownership and Holding Requirements and Prohibition on Hedging and Pledging
The Compensation Committee has established stock ownership requirements under which executives are expected to hold our common stock until their termination of employment in an amount equal to a multiple of salary, as determined by their salary band. If the stock price declines, an executive may satisfy the requirement by holding a fixed number of shares based on the stock price at the beginning of the executives acquisition period. The Compensation Committee set the requirements as 12
42 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
times base salary for salary band A (CEO) and six times base salary for salary band B (other NEOs). In addition, effective October 1, 2016, the Compensation Committee adopted a stock holding requirement that prohibits executive officers from selling shares received as compensation until they meet their stock ownership requirement.
Stock ownership includes shares held as RSUs, PSUs and restricted stock. We expect executives to meet their ownership requirement within five years of becoming subject to the requirement (or three years from a subsequent promotion date and resulting increase in the ownership requirement). As of December 31, 2016, all of our NEOs substantially exceeded their stock ownership requirements.
We have had a long-standing policy prohibiting our NEOs from engaging in hedging activities with respect to our shares. Effective October 1, 2016, the Compensation Committee adopted an anti-pledging policy. While we did not previously have a formal policy prohibiting our NEOs from engaging in pledging activities with respect to our shares, our NEOs historically have not pledged their shares.
Clawback Policy Regarding the Adjustment or Recovery of Compensation
We have a clawback policy providing for the adjustment or recovery of compensation in certain circumstances. If our Board or an appropriate committee of our Board determines that, as a result of a restatement of our financial statements, an executive received more compensation than would have been paid absent the incorrect financial statements, our Board or its committee, in its discretion, will take such action as it deems necessary or appropriate to address the events that gave rise to the restatement and to prevent its recurrence. Such action may include, to the extent permitted by applicable law, in appropriate cases, requiring partial or full reimbursement of any bonus or other incentive compensation paid to the executive, causing the partial or full cancellation of RSUs, PSUs or restricted stock awards, adjusting the future compensation of such executive and dismissing or taking legal action against the executive, in each case as our Board or its committee determines to be in the best interests of Altria and our shareholders. Our RSUs, PSUs and restricted stock award agreements also include clawback provisions.
Tax and Accounting Considerations
In addition to our executive compensation objectives and design principles, we consider tax and accounting treatment when designing and administering our program. An important tax consideration is Internal Revenue Code Section 162(m), which limits our ability to deduct compensation paid to each covered officer for tax purposes to $1.0 million annually. Covered officers include the principal executive officer and our next three highest paid executive officers, other than our principal financial officer.
However, this limitation does not apply to performance-based compensation, provided we satisfy certain conditions. We have taken appropriate actions, to the extent feasible, to preserve the deductibility of annual and long-term cash incentive awards and equity awards. The Annual Incentive Awards and grants of RSUs that the Compensation Committee awarded to our covered officers in 2016 were subject to, and made in accordance with, previously implemented performance-based compensation arrangements that were intended to qualify as tax-deductible.
The Compensation Committee does not believe compensation decisions should be necessarily constrained by how much compensation is deductible for federal income tax purposes. As a result, the Compensation Committee has authorized, and retains the discretion to authorize, other payments that may not be deductible if it believes that they are in the best interests of Altria and our shareholders. Such determinations include, for example, payment of a salary to an officer that exceeds $1.0 million, with the result that a portion of such officers salary exceeds the deductibility limit. Similarly, a covered officers compensation may exceed the $1.0 million deductibility limit due to other elements of annual compensation, such as vesting of certain stock grants, dividends or dividend equivalents paid on certain stock and perquisites.
ALTRIA GROUP, INC. Proxy Statement 43
EXECUTIVE COMPENSATION
The following table provides the compensation information of our NEOs for 2016, 2015 and 2014. The table does not show compensation information for Mr. Gifford for 2014 because he was not an NEO in 2014.
Non-Equity Incentive Plans | ||||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) |
Stock Awards Grant Value (1) ($) |
Annual Incentive Plan ($) |
Long-Term Incentive Plan (2) ($) |
Change in Pension Value (3) ($) |
All Other Compensation (4) ($) |
Total ($) |
||||||||||||||||||||||
Martin J. Barrington,
|
|
2016
|
|
|
1,408,333
|
|
|
6,500,010
|
|
|
3,900,000
|
|
12,060,000
|
|
3,363,075
|
|
|
342,148
|
|
|
27,573,566
|
| ||||||||
Chairman, Chief Executive Officer and
|
|
2015
|
|
|
1,333,333
|
|
|
5,600,071
|
|
|
3,500,000
|
|
|
|
2,606,735
|
|
|
256,229
|
|
|
13,296,368
|
| ||||||||
President, Altria Group, Inc.
|
|
2014
|
|
|
1,241,667
|
|
|
5,250,206
|
|
|
2,950,000
|
|
|
|
2,629,203
|
|
|
249,914
|
|
|
12,320,990
|
| ||||||||
William F. Gifford, Jr.,
|
|
2016
|
|
|
640,833
|
|
|
1,700,038
|
|
|
950,000
|
|
3,700,600
|
|
879,815
|
|
|
96,713
|
|
|
7,967,999
|
| ||||||||
Executive Vice President and Chief
|
|
2015
|
|
|
594,167
|
|
|
2,650,282
|
|
|
900,000
|
|
|
|
650,130
|
|
|
76,596
|
|
|
4,871,175
|
| ||||||||
Financial Officer, Altria Group, Inc.
|
|
2014
|
|
|||||||||||||||||||||||||||
Howard A. Willard,
|
|
2016
|
|
|
833,333
|
|
|
1,700,038
|
|
|
1,300,000
|
|
5,572,800
|
|
1,400,173
|
|
|
120,080
|
|
|
10,926,424
|
| ||||||||
Executive Vice President and Chief
|
|
2015
|
|
|
780,333
|
|
|
3,150,551
|
|
|
1,200,000
|
|
|
|
998,455
|
|
|
106,113
|
|
|
6,235,452
|
| ||||||||
Operating Officer, Altria Group, Inc.
|
|
2014
|
|
|
676,833
|
|
|
1,650,054
|
|
|
908,000
|
|
|
|
1,190,965
|
|
|
99,460
|
|
|
4,525,312
|
| ||||||||
Denise F. Keane,
|
|
2016 |
|
|
938,500 |
|
|
1,700,038 |
|
|
1,450,000 |
|
6,612,000 |
|
755,050 |
|
|
139,165 |
|
|
11,594,753 |
| ||||||||
Executive Vice President and General
|
|
2015
|
|
|
912,667
|
|
|
1,650,289
|
|
|
1,350,000
|
|
|
|
390,030
|
|
|
125,311
|
|
|
4,428,297
|
| ||||||||
Counsel, Altria Group, Inc.
|
|
2014
|
|
|
890,500
|
|
|
1,650,054
|
|
|
1,137,000
|
|
|
|
854,996
|
|
|
125,805
|
|
|
4,658,355
|
| ||||||||
Craig A. Johnson,
|
|
2016
|
|
|
901,667
|
|
|
1,275,058
|
|
|
1,219,000
|
|
6,331,200
|
|
348,405
|
|
|
132,544
|
|
|
10,207,874
|
| ||||||||
President and Chief Executive Officer,
|
|
2015
|
|
|
871,833
|
|
|
1,275,496
|
|
|
1,100,000
|
|
|
|
660,369
|
|
|
111,585
|
|
|
4,019,283
|
| ||||||||
Altria Group Distribution Company
|
|
2014
|
|
|
850,833
|
|
|
1,275,092
|
|
|
960,000
|
|
|
|
1,283,591
|
|
|
117,879
|
|
|
4,487,395
|
|
(1) | The amount shown is the grant date fair value of stock awards determined pursuant to FASB Codification Topic 718. The assumptions we used in calculating these amounts are incorporated herein by reference to Note 2 to our consolidated financial statements in the 2016 Annual Report on Form 10-K. |
(2) | The 2014 2016 LTIP performance cycle ended on December 31, 2016. The LTIP uses three-year, end-to-end performance cycles. We pay executives in a lump sum cash award only after the end of the three-year performance cycle, based on an assessment of overall corporate and individual performance during the entire award cycle. This end-to-end performance cycle significantly increases the NEOs 2016 total compensation in the Summary Compensation Table compared to 2015 and 2014, when no LTIP awards were made. |
The table below reflects the impact on the Summary Compensation Table if the lump sum value was allocated over the 2014 2016 performance period. |
44 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
2014 2016 LTIP Payment Allocated Over Three-Year Performance Cycle
Non-Equity Incentive Plans | ||||||||||||||||||||||||||||||||
Name | Year | Salary ($) |
Stock Awards Grant Value ($) |
Annual Incentive Plan ($) |
Long-Term Incentive Plan (a) ($) |
Change in Pension ($) |
All Other Compensation ($) |
Total ($) |
||||||||||||||||||||||||
Martin J. Barrington
|
|
2016
|
|
|
1,408,333
|
|
|
6,500,010
|
|
|
3,900,000
|
|
|
4,260,000
|
|
|
3,363,075
|
|
|
342,148
|
|
|
19,773,566
|
| ||||||||
|
2015
|
|
|
1,333,333
|
|
|
5,600,071
|
|
|
3,500,000
|
|
|
4,050,000
|
|
|
2,606,735
|
|
|
256,229
|
|
|
17,346,368
|
| |||||||||
|
2014
|
|
|
1,241,667
|
|
|
5,250,206
|
|
|
2,950,000
|
|
|
3,750,000
|
|
|
2,629,203
|
|
|
249,914
|
|
|
16,070,990
|
| |||||||||
William F. Gifford, Jr.
|
|
2016
|
|
|
640,833
|
|
|
1,700,038
|
|
|
950,000
|
|
|
1,552,800
|
|
|
879,815
|
|
|
96,713
|
|
|
5,820,199
|
| ||||||||
|
2015
|
|
|
594,167
|
|
|
2,650,282
|
|
|
900,000
|
|
|
1,375,300
|
|
|
650,130
|
|
|
76,596
|
|
|
6,246,475
|
| |||||||||
|
2014
|
|
||||||||||||||||||||||||||||||
Howard A. Willard
|
|
2016
|
|
|
833,333
|
|
|
1,700,038
|
|
|
1,300,000
|
|
|
2,016,000
|
|
|
1,400,173
|
|
|
120,080
|
|
|
7,369,624
|
| ||||||||
|
2015
|
|
|
780,333
|
|
|
3,150,551
|
|
|
1,200,000
|
|
|
1,920,000
|
|
|
998,455
|
|
|
106,113
|
|
|
8,155,452
|
| |||||||||
|
2014
|
|
|
676,833
|
|
|
1,650,054
|
|
|
908,000
|
|
|
1,636,800
|
|
|
1,190,965
|
|
|
99,460
|
|
|
6,162,112
|
| |||||||||
Denise F. Keane
|
|
2016
|
|
|
938,500
|
|
|
1,700,038
|
|
|
1,450,000
|
|
|
2,263,200
|
|
|
755,050
|
|
|
139,165
|
|
|
7,245,953
|
| ||||||||
|
2015
|
|
|
912,667
|
|
|
1,650,289
|
|
|
1,350,000
|
|
|
2,198,400
|
|
|
390,030
|
|
|
125,311
|
|
|
6,626,697
|
| |||||||||
|
2014
|
|
|
890,500
|
|
|
1,650,054
|
|
|
1,137,000
|
|
|
2,150,400
|
|
|
854,996
|
|
|
125,805
|
|
|
6,808,755
|
| |||||||||
Craig A. Johnson
|
|
2016
|
|
|
901,667
|
|
|
1,275,058
|
|
|
1,219,000
|
|
|
2,176,800
|
|
|
348,405
|
|
|
132,544
|
|
|
6,053,474
|
| ||||||||
|
2015
|
|
|
871,833
|
|
|
1,275,496
|
|
|
1,100,000
|
|
|
2,100,000
|
|
|
660,369
|
|
|
111,585
|
|
|
6,119,283
|
| |||||||||
|
2014
|
|
|
850,833
|
|
|
1,275,092
|
|
|
960,000
|
|
|
2,054,400
|
|
|
1,283,591
|
|
|
117,879
|
|
|
6,541,795
|
|
(a) | This column shows an annualized allocation of the 2014 2016 LTIP awards instead of a lump sum payment for 2016 as shown in the Summary Compensation Table. Allocations are based on year-end salaries, percentage targets for each salary band and the respective time in each salary band. |
(3) | The amounts show the change in the present value of each NEOs pension benefits from December 31, 2015 to December 31, 2016. The change in 2016 is due to a variety of factors, including growth in benefit due to additional pay and service, passage of time and a change in the discount rate. |
(4) | Details of other compensation for each of our NEOs appear in the All Other Compensation table shown below. |
ALTRIA GROUP, INC. Proxy Statement 45
EXECUTIVE COMPENSATION
All Other Compensation
Name | Year | Allocation to Defined Contribution Plans (a) ($) |
Personal Use of Altria Aircraft (b) ($) |
Car Expenses (c) ($) |
Financial Counseling Services (d) ($) |
Security ($) |
Executive Physicals ($) |
Total ($) |
||||||||||||||
Martin J. Barrington
|
|
2016
|
|
|
169,000
|
|
172,593
|
|
|
555
|
|
|
342,148
|
| ||||||||
|
2015
|
|
|
133,333
|
|
122,278
|
|
|
618
|
|
|
256,229
|
| |||||||||
|
2014
|
|
|
124,167
|
|
125,287
|
|
|
460
|
|
|
249,914
|
| |||||||||
William F. Gifford, Jr.
|
|
2016
|
|
|
76,900
|
|
|
16,513
|
|
|
3,300
|
|
96,713
|
| ||||||||
|
2015
|
|
|
59,417
|
|
|
17,179
|
|
|
|
|
76,596
|
| |||||||||
|
2014
|
|
||||||||||||||||||||
Howard A. Willard
|
|
2016
|
|
|
100,000
|
|
|
16,780
|
|
|
3,300
|
|
120,080
|
| ||||||||
|
2015
|
|
|
78,033
|
|
|
18,016
|
6,764
|
|
3,300
|
|
106,113
|
| |||||||||
|
2014
|
|
|
67,683
|
|
|
18,477
|
10,000
|
|
3,300
|
|
99,460
|
| |||||||||
Denise F. Keane
|
|
2016
|
|
|
112,620
|
|
|
23,245
|
|
|
3,300
|
|
139,165
|
| ||||||||
|
2015
|
|
|
91,267
|
|
|
20,744
|
10,000
|
|
3,300
|
|
125,311
|
| |||||||||
|
2014
|
|
|
89,050
|
|
|
23,455
|
10,000
|
|
3,300
|
|
125,805
|
| |||||||||
Craig A. Johnson
|
|
2016
|
|
|
108,200
|
|
|
21,044
|
|
|
3,300
|
|
132,544
|
| ||||||||
|
2015
|
|
|
87,183
|
|
|
19,417
|
4,985
|
|
|
|
111,585
|
| |||||||||
|
2014
|
|
|
85,083
|
|
|
23,921
|
5,575
|
|
3,300
|
|
117,879
|
|
(a) | Amounts represent allocations to tax-qualified and non-qualified supplemental defined contribution plans. |
(b) | Mr. Barrington is required to use our aircraft for all air travel for security reasons. Pursuant to a time-sharing agreement with Altria, Mr. Barrington agreed to reimburse us for annual personal aircraft usage in excess of $250,000. |
Personal use of our aircraft reflects incremental costs, including trip-related crew hotels and meals, in-flight food and beverages, landing and ground handling fees, hourly maintenance contracts, hangar or aircraft parking, fuel (based on the average monthly cost of fuel per hour flown) and other smaller variable costs. For purposes of calculating incremental costs, we include the incremental costs of any deadhead flights, or portions thereof, made in connection with personal travel. Fixed costs incurred in any event to operate our aircraft (e.g., aircraft purchase costs, depreciation, maintenance not related to personal trips and flight crew salaries) are not included. Mr. Barrington pays his own taxes on imputed taxable income resulting from personal use of our aircraft. |
(c) | Car expenses include the annual cost of providing a leased vehicle and operating expenses, including insurance, maintenance and repairs. Executives pay their own taxes on imputed taxable income resulting from personal use of leased vehicles. |
(d) | Effective January 1, 2016, we discontinued reimbursement for financial counseling services. |
46 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
Grants of Plan-Based Awards during 2016
Name |
Grant Date |
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) |
All Other Number of Shares of Stock (#) |
Grant Date Fair Value of Stock Awards (2) ($) |
||||||||||||||||||||||||||||||||||||||||||||||||
Threshold ($) |
Target ($) |
Maximum ($) |
||||||||||||||||||||||||||||||||||||||||||||||||||
Martin J. Barrington
|
2016
|
|
|
2,130,000
|
|
10,000,000
|
||||||||||||||||||||||||||||||||||||||||||||||
1/26/2016
|
|
110,123
|
|
6,500,010
|
||||||||||||||||||||||||||||||||||||||||||||||||
William F. Gifford, Jr.
|
2016
|
|
|
614,650
|
|
10,000,000
|
||||||||||||||||||||||||||||||||||||||||||||||
1/26/2016
|
|
28,802
|
|
1,700,038
|
||||||||||||||||||||||||||||||||||||||||||||||||
Howard A. Willard
|
2016
|
|
|
798,000
|
|
10,000,000
|
||||||||||||||||||||||||||||||||||||||||||||||
1/26/2016
|
|
28,802
|
|
1,700,038
|
||||||||||||||||||||||||||||||||||||||||||||||||
Denise F. Keane
|
2016
|
|
|
895,850
|
|
10,000,000
|
||||||||||||||||||||||||||||||||||||||||||||||
1/26/2016
|
|
28,802
|
|
1,700,038
|
||||||||||||||||||||||||||||||||||||||||||||||||
Craig A. Johnson
|
2016
|
|
|
861,650
|
|
10,000,000
|
||||||||||||||||||||||||||||||||||||||||||||||
1/26/2016
|
|
21,602
|
|
1,275,058
|
(1) | Reflects the target and maximum 2016 Annual Incentive Awards. Actual awards paid under the 2016 Annual Incentive Award program are found in the Annual Incentive Plan column of the Summary Compensation Table. The maximum represents the maximum permitted under the 2015 PIP. Awards covered by Internal Revenue Code Section 162(m) are also subject to a maximum amount determined under a formula established by the Compensation Committee, which could produce a maximum award lower than $10 million. |
(2) | Reflects RSUs granted to our NEOs on January 26, 2016. The grant date fair value was determined using a share price of $59.025, which was the average of the high and low trading prices of Altrias common stock on the grant date. The RSUs vest on February 7, 2019. Holders of RSUs are entitled to any cash dividend equivalents paid quarterly throughout the restriction period. |
ALTRIA GROUP, INC. Proxy Statement 47
EXECUTIVE COMPENSATION
Outstanding Equity Awards as of December 31, 2016
Option Awards | Stock Awards | |||||||||||
Name | Number of Securities Underlying Unexercised Options: Exercisable (#) |
Option Exercise Price ($) |
Option Expiration Date |
Stock Award Grant Date (1) |
Number of Shares or Units of Stock That Have Not (#) |
Market Value of Shares or Units of Stock That Have Not Vested (2) ($) | ||||||
Martin J. Barrington
|
| | |
1/26/2016
|
110,123
|
7,446,517
| ||||||
1/28/2015
|
102,650
|
6,941,193
| ||||||||||
1/28/2014
|
142,960
|
9,666,955
| ||||||||||
5/16/2012 (a)
|
150,000
|
10,143,000
| ||||||||||
William F. Gifford, Jr.
|
| | |
1/26/2016
|
28,802
|
1,947,591
| ||||||
1/28/2015
|
21,080
|
1,425,430
| ||||||||||
1/28/2015 (a)
|
27,500
|
1,859,550
| ||||||||||
1/28/2014
|
31,320
|
2,117,858
| ||||||||||
Howard A. Willard
|
| | |
1/26/2016
|
28,802
|
1,947,591
| ||||||
1/28/2015
|
30,250
|
2,045,505
| ||||||||||
1/28/2015 (a)
|
27,500
|
1,859,550
| ||||||||||
1/28/2014
|
44,930
|
3,038,167
| ||||||||||
Denise F. Keane
|
| | |
1/26/2016
|
28,802
|
1,947,591
| ||||||
1/28/2015
|
30,250
|
2,045,505
| ||||||||||
1/28/2014
|
44,930
|
3,038,167
| ||||||||||
Craig A. Johnson
|
| | |
1/26/2016
|
21,602
|
1,460,727
| ||||||
1/28/2015
|
23,380
|
1,580,956
| ||||||||||
1/28/2014
|
34,720
|
2,347,766
|
(1) | Awards vest 100% according to the following schedules: |
Annual Grants | Special Grants (a) | |||||||||
Grant Date
|
Vest Date
|
Grant Date
|
Vest Date
| |||||||
1/26/2016
|
2/07/2019
|
1/28/2015
|
2/11/2020
| |||||||
1/28/2015
|
2/07/2018
|
5/16/2012
|
5/16/2017
| |||||||
1/28/2014
|
2/09/2017
|
(2) | Market values are based on $67.62, the closing price of Altrias common stock on December 30, 2016. |
Dividends and dividend equivalents earned in 2016 on outstanding restricted stock awards and RSUs for each of our NEOs were: Mr. Barrington, $1,188,473; Mr. Gifford, $255,450; Mr. Willard, $308,983; Ms. Keane, $244,358; and Mr. Johnson, $187,300.
48 ALTRIA GROUP, INC. Proxy Statement
EXECUTIVE COMPENSATION
Stock Option Exercises and Stock Vested during 2016
Option Awards | Stock Awards | |||||||||||||
Name | Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($) |
||||||||||
Martin J. Barrington
|
| | 160,000 | 9,558,400 | ||||||||||
William F. Gifford, Jr.
|
| | 32,600 | 1,947,524 | ||||||||||
Howard A. Willard
|
| | 48,900 | 2,921,286 | ||||||||||
Denise F. Keane
|
| | 48,900 | 2,921,286 | ||||||||||