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. )
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☑ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
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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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2018 |
Notice of |
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6601 West Broad Street
Richmond, Virginia 23230
Dear Fellow Shareholder:
I am pleased to invite you to join us at the 2018 Annual Meeting of Shareholders of Altria Group, Inc. to be held on Thursday, May 17, 2018 at 9:00 a.m., Eastern Time, at the Greater Richmond Convention Center, 403 North 3rd Street, Richmond, Virginia 23219.
At this year’s meeting, we will vote on the election of 11 directors, the ratification of the selection of PricewaterhouseCoopers LLP as Altria’s independent registered public accounting firm and, if properly presented, one shareholder proposal. We will also conduct a non-binding advisory vote on the compensation of Altria’s named executive officers. We will 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 11 (Question 16). One immediate family member who is 21 years of age or older may accompany a shareholder as a guest.
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 this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. 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 5, 2018
Sincerely, |
Martin J. Barrington |
For further information about the 2018 Annual Meeting, please call 1-804-484-8838 |
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS OF ALTRIA GROUP, INC. |
DATE AND TIME: |
Thursday, May 17, 2018 at 9:00 a.m., Eastern Time | ||
PLACE: |
The Greater Richmond Convention Center | ||
ITEMS OF BUSINESS: |
1) |
To elect as directors the 11 nominees named in the accompanying Proxy Statement. | |
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2) |
To ratify the selection of PricewaterhouseCoopers LLP as Altria’s independent registered public accounting firm for the fiscal year ending December 31, 2018. | |
|
3) |
To hold a non-binding advisory vote to approve the compensation of Altria’s named executive officers. | |
4) |
To vote on one shareholder proposal, if properly presented at the meeting. | ||
5) |
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 March 26, 2018. | ||
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 11 (Question 16) of the accompanying Proxy Statement. | ||
2017 ANNUAL REPORT: |
A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 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 5, 2018. |
By Order of the Board of Directors, |
W. Hildebrandt Surgner, Jr. |
April 5, 2018
Richmond, Virginia
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 17, 2018 |
Altria’s Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the fiscal year ended December 31, 2017 are available, free of charge, at www.altria.com/proxy. |
PROXY STATEMENT – TABLE OF CONTENTS |
ALTRIA GROUP, INC. – Proxy Statement i
PROXY STATEMENT – TABLE OF CONTENTS |
ii ALTRIA GROUP, INC. – Proxy Statement
PROXY STATEMENT SUMMARY |
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 Altria’s 2018 Annual Meeting of Shareholders (the “2018 Annual Meeting” or the “meeting”). This summary does not contain all 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 – | Election of Directors | FOR each nominee | 61 | ||
Proposal 2 – | Ratification of the Selection of Independent Registered Public Accounting Firm | FOR | 67 | ||
Proposal 3 – | Non-Binding Advisory Vote to Approve the Compensation of Altria’s Named Executive Officers | FOR | 68 | ||
Proposal 4 – | Shareholder Proposal Regarding Reducing and Disclosing Nicotine Levels in Cigarette Brands | AGAINST | 69 |
CASTING YOUR VOTE
How to Vote | Shareholders of Record (Shares registered in your name with Altria’s transfer agent, Computershare) and Employee Benefit Plan Participants |
Street Name Holders (Shares held through a Broker, Bank or Other Nominee) | |||
Internet |
Visit the applicable voting website: | www.envisionreports.com/altria |
www.proxyvote.com | ||
Mobile Device |
Scan the QR Code to vote using your mobile device: | Refer to voting instruction form. | |||
Telephone |
Within the United States, U.S. Territories and Canada, call toll-free: | 1-800-652-VOTE (8683) | 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. | ||||
In Person |
For instructions on attending the 2018 Annual Meeting in person, please see Question 16 on page 11. |
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 director’s experiences, qualifications and skills can be found beginning on page 61.
Board Committee Membership (1) | ||||||||||||||||||||
Name | Age | Director Since |
Principal Occupation | Independent | AC | CC | EC | FC | IC | NC | ||||||||||
John T. Casteen III | 74 | 2010 | President Emeritus, University of Virginia | Yes | ■ | ■ | ■ | |||||||||||||
Dinyar S. Devitre | 70 | 2008 | Former Chief Financial Officer, Altria Group, Inc. | Yes | ■ | ■ | ■ | ■ | ||||||||||||
Thomas F. Farrell II (2) | 63 | 2008 | Chairman, President and Chief Executive Officer, Dominion Energy, Inc. | Yes | ■ | ■ | ■ | |||||||||||||
Debra J. Kelly-Ennis | 61 | 2013 | Retired President and Chief Executive Officer, Diageo Canada, Inc. | Yes | ■ | ■ | ■ | |||||||||||||
W. Leo Kiely III | 71 | 2011 | Retired Chief Executive Officer, MillerCoors LLC | Yes | ■ | ■ | ■ | ■ | ||||||||||||
Kathryn B. McQuade | 61 | 2012 | Retired Executive Vice President and Chief Financial Officer, Canadian Pacific Railway Limited | Yes | ■ | ■ | ■ | |||||||||||||
George Muñoz | 66 | 2004 | Principal, Muñoz Investment Banking Group, LLC and Partner, Tobin & Muñoz | Yes | ■ | ■ | ■ | ■ | ||||||||||||
Mark E. Newman (3) | 54 | 2018 | Senior Vice President and Chief Financial Officer, The Chemours Company | Yes | ||||||||||||||||
Nabil Y. Sakkab | 70 | 2008 | Retired Senior Vice President, Corporate Research and Development, The Procter & Gamble Company | Yes | ■ | ■ | ■ | ■ | ||||||||||||
Virginia E. Shanks | 57 | 2017 | Executive Vice President and Chief Administrative Officer, Pinnacle Entertainment, Inc. | Yes | ■ | ■ | ||||||||||||||
Howard A. Willard III (3) | 54 | 2018 | Executive Vice President and Chief Operating Officer, Altria Group, Inc. | No |
(1) | AC | Audit Committee | FC | Finance Committee |
CC | Compensation Committee | IC | Innovation Committee | |
EC | Executive Committee | NC | Nominating, Corporate Governance & Social Responsibility Committee | |
(2) | Presiding Director. | |||
(3) | Messrs. Newman and Willard became directors effective February 1, 2018. As of the date of this Proxy Statement, Messrs. Newman and Willard have not been named to any Committee. | |||
2 ALTRIA GROUP, INC. – Proxy Statement
PROXY STATEMENT SUMMARY |
CORPORATE GOVERNANCE HIGHLIGHTS
■ | Annual election of directors |
■ | Proxy access right |
■ | 10 of our 11 director nominees are independent |
■ | Directors elected by majority voting |
■ | Resignation policy for directors in failed elections |
■ | Director retirement guidelines |
■ | Independent presiding director |
■ | All NYSE-required Board committees consist solely of independent directors |
■ | Regular executive sessions of independent directors |
■ | At least 84% Board and Committee meeting attendance in 2017 by all directors |
■ | Annual Board and Committee self-evaluations |
■ | Comprehensive new director orientation |
■ | Ongoing director education programs |
■ | Comprehensive Code of Conduct and Corporate Governance Guidelines |
■ | Significant Board oversight of strategic plan development and execution |
■ | No shareholder rights plan or “poison pill” |
■ | Robust political activity disclosure and compliance program |
■ | Board participation in executive succession planning |
■ | Strong pay-for-performance philosophy |
■ | Compensation “clawback” policy |
■ | Stock ownership and holding requirements for directors and executive officers |
■ | Policies prohibiting hedging and pledging of our shares |
SHAREHOLDER ENGAGEMENT
We value our shareholders’ perspective on our businesses and each year engage with shareholders through numerous activities. In 2017, these included three investor roadshows, three investor conferences, an Investor Day, individual investor meetings and our 2017 Annual Meeting of Shareholders (“2017 Annual Meeting”). We value the shareholder 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 and through the Altria Investor App. For questions concerning Investor Relations, please call 804-484-8222 or e-mail us from the Contact Us section on our website (www.altria.com/ContactUs).
2017 BUSINESS HIGHLIGHTS
Altria had another strong year in 2017. We delivered outstanding financial performance and continued to focus on rewarding our shareholders. Highlights from 2017 include the following:
■ | We delivered a total shareholder return (“TSR”) of 9.4%, which followed four consecutive years of TSR exceeding 20%. |
2017 Total Shareholder Return | Three-Year Total Shareholder Return | |||
Source: | Bloomberg Daily Return (December 31, 2016 – December 31, 2017) | Source: | Bloomberg Daily Return (December 31, 2014 – December 31, 2017) | |
Note: | Assumes reinvestment of dividends as of the ex-dividend date. | Note: | Assumes reinvestment of dividends as of the ex-dividend date. |
ALTRIA GROUP, INC. – Proxy Statement 3
PROXY STATEMENT SUMMARY |
■ | We continued to deliver against our long-term 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 our adjusted diluted EPS. |
■ | Full-year adjusted diluted EPS, which excludes the impact of special items, grew 11.9%, built on strong income growth from our core tobacco businesses, complemented by the effects of U.S. federal income tax reform. |
■ | We paid $4.8 billion in dividends in 2017. In August 2017, our Board of Directors (“Board of Directors” or “Board”) raised the regular quarterly dividend by 8.2%, our 51st dividend increase in the last 48 years. |
■ | In 2017, we repurchased approximately $2.9 billion of our shares, at an average price of $70.10 per share. |
Adjusted Diluted EPS (12/31/14 - 12/31/17) |
Dividend Payments ($ millions) |
Share Repurchases ($ millions) | ||
■ | Our core tobacco businesses produced another year of excellent financial results. |
■ | The smokeable products segment grew adjusted operating companies income (“OCI”) (2) by 7.0%. Philip Morris USA Inc. (“PM USA”) maintained its strategy of maximizing income while maintaining momentum on Marlboro and Black & Mild across key brand metrics, including equity, demographics, profitability and retail share. |
■ | The smokeless products segment grew adjusted OCI by 11.2%. U.S. Smokeless Tobacco Company LLC (“USSTC”) grew Copenhagen’s retail share by 0.5 share points and improved Skoal’s profitability while investing behind Skoal’s blends and snus products. |
■ | In wine, Ste. Michelle Wine Estates Ltd.’s (“Ste. Michelle”) adjusted OCI declined by 12.0% primarily due to lower volume. |
■ | In e-vapor, Nu Mark LLC (“Nu Mark”) grew MarkTen’s volume by approximately 60%. MarkTen had retail share of 12.5% in mainstream retail channels and was present in stores representing approximately 70% of e-vapor category volume in those channels. |
■ | In heated tobacco, PM USA continued to build its commercialization plans for IQOS, which it will have the exclusive right to sell in the U.S. upon U.S. Food and Drug Administration (“FDA”) authorization. |
(1) |
Adjusted diluted EPS is a financial measure 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. |
(2) | Adjusted OCI is a financial measure 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 |
Smokeable Adjusted OCI ($ millions) |
Smokeless Adjusted OCI ($ millions) |
Wine Adjusted OCI ($ millions) | ||
For more information regarding our 2017 performance, please review our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (“2017 Annual Report on Form 10-K”).
2017 EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS
■ | Annual incentive awards for our executive officers named in the Summary Compensation Table on page 48 (“named executive officers” or “NEOs”) reflect our strong 2017 business performance. Stock awards reflected in the Summary Compensation Table were granted in January 2017 and reflect the executive’s individual performance and advancement potential. |
■ | The Compensation Committee examined the mix of long-term incentives and increased the portion that is performance-based by introducing performance stock units (“PSUs”) as part of the annual grant of equity compensation. Executives received a mix of 60% restricted stock units (“RSUs”) and 40% PSUs. The addition of PSUs, combined with our existing cash Long-Term Incentive Plan (“LTIP”), increased to over 60% the portion of our executives’ long-term incentives that is performance-based. |
■ | At the 2017 Annual Meeting, nearly 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. Nearly 89% of the votes cast were in favor of maintaining the annual frequency for future advisory votes on the compensation of our NEOs. |
ALTRIA GROUP, INC. – Proxy Statement 5
PROXY STATEMENT SUMMARY |
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 Don’t Do | |||
Pay for Performance - A significant portion of our NEOs’ compensation is at-risk variable compensation. Annual and long-term cash incentives and a significant portion of equity compensation are tied to performance measures. |
No Excessive Perquisites - Perquisites represent less than 2% of our NEOs’ compensation. | |||
Multiple Performance Metrics - Variable compensation is based on more than one measure to encourage balanced incentives. |
|
No Single-Trigger Change in Control - Our shareholder-approved 2015 Performance Incentive Plan includes a double-trigger change in control provision. | ||
Stock Holding and Ownership Requirements -All NEOs exceed our robust stock ownership requirements. |
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No Individual Supplemental Executive Retirement Plans | ||
“Clawback” Provisions - Our policy provides for the adjustment or recovery of compensation in certain circumstances. |
|
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. | ||
Award Caps - All our variable compensation plans have caps on plan formulas. |
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No Employment Agreements - All our NEOs are employed at-will. | ||
Below Average Share Utilization - We have below average run rates for equity compensation, as compared to S&P 500 companies. |
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No Tax Gross-Ups on Compensation - We do not pay tax gross-ups to our executive officers, except in limited circumstances such as a retirement gift of nominal value or relocation assistance on the same basis offered to all employees. | ||
Tally Sheets - The Compensation Committee reviews compensation tally sheets at least annually as part of making individual compensation decisions for our NEOs. |
|
No Share Recycling | ||
Confidentiality & Non-Compete Agreements - All NEOs are subject to confidentiality and non-compete agreements. |
|
|
6 ALTRIA GROUP, INC. – Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING |
QUESTIONS AND ANSWERS ABOUT THE 2018 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? |
(a) |
receive notice of the meeting; and |
(b) |
vote at the meeting and any adjournments or postponements of the meeting. |
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? |
ALTRIA GROUP, INC. – Proxy Statement 7
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING |
6. | WHAT ITEMS WILL BE VOTED ON AT THE 2018 ANNUAL MEETING? |
Proposal |
|
Voting Choices, Board Recommendation and Voting Requirement |
Proposal 1 – |
Voting Choices
■Vote for a nominee;
■Vote against a nominee; or
■Abstain from voting on a nominee.
Board Recommendation Voting Requirement 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. | |
Proposal 2 – |
Voting Choices
■Vote for the ratification;
■Vote against the ratification; or
■Abstain from voting.
Board Recommendation Voting Requirement |
8 ALTRIA GROUP, INC. – Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING |
Proposal | Voting Choices, Board Recommendation and Voting Requirement | |
Proposal 3 – |
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 Voting Requirement 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. | |
Proposal 4 – Shareholder |
Voting Choices
■Vote for the proposal;
■Vote against the proposal; or
■Abstain from voting.
Board Recommendation Voting Requirement |
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? |
ALTRIA GROUP, INC. – Proxy Statement 9
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING |
10. | HOW DO I VOTE IF I PARTICIPATE IN THE DIVIDEND REINVESTMENT PLAN? |
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? |
(a) |
giving written notice to our Corporate Secretary; |
(b) |
delivering a later-dated proxy; or |
(c) |
voting in person at the meeting. |
15. |
WHO WILL PAY THE COST OF THIS PROXY SOLICITATION? |
10 ALTRIA GROUP, INC. – Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING |
16. | HOW DO I OBTAIN ADMISSION TO THE 2018 ANNUAL MEETING? |
Please submit your request for an admission ticket by completing the Pre-Registration Form located on the last page of this Proxy Statement and submitting it, along with your proof of ownership as of the record date, no later than May 11, 2018, using one of the means identified on the Pre-Registration Form.
If your shares are held for you in the name of your broker, bank or other nominee, please provide evidence of your stock ownership as of the record date (such as your voting instruction form, a current letter from your broker, bank or other nominee or a photocopy of a brokerage or other account statement).
All meeting attendees must present government-issued photo identification, such as a driver’s license or passport, at the meeting.
17. | MAY SHAREHOLDERS ASK QUESTIONS AT THE 2018 ANNUAL MEETING? |
18. | HOW MANY VOTES MUST BE PRESENT TO HOLD THE 2018 ANNUAL MEETING? |
ALTRIA GROUP, INC. – Proxy Statement 11
BOARD AND GOVERNANCE MATTERS |
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 Board’s organizational meeting follows our annual meeting of shareholders. Our Board held six meetings in 2017. 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 2017, 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, all directors then in office attended the 2017 Annual Meeting.
Board Composition and Succession Planning
Our Board currently consists of 13 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 2017 Annual Meeting with the exception of Mark E. Newman and Howard A. Willard III.
Mr. Newman was brought to the attention of the Nominating, Corporate Governance and Social Responsibility Committee by an executive search firm engaged by management to identify potential director candidates and was unanimously elected as a director by our Board effective February 1, 2018. Also effective February 1, 2018, Mr. Willard, who is currently Altria’s Executive Vice President and Chief Operating Officer, was unanimously elected as a director by our Board. Mr. Willard will become Altria’s Chairman of the Board (“Chairman”) and Chief Executive Officer (“CEO”), effective upon the conclusion of the 2018 Annual Meeting. Mr. Barrington will retire as Chairman, CEO and President the same day. On February 20, 2018, Gerald L. Baliles notified Altria of his decision to retire from Board service following the completion of his current term. Consequently, neither Governor Baliles nor Mr. Barrington will stand for re-election to our Board at the 2018 Annual Meeting.
Biographical information and qualifications of the nominees for director are included under “Proposal 1 – Election of Directors” on page 61.
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.
12 ALTRIA GROUP, INC. – Proxy Statement
BOARD AND GOVERNANCE MATTERS |
We are committed to reviewing periodically our Board’s composition to ensure that we continue to have the right mix of skills, background and tenure. The current composition of our Board is as follows:
Our Board’s 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 noted in the high-level summary below, we believe that our Board has demonstrated leadership in a variety of positions across various professions and industries. The following table is not intended to be an exhaustive list of each of our director’s skills or contributions to our Board.
Skills and Experience of Our Board of Directors
Skills and Experience | |||||||||||||
Consumer Products and/or Consumer Marketing |
■ | ■ | ■ | ■ | ■ | ■ | ■ | ■ | |||||
Industry | ■ | ■ | ■ | ||||||||||
Regulated Industries | ■ | ■ | ■ | ■ | ■ | ■ | ■ | ■ | ■ | ■ | |||
Chief Executive Officer | ■ | ■ | ■ | ■ | ■ | ■ | ■ | ||||||
Chief Financial Officer | ■ | ■ | ■ | ■ | ■ | ||||||||
Public Policy | ■ | ■ | ■ | ■ | ■ | ||||||||
Public Company Board | ■ | ■ | ■ | ■ | ■ | ■ | ■ | ■ | ■ | ■ | ■ | ||
Leadership in Innovation | ■ | ■ | ■ | ||||||||||
Information Technology/Cybersecurity | ■ | ■ | ■ |
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-evaluations 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 future Board service consideration.
ALTRIA GROUP, INC. – Proxy Statement 13
BOARD AND GOVERNANCE MATTERS |
Board Leadership Structure and Governance
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 Board’s informational needs and, where appropriate, approve information sent to our Board |
■ | Together with the Chair of the Compensation Committee, communicate goals and objectives to the CEO and the results of the evaluation of the CEO’s performance |
■ | Be available for consultation and communication if requested by major shareholders |
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 individual 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 delivering 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 strategic planning and risk management, 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 process.
14 ALTRIA GROUP, INC. – Proxy Statement
BOARD AND GOVERNANCE MATTERS |
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 and furtherance of executive succession 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). As previously noted, effective upon the conclusion of the 2018 Annual Meeting, Mr. Willard will become Chairman and CEO, replacing Mr. Barrington, who announced his retirement earlier this year. This leadership transition is the result of our Board’s thoughtful and deliberative succession planning process.
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 incapacity, 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. In addition, our Board has exposure to succession candidates (CEO and otherwise) from across our companies through presentations, site visits and other events.
Upon election to our Board, new directors participate in a comprehensive onboarding process to inform them of the operational aspects of our businesses and key issues facing Altria, visit key facilities, introduce key members of senior leadership and review Board governance.
In addition to regular updates on our strategies and developments in our businesses, we provide our Board with information regarding governance, legal responsibilities and compliance matters through regularly-scheduled presentations at Board meetings and, as needed, supplementary reports and materials. Directors also periodically visit our subsidiaries. These efforts allow our directors to interact and ask questions of different leaders across our companies.
We also encourage our Directors to attend third-party hosted director education programs to gain additional perspective. We provide a list of programs, updated regularly, to our directors or they may choose to attend self-selected educational programs.
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 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.
ALTRIA GROUP, INC. – Proxy Statement 15
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 elects 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, (iv) our risk assessment and risk management policies and practices and (v) our compliance with legal and regulatory requirements. The Audit Committee also prepares the Audit Committee report that the rules of the U.S. Securities and Exchange Commission (“SEC”) require us to include in our proxy statement. See pages 24 to 25 for further matters related to the Audit Committee, including its report for the year ended December 31, 2017. | |
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 and monitors risks related to such design. See pages 26 to 27 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 29 through 47. | |
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. |
16 ALTRIA GROUP, INC. – Proxy Statement
BOARD AND GOVERNANCE MATTERS |
The following table identifies the current members of each of the Committees and the number of meetings held during 2017:
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 * | ■ | Chair | ■ | ■ | ||||||||
Thomas F. Farrell II * (4) | ■ | ■ | ■ | |||||||||
Debra J. Kelly-Ennis * | ■ | ■ | ■ | |||||||||
W. Leo Kiely III * | Chair | ■ | ■ | ■ | ||||||||
Kathryn B. McQuade * | ■ | ■ | ■ | |||||||||
George Muñoz * | Chair | ■ | ■ | ■ | ||||||||
Mark E. Newman * (5) | ||||||||||||
Nabil Y. Sakkab * | ■ | ■ | Chair | ■ | ||||||||
Virginia E. Shanks * | ■ | ■ | ||||||||||
Howard A. Willard III (5) | ||||||||||||
2017 Meetings | 9 | 5 | 0 | 4 | 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 Mr. Muñoz and Ms. McQuade are “audit committee financial experts” 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. |
(5) |
Messrs. Newman and Willard became directors effective February 1, 2018. As of the date of this Proxy Statement, Messrs. Newman and Willard have not been named to any Committee. |
Oversight of Company Strategy
Our Board actively oversees the development and execution of our strategies. Our Board spends several days each year reviewing our long-term strategies and discussing them with management. These strategies encompass both financial and operational strategies related to our operating companies and their products and strategies focused on innovation, technology, talent development, public policy and engagement, legal and regulatory matters. As appropriate during the year, management and our Board may discuss developments that impact the strategic plans. Our Board further monitors strategic execution through standing presentations at regular Board meetings and communications from management in between meetings.
ALTRIA GROUP, INC. – Proxy Statement 17
BOARD AND GOVERNANCE MATTERS |
Risk Oversight
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, site visits and, as appropriate, communications between Board meetings, allow our Board to discuss with management and mid-level management the operational risks facing the businesses of our subsidiaries.
Our enterprise risk management process helps us 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.
Our Board, directly or through its Committees, also oversees management of the following risk areas:
■ |
Legal and Regulatory Risk: Our Board, both directly and through the Audit Committee, receives regular updates on various legal and regulatory matters, including developments in litigation and developments related to FDA regulation of certain of our subsidiaries, thereby reviewing our management of legal and regulatory risk. In addition, reports to the Audit Committee at each of its meetings by our Chief Compliance Officer and Corporate Audit personnel provide insight into our risk assessment and risk management policies and processes. |
■ |
Financial and Accounting Risk: The Finance and Audit Committees oversee our management of financial, accounting, internal controls and liquidity risks through interaction at each meeting with the Chief Financial Officer, management from our financial, accounting, auditing and treasury functions (as appropriate) and, for the Audit Committee, representatives from our independent registered public accounting firm. |
■ |
Reputational and Governance Risk: Through its interaction with business functions responsible for our public policy and societal alignment activities and |
strategies, the Nominating, Corporate Governance and Social Responsibility Committee oversees the ways in which we manage reputational and public policy risk. The Nominating, Corporate Governance and Social Responsibility Committee also oversees risks related to Board organization, membership and structure and other corporate governance matters. | |
■ |
Executive Compensation Program Risk: The Compensation Committee considers the extent to which the executive compensation program may create risk for us (see page 38 for a more detailed description). |
■ |
Technology, Intellectual Property and Research and Product Development Risk: The Innovation Committee oversees our management of the risks associated with technology, research and product development, including intellectual property. |
■ |
IT Security Risk: The Audit Committee oversees our IT security program and management of the associated risks. |
18 ALTRIA GROUP, INC. – Proxy Statement
BOARD AND GOVERNANCE MATTERS |
Corporate Responsibility Oversight
The Nominating, Corporate Governance and Social Responsibility Committee oversees our corporate responsibility strategies. With the support of our full Board, the Committee is charged with oversight of management efforts to identify, evaluate and understand the environmental, social and governance issues that present risks and opportunities for our businesses. We approach corporate responsibility by understanding our stakeholders’ perspectives, aligning business practices where appropriate and measuring and communicating our progress. In 2017, we published our sixth annual corporate responsibility progress report.
We focus in particular on four corporate responsibility priorities that we believe are important to our stakeholders and key to our continued success.
Priorities | Goals | |
Reducing the Harm of |
■Develop tobacco products that may offer lower risk for adult tobacco consumers and engage the FDA constructively about them ■Support programs that help reduce underage tobacco use
■Provide access to expert quitting information for those who have decided to quit | |
Marketing Responsibly |
■Build relationships between brands and their adult consumer audiences while taking steps designed to limit reach to unintended audiences
| |
Managing Our Supply |
■Work with diverse, high-quality suppliers to innovate and address societal issues within the supply chain
| |
Developing Our Employees |
■Develop high-performing and engaged employees who help us continue to deliver superior results in the future
|
Other areas for our efforts include minimizing our environmental impact, combatting illicit trade of our products and investing in our communities. More information about our priorities and progress against our goals can be found in our most recent corporate responsibility progress report, which is available on our website at www.altria.com/responsibility.
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 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 74. 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 Year’s Annual Meeting?” on page 74.
ALTRIA GROUP, INC. – Proxy Statement 19
BOARD AND GOVERNANCE MATTERS |
Director Qualifications and Board Diversity
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 operations and oversight of the development and execution of our long-term strategies. In determining whether to recommend a director for re-election, the Committee also considers the director’s 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.
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 individual’s general understanding of the various disciplines relevant to the success of a large publicly-traded company in today’s global business environment; |
■ |
the individual’s understanding of our businesses and markets; |
■ |
the individual’s professional expertise and educational background; and |
■ |
other factors that promote diversity of views and experiences such as gender, race, national origin, age and sexual orientation. |
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: John T. Casteen III, Dinyar S. Devitre, Thomas F. Farrell II, Debra J. Kelly-Ennis, W. Leo Kiely III, Kathryn B. McQuade, George Muñoz, Mark E. Newman, Nabil Y. Sakkab and Virginia E. Shanks. Our Board has also affirmatively determined, on the recommendation of the Committee, that Gerald L. Baliles, who is not standing for re-election to our Board at the 2018 Annual Meeting, is independent. In making its recommendation to our Board, the Committee considered the following business relationships and transactions:
20 ALTRIA GROUP, INC. – Proxy Statement
BOARD AND GOVERNANCE MATTERS |
Business Relationships and Transactions Considered |
Mr. Farrell is the Chief Executive Officer of Dominion Energy, 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 utility’s 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. Farrell, 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 73) of Governor Baliles, Mr. Casteen, Mr. Farrell, Mr. Kiely and Dr. Sakkab serve as non-executive directors or 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 entity’s 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 entity’s consolidated gross revenues. None of Governor Baliles, Mr. Casteen, Mr. Farrell, 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 people, 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 2017, Altria or our subsidiaries made certain charitable donations to the University in an aggregate amount of $812,500, with the significant majority supporting the University’s 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 $252,060. The sum of these 2017 contributions and payments represent significantly less than 2% of the University’s consolidated gross revenues. Mr. Casteen is a former President of the University. He now serves as President Emeritus of the University. Mr. Casteen’s 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. |
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, Ms. Kelly-Ennis and Mr. Muñoz and immediate family members of Governor Baliles, Mr. Farrell, 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 nonprofit 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 $1 million or 2% of any such entity’s consolidated gross revenues. None of Governor Baliles, Mr. Casteen, Mr. Farrell, Ms. Kelly-Ennis, Mr. Kiely, Ms. McQuade or Mr. Muñoz, or their respective immediate family members, materially benefits directly or indirectly from these contributions. |
The Committee has determined that the foregoing philanthropic relationships and transactions did not affect the independence of any nominee for director.
ALTRIA GROUP, INC. – Proxy Statement 21
BOARD AND GOVERNANCE MATTERS |
Our philosophy is to provide competitive compensation necessary to attract and retain high-quality non-employee directors. Our Board believes that a substantial portion of director compensation should consist of equity-based compensation to assist in aligning directors’ interests with the interests of shareholders. Directors who are employees of Altria receive no additional compensation for service as a director.
The Nominating, Corporate Governance and Social Responsibility Committee periodically reviews the competitiveness of director compensation (taking into account our Compensation Survey Group (“CSG”) described on page 38), considers the appropriateness of the form, mix and amount of director compensation and makes recommendations to our Board concerning such compensation with a view toward attracting and retaining qualified directors.
The following table presents the 2017 components of compensation for our non-employee directors:
Type of Compensation | Amount ($) | |||
Annual Cash Board Retainer (1) | 110,000 | |||
Annual Cash Retainer for Presiding Director | 25,000 | |||
Annual Cash Retainer for Committee Chairs | ||||
Audit | 25,000 | |||
Compensation | 25,000 | |||
Finance | 15,000 | |||
Innovation | 15,000 | |||
Nominating, Corporate Governance and Social Responsibility | 15,000 | |||
Annual Cash Committee Membership Retainer | 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 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 director’s 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 2017, the following non-employee directors participated in this program: Governor Baliles, Mr. Casteen, Mr. Devitre, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely, Ms. McQuade and Mr. Muñoz. The aggregate amount of matching payments for these directors in 2017 was $154,708.
22 ALTRIA GROUP, INC. – Proxy Statement
BOARD AND GOVERNANCE MATTERS |
The following table presents the compensation received by the non-employee directors for service as directors in fiscal year 2017:
Non-Employee Director Compensation Table
Name | Fees Earned or Paid in Cash ($) |
Stock Awards (3) ($) |
All Other Compensation (4) ($) |
Total ($) |
|||||||||||||||
Gerald L. Baliles | 140,000 | 175,053 | 27,500 | 342,553 | |||||||||||||||
John T. Casteen III | 125,000 | 175,053 | 15,750 | 315,803 | |||||||||||||||
Dinyar S. Devitre | 140,000 | 175,053 | 29,573 | 344,626 | |||||||||||||||
Thomas F. Farrell II | 145,000 | 175,053 | 0 | 320,053 | |||||||||||||||
Thomas W. Jones (1) | 41,703 | 0 | 25,000 | 66,703 | |||||||||||||||
Debra J. Kelly-Ennis | 125,000 | 175,053 | 16,400 | 316,453 | |||||||||||||||
W. Leo Kiely III | 150,000 | 175,053 | 7,485 | 332,538 | |||||||||||||||
Kathryn B. McQuade | 125,000 | 175,053 | 30,000 | 330,053 | |||||||||||||||
George Muñoz | 150,000 | 175,053 | 3,000 | 328,053 | |||||||||||||||
Nabil Y. Sakkab | 140,000 | 175,053 | 0 | 315,053 | |||||||||||||||
Virginia E. Shanks (2) | 78,297 | 175,053 | 0 | 253,350 |
(1) |
Mr. Jones retired from the Board effective May 17, 2017, at the completion of his term. |
(2) |
Ms. Shanks became a director effective May 18, 2017. |
(3) |
Pursuant to the Stock Compensation Plan for Non-Employee Directors, on May 18, 2017, each non-employee director received 2,481 shares of Altria common stock with an aggregate grant date fair market value of $175,053. 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 $70.5575 per share was based on the average of the high and low trading prices of Altria common stock on May 18, 2017. |
(4) |
All Other Compensation consists of matching gifts paid in 2017 under our Matching Gift Program to charitable entities designated by the non-employee director, as more particularly described above. |
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, 2017, all our directors who had served on our Board for five or more years 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.
ALTRIA GROUP, INC. – Proxy Statement 23
AUDIT COMMITTEE MATTERS |
AUDIT COMMITTEE MATTERS |
Annual Evaluation and Selection of Independent Registered Public Accounting Firm
In selecting PricewaterhouseCoopers as our independent registered public accounting firm, the Audit Committee conducted its annual evaluation of the firm. This evaluation considers various matters, such as reputation, quality of services, communications (with management and the Audit Committee), technical competence and knowledge of our industry and Altria. The Audit Committee also evaluates the firm’s independence program and quality control procedures, the results of Public Company Accounting Oversight Board (“PCAOB”) and peer reviews of the firm’s quality controls and the appropriateness of the firm’s fees.
In addition to assuring the rotation of the audit partners every five years as required by law, the Audit Committee is responsible for selecting, reviewing and evaluating the lead partner and senior members of the firm and considers whether, in order to assure continuing auditor independence, there should be a rotation of the firm. The Audit Committee also considers the advisability and potential impact of selecting a different firm. The Audit Committee and our Board believe that the continued retention of PricewaterhouseCoopers to serve as our independent registered public accounting firm is in the best interests of Altria and our shareholders.
Independent Registered Public Accounting Firm’s Fees
The Audit Committee has the sole authority to approve all engagement fees and terms associated with the retention of PricewaterhouseCoopers. As noted in the Audit Committee Report on page 25, the Committee pre-approved all fees associated with the services that the firm provided in 2017.
Aggregate fees, including out-of-pocket expenses, for professional services rendered by PricewaterhouseCoopers for fiscal years ended December 31, 2017 and 2016 were comprised of the following (in thousands):
2017 ($) |
2016 ($) |
||||
Audit Fees (1) | 6,467 | 6,928 | |||
Audit-Related Fees (2) | 678 | 665 | |||
Tax Fees (3) | 232 | 1,397 | |||
All Other Fees (4) | 0 | 0 | |||
TOTAL | 7,377 | 8,990 |
(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) |
There were no “Other Fees” in 2017 or 2016. |
24 ALTRIA GROUP, INC. – Proxy Statement
AUDIT COMMITTEE MATTERS |
The Audit Committee’s 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.
Audit Committee Report for the Year Ended December 31, 2017
Management has the primary responsibility for Altria’s financial statements and the reporting process, including the systems of internal accounting control. The Audit Committee monitors Altria’s financial reporting processes and systems of internal accounting control, the independence and the performance of PricewaterhouseCoopers and the performance of the internal auditors.
The Audit Committee has received representations from management that Altria’s consolidated financial statements were prepared in accordance with GAAP 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 PricewaterhouseCoopers. The Audit Committee has discussed with PricewaterhouseCoopers their evaluation of the accounting principles, practices and judgments applied by management, and the Audit Committee has discussed with PricewaterhouseCoopers the matters required to be discussed by applicable standards adopted by the PCAOB.
The Audit Committee has received from PricewaterhouseCoopers written disclosures and a letter required by applicable requirements of the PCAOB regarding PricewaterhouseCoopers’s communications with the Audit Committee concerning independence and has discussed with PricewaterhouseCoopers its independence from Altria and its management. The Audit Committee pre-approved all fiscal year 2017 audit and permissible non-audit services provided by PricewaterhouseCoopers and the fees for those services included on page 24. 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 its independence.
The Audit Committee discussed with Altria’s internal auditors and PricewaterhouseCoopers the overall scope of and plans for their respective audits. The Audit Committee has met with the internal auditors and PricewaterhouseCoopers, separately and together, with and without management present, to discuss Altria’s financial reporting processes and internal control over financial reporting. The Audit Committee has reviewed significant audit findings prepared by PricewaterhouseCoopers and those prepared by the internal auditors, together with management’s 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 Altria’s 2017 Annual Report on Form 10-K.
Audit Committee:
George Muñoz, Chair
John T. Casteen III
Debra J. Kelly-Ennis
Kathryn B. McQuade
Virginia E. Shanks
ALTRIA GROUP, INC. – Proxy Statement 25
COMPENSATION COMMITTEE MATTERS |
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; John T. Casteen III; Thomas F. Farrell II; and Kathryn B. McQuade. The Committee’s 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 2017, 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 2017 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 holding requirement and 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 Committee’s annual report for inclusion in our annual proxy statement. |
In addition, the Compensation Committee determines ratings for Altria’s 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 2017. 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.
26 ALTRIA GROUP, INC. – Proxy Statement
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 38
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 38. 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 Committee’s
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, 2017
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained on pages 29 through 47 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
John T. Casteen III
Thomas F. Farrell II
Kathryn B. McQuade
ALTRIA GROUP, INC. – Proxy Statement 27
EXECUTIVE COMPENSATION – TABLE OF CONTENTS |
COMPENSATION DISCUSSION AND ANALYSIS |
COMPENSATION TABLES AND OTHER MATTERS |
28 ALTRIA GROUP, INC. – Proxy Statement
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 Committee’s decisions with respect to our NEOs:
Name | Position during 2017 | ||
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 III | Executive Vice President and Chief Operating Officer, Altria Group, Inc. | ||
Craig A. Johnson | President and Chief Executive Officer, Altria Group Distribution Company | ||
Murray R. Garnick | Executive Vice President and General Counsel, Altria Group, Inc. | ||
Denise F. Keane | Former Executive Vice President and General Counsel, Altria Group, Inc. |
Ms. Keane retired as Executive Vice President and General Counsel effective July 1, 2017. Mr. Garnick was appointed Executive Vice President and General Counsel effective July 1, 2017.
Our executive compensation program aligns with our Mission and Values, including investing in people and creating substantial value. We believe this 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 winning results and creates the appropriate incentives to shape the future. |
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 company’s named executive officers, as disclosed in the company’s annual proxy statement. We hold this vote annually. At the 2017 Annual Meeting, nearly 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. For example, in 2017, the Committee introduced PSUs to increase the percentage of executive compensation that is performance-based.
The Dodd-Frank Act also requires that at least once every six years companies allow shareholders to vote, on an advisory basis, as to the frequency of future say on pay votes. At the 2017 Annual Meeting, nearly 89% of the votes cast were in favor of annual say on pay votes in the future. The Committee took shareholders’ feedback into consideration and intends to hold these votes annually.
We periodically engage with large investors 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.
ALTRIA GROUP, INC. – Proxy Statement 29
EXECUTIVE COMPENSATION |
Our business performance is a key factor in determining executive compensation. We delivered strong business performance in 2017 as reflected in the “2017 Business Highlights” section beginning on page 3. The following graphs summarize our one-and three-year performance against key financial measures:
Adjusted Diluted EPS
(12/31/2014 - 12/31/2017)
(1) | Compound annual growth rate (“CAGR”) based on 2014 adjusted diluted EPS of $2.57. |
Dividend Rate (1)
(1) |
Annualized dividend based on quarterly dividend rate per share of Altria common stock declared in August of each year. |
(2) |
CAGR based on the annualized dividend rate per share of Altria common stock of $2.08 that was declared in August 2014, with each August dividend similarly annualized. |
30 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
2017 TSR
Source: | Bloomberg Daily Return (December 31, 2016 – December 31, 2017) |
Note: | Assumes reinvestment of dividends as of the ex-dividend date. |
Our 2017 TSR of 9.4% follows four consecutive years of TSR exceeding 20%.
Three-Year TSR
(2015 2017)
Source: | Bloomberg Daily Return (December 31, 2014 – December 31, 2017) |
Note: | Assumes reinvestment of dividends as of the ex-dividend date. |
ALTRIA GROUP, INC. – Proxy Statement 31
EXECUTIVE COMPENSATION |
The following graph illustrates the relationship between Mr. Barrington’s 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 LTIP award (based on actual payment for 2015 and 2016, and target for 2017). All other pay elements are based on the Summary Compensation Table values. |
(2) |
Indexed TSR reflects a December 31, 2014 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 2017 compensation. For the 2017 Annual Incentive Award plan, the Committee primarily evaluated our financial and strategic performance, as described above and beginning on page 30. The Compensation Committee also considered the individual performance of each NEO, on a five-point scale, for purposes of approving salary increases, annual cash incentive award payments and equity awards. 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 Altria’s actual performance and considered executive performance relative to stated goals.
32 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
The Compensation Committee concluded that our NEOs’ successes in achieving their performance goals contributed significantly to our overall 2017 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 highly regulated environment. 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; and strengthened our culture. Specifically, under Mr. Barrington’s leadership, Altria and our companies: | |
● | rewarded our shareholders by paying out $4.8 billion in dividends and raising our dividend by 8.2%; | |
● | effectively advocated for the FDA to acknowledge a continuum of risk for tobacco products and support bringing innovative products to market; | |
● | developed and announced an innovative products aspiration, with strategies and plans to build a leading portfolio of non-combustible nicotine-containing products with the potential for reduced harm; | |
● | developed effective commercialization plans to launch IQOS in the U.S., pending FDA approval; | |
● | successfully acquired and integrated Sherman Group Holdings, LLC and its subsidiaries (“Nat Sherman”), a privately held manufacturer of super-premium cigarettes and premium cigars; and | |
● | drove culture and system changes to improve organizational capability and employee engagement, including a new leadership development framework and continuing efforts to simplify business processes and build diverse and inclusive organizations. |
● | William F. Gifford, Jr. Mr. Gifford’s responsibilities included oversight of Finance, Strategy and Business Development, Procurement and Investor Relations functions and Philip Morris Capital Corporation. He effectively managed the balance sheet; helped deliver adjusted diluted EPS growth of 11.9%; and grew adjusted discretionary cash flow (1) by 9.7%. Mr. Gifford also oversaw the strategic acquisition of products and technologies to better compete in key innovative product segments. Under his leadership, we completed an expanded $4 billion share repurchase program. Mr. Gifford also served as an Altria representative on the Board of Directors of Anheuser-Busch InBev SA/NV (“AB InBev”). | |
● | Howard A. Willard III. Mr. Willard oversaw PM USA, John Middleton Co. (“Middleton”), Nat Sherman, USSTC, Nu Mark, Ste. Michelle and Altria Group Distribution Company (“AGDC”), along with the Consumer Insights & Engagement function of Altria Client Services LLC. Under his leadership, the smokeable products segment delivered strong adjusted OCI growth of 7.0% versus the prior year. The smokeless products segment delivered solid performance, grew adjusted OCI by 11.2% versus the prior year and grew retail share of Copenhagen by 0.5 share points. Nu Mark grew MarkTen’s national retail share 3.6 share points to 12.5% in mainstream retail channels of the e-vapor category, while exceeding its OCI target. | |
● | Craig A. Johnson. Mr. Johnson’s responsibilities included providing sales, distribution and consumer engagement services to our tobacco operating companies. Under his leadership, AGDC: | |
● | drove engagement with adult tobacco consumers through enhanced digital marketing platforms; | |
● | successfully supported the smokeless product recall by restocking retail shelves in short order; | |
● | enhanced retail visibility and trade programs to defend Marlboro’s share position through display resets and prioritizing display space; and | |
● | successfully supported the expansion of MarkTen nationally. |
(1) |
Adjusted discretionary cash flow is a non-GAAP financial measure. 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. |
ALTRIA GROUP, INC. – Proxy Statement 33
EXECUTIVE COMPENSATION |
● | Murray R. Garnick. Mr. Garnick’s responsibilities included managing diverse litigation challenges, efficiently deploying the resources of the Law department to help Altria and its subsidiaries meet regulatory and business requirements, and managing Regulatory Affairs to support numerous filings and applications with the FDA and to lead our regulatory engagement strategy. Mr. Garnick also effectively managed numerous litigation threats in 2017, including the successful resolution of pending “Lights” cases and proactive management of Engle-progeny cases. Mr. Garnick also successfully managed matters, including litigation, related to the 1998 Master Settlement Agreement and previously-settled state agreements. |
After 40 years of exceptional service, Ms. Keane retired effective July 1, 2017. Ms. Keane’s 2017 compensation is reported in the Summary Compensation Table. For information on the compensation that Ms. Keane received or realized specifically in connection with her retirement, see “Retirement of Executive Vice President and General Counsel” on page 45.
In addition to assessing Altria’s 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 People, Drive Positive Change, Deliver Superior Products and Brands and Create Substantial Value.
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 Values. Specifically, our program is designed to satisfy the following objectives:
● | promote pursuit of business strategies that create substantial growth and long-term value for shareholders and are executed with integrity; |
● | reward quality execution by making a significant portion of our executives’ compensation 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 performance-based long-term incentive awards, stock ownership and retention guidelines and anti-hedging and anti-pledging policies with respect to our stock; |
● | grow our leadership advantage through our people and culture; 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 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. |
34 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
2017 CEO and Other NEOs Pay Mix (1)
(1) |
Includes 2017 actual salary, actual award under the 2017 Annual Incentive Award plan, grant date fair value of long-term equity awards and annualized target cash award under the 2017 – 2019 LTIP. Excludes Ms. Keane due to her retirement and resulting partial-year pay. |
The table below provides a brief side-by-side comparison of the elements of our 2017 executive compensation program.
Long-Term Incentive Awards | ||||||||
Salary | Annual Incentive | Equity | Cash | |||||
Form of Compensation |
Cash | Cash | RSUs / PSUs | Cash | ||||
Performance |
Ongoing |
Annual |
|
Annual with rolling three-year vesting periods |
Three years; end-to-end cycles | |||
Award |
Individual performance |
Company and individual performance |
Individual performance and advancement potential with additional payment criteria for PSUs based on company performance |
Company and individual performance | ||||
Company |
●Adjusted diluted EPS growth
●Adjusted discretionary cash flow
●Strategic initiatives |
●Stock price appreciation for RSUs
●Company performance (50% relative TSR / 50% adjusted diluted EPS growth) and stock price appreciation for PSUs |
●Adjusted diluted EPS growth
●Relative TSR
●Strategic initiatives |
ALTRIA GROUP, INC. – Proxy Statement 35
EXECUTIVE COMPENSATION |
The table below summarizes the elements and objectives of the 2017 executive compensation program for the NEOs. In addition, the general objective of each element is to attract and retain world-class leaders.
2017 Executive Compensation Program
Element | Summary Description | Objective | ||||
Annual |
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 year’s performance. |
●Recognize annual financial and strategic performance after it is delivered
●Recognize annual individual performance after it is delivered | ||||
|
||||||
Long-Term Incentive |
Equity Awards |
RSU and PSU awards based on prior year’s individual performance and advancement potential, vesting after a three-year period. PSU payout amount tied to company performance measures. |
●Align NEOs’ interests with shareholders through company performance and 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 | ||||
Post-Termination |
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 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 |
36 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
Element | Summary Description | Objective | ||||
Post-Termination |
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, subject to an annual allowance, personal use of our aircraft. For all NEOs, Altria-paid executive physical and leased vehicle (neither is accepted by the Chairman, CEO and President). |
●Provide security
●Provide comprehensive annual preventive health screening | |||
Other Benefits |
|
Medical coverage, group life insurance and other welfare benefits generally available to all salaried employees. |
●Promote health and financial security |
ALTRIA GROUP, INC. – Proxy Statement 37
EXECUTIVE COMPENSATION |
A cross-functional team of executives in the Human Resources & Compliance, Law, Corporate Audit and Finance departments annually reviews our 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 management’s assessment of those features, to confirm consistency with prevailing best practices.
After reviewing management’s assessment, the Compensation Committee believes that neither the compensation program’s 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 Committee’s 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 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 important to giving us our leadership advantage and attracting and retaining world-class leaders to pursue our Mission, particularly given the unique challenges of our industry. 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
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. |
38 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
Based on these criteria, the Compensation Committee included the following companies in the 2017 CSG and used this list for compensation-related decisions during 2017. The list is sorted by market capitalization as of December 31, 2017.
Compensation Survey Group Companies | Market Capitalization (1) ($B) |
||
The Coca-Cola Company | 195 | ||
PepsiCo, Inc. | 171 | ||
Philip Morris International Inc. | 164 | ||
Merck & Co., Inc. | 153 | ||
3M Company | 140 | ||
McDonald’s Corporation | 137 | ||
Altria | 136 | ||
Bristol-Myers Squibb Company | 100 | ||
The Kraft Heinz Company | 95 | ||
Median | 93 | ||
Eli Lilly and Company | 93 | ||
Colgate-Palmolive Company | 66 | ||
Mondelēz International, Inc. | 64 | ||
Kimberly-Clark Corporation | 42 | ||
General Mills, Inc. | 34 | ||
The Hershey Company | 24 | ||
Kellogg Company | 23 | ||
Conagra Brands, Inc. | 15 | ||
Campbell Soup Company | 14 | ||
Reynolds American Inc. | N/A |
(1) |
Market capitalization is calculated using shares outstanding as of the most recent public disclosure as of January 2, 2018 per Bloomberg multiplied by the closing stock price as of December 29, 2017. |
Reynolds American Inc. was acquired in July 2017 and ceased trading as a public company. As a result, the Compensation Committee made the following changes to the CSG for compensation-related decisions in 2018:
● | removed Reynolds American Inc. and |
● | added Molson Coors Brewing Company and Dr Pepper Snapple Group, Inc., which both meet the criteria discussed above. |
2017 Executive Compensation Program Decisions
The Compensation Committee considers a number of factors when reviewing and setting salaries for our NEOs, including each executive’s individual performance, level of responsibility, experience, the relationship between salaries paid to other Altria executives and the position of the executive’s 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 adjustments generally are effective March 1.
ALTRIA GROUP, INC. – Proxy Statement 39
EXECUTIVE COMPENSATION |
The 2017 salary ranges for our NEOs were as follows:
2017 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, 2017:
2017 Salary Changes
Name | 2016 Salary ($) |
2017 Salary ($) |
|||
Martin J. Barrington | 1,420,000 | 1,480,000 | |||
William F. Gifford, Jr. | 647,000 | 670,000 | |||
Howard A. Willard III | 840,000 | 874,000 | |||
Craig A. Johnson | 907,000 | 934,000 | |||
Murray R. Garnick | 733,600 | 800,000 | |||
Denise F. Keane | 943,000 | 981,000 |
The Annual Incentive Award plan 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 (1) adjusted diluted EPS growth and (2) adjusted discretionary cash flow as the key financial measures in determining awards under our Annual Incentive Award plan 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 financial measures provides the best alignment between Altria’s business strategy and our shareholders’ interests: our executives are rewarded when our shareholders are rewarded.
In determining Altria’s financial performance for 2017, the Compensation Committee considered the following:
Key Financial Measures
(millions, except per share data)
Target Range |
2017 |
Rating (from 0% - 130%) |
Weighting | Weighted Result | ||||||||||||||||
Adjusted Diluted EPS Growth | $3.26 - $3.32 | $ | 3.39 | 100 | % (1) | 75 | % | 75 | % | |||||||||||
(Rating Range) | (80% - 120%) | |||||||||||||||||||
Adjusted Discretionary Cash Flow | $5,299 - $6,477 | $ | 6,201 | 109 | % | 25 | % | 27 | % | |||||||||||
(Rating Range) | (80% - 120%) | |||||||||||||||||||
Rating for Financial Measures | 102 | % |
(1) |
Adjusted diluted EPS was $3.39, above the target range. The Compensation Committee did not include $0.10 of adjusted diluted EPS, which was the result of a one-time impact from U.S. federal income tax reform. |
40 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
In addition to financial measures, 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 2017 included:
● |
brand-building initiatives; |
● |
enhancing adult tobacco consumer engagement through digital marketing technologies and consumer insights; |
● |
advancing our innovation and harm reduction strategies through an innovative product portfolio and regulatory engagement; |
● |
enhancing our information technology; |
● |
productivity and business simplification initiatives; and |
● |
developing organizational talent, enhancing our leadership system and enhancing our culture to improve diversity and inclusion. |
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 measures reflected above resulted in a rating of 102% for 2017. After considering performance against the 2017 strategic measures described above, the Committee assigned an overall Annual Incentive Award business performance rating of 110%. The Committee used this rating, together with individual performance (see “2017 Performance of NEOs” on page 32), in determining the 2017 awards below. The following formula is the basis for determining awards under the 2017 Annual Incentive Award plan.
Salary | X | Target (% of salary) |
X | Business Performance Rating |
X | Individual Performance Factor |
= | Annual Incentive Award |
2017 Annual Incentive Award Target Percentages, Award Ranges and Actual Awards
Band |
Salary |
Target |
2017 |
Individual |
|
Award Range |
Actual | |||||||||||
Name | Minimum | Maximum | ||||||||||||||||
Martin J. Barrington | A | 1,480,000 | 150 | 110 | 85 | 175 | 2,075,700 | - | 4,273,500 | 3,700,000 | ||||||||
William F. Gifford, Jr. | B | 670,000 | 95 | 110 | 85 | 155 | 595,128 | - | 1,085,232 | 910,000 | ||||||||
Howard A. Willard III | B | 874,000 | 95 | 110 | 85 | 155 | 776,331 | - | 1,415,661 | 1,165,000 | ||||||||
Craig A. Johnson | B | 934,000 | 95 | 110 | 85 | 155 | 829,626 | - | 1,512,846 | 1,142,000 | ||||||||
Murray R. Garnick (2) | B | 800,000 | 95 | 110 | 85 | 155 | 710,600 | - | 1,295,800 | 910,000 | ||||||||
Denise F. Keane (3) | B | 981,000 | 95 | – | – | – | – | - | – | 462,100 |
(1) |
The individual performance ranges are stated as a percentage of target and are based on individual performance between the third and fifth level on a five-point scale. |
(2) |
Mr. Garnick’s actual award was determined by adjusting his target award for the portion of 2017 before July 1 when he was at a salary band C level. |
(3) |
Ms. Keane received a prorated award (181 of 365 days) based on target business and individual performance in accordance with the terms of the plan. See “Retirement of Executive Vice President and General Counsel” on page 45 for more information. |
ALTRIA GROUP, INC. – Proxy Statement 41
EXECUTIVE COMPENSATION |
Long-Term Incentives
We have historically awarded long-term incentives to executive officers through a combination of equity awards and performance-based long-term cash incentive awards. Beginning with equity awards granted in 2017, executives received a mix of 60% RSUs and 40% PSUs. The addition of PSUs, combined with our existing cash LTIP, increased the portion of executives’ long-term incentives that is tied to business performance to over 60%.
Target Long-Term Incentive Mix
Long-Term Incentives: Equity Awards
Equity awards focus executives on increasing long-term shareholder value, enhance executive retention and promote executive stock ownership. Awards recognize prior year performance and advancement potential. The awards 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. PSUs only pay out if specific company performance measures are met. The number of PSUs granted to an executive represents a target number of shares; the actual share payout can range from 0% to 130% of the target based on company performance against specified measures. For RSUs, recipients receive cash dividend equivalents during the vesting period, but for PSUs, dividends are accrued and paid out at the end of the performance period based on the final number of PSUs that vest.
The Compensation Committee annually reviews equity award targets against competitive data. In 2017, following its annual review, the Committee decided to re-balance the long-term incentive mix between equity awards and the cash awards under the 2017 – 2019 LTIP. This resulted in an increase to equity target awards and a corresponding decrease to target awards under the 2017 – 2019 LTIP.
2017 EQUITY AWARD HIGHLIGHTS
■ |
60% RSUs / 40% PSUs |
■ |
Vesting period of three years |
■ |
RSUs: Cash dividend equivalent payments |
■ |
NEO awards based on: |
– |
Executive’s individual performance in year prior to the grant; |
– |
Executive’s advancement potential; |
– |
Company performance for PSUs; |
– |
Compensation Committee discretion; and |
– |
Competitive benchmarking |
■ |
Number of RSUs and PSUs awarded is based on fair market value of our stock on the date of the grant |
42 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
The targets and equity awards for our NEOs were as follows:
2017 Equity Awards
Name | Band | Equity Target ($) |
Equity Award Range (1) ($) |
Actual Equity Award (1) (2) ($) | ||||
Martin J. Barrington | A | 5,400,000 | Not applicable | 6,500,104 | ||||
William F. Gifford, Jr. | B | 1,750,000 | 1,050,000 - 2,625,000 | 2,250,078 | ||||
Howard A. Willard III | B | 1,750,000 | 1,050,000 - 2,625,000 | 2,250,078 | ||||
Craig A. Johnson | B | 1,750,000 | 1,050,000 - 2,625,000 | 1,750,037 | ||||
Murray R. Garnick | B | 1,750,000 | 1,050,000 - 2,625,000 | 1,237,603 | ||||
Denise F. Keane | B | 1,750,000 | 1,050,000 - 2,625,000 | 2,250,078 |
(1) |
Ranges and actual awards are a function of individual performance and, for our NEOs other than Mr. Barrington, advancement potential. Because advancement potential is not a consideration for Mr. Barrington, we do not reflect an equity award range for him. No executive is guaranteed an award and all awards are capped under the 2015 Performance Incentive Plan. |
(2) |
The amount shown is the aggregate grant date fair value of stock awards determined pursuant to Financial Accounting Standards Board (“FASB”) Codification Topic 718. The number of RSUs and PSUs awarded in 2017, together with the grant date values of the RSUs and the PSUs awarded, is disclosed in the Grants of Plan-Based Awards during 2017 table on page 50. The assumptions we used in calculating the grant date fair values of the RSUs and the PSUs awarded in 2017 are described in Note 2 under “Stock-Based Compensation” to our consolidated financial statements in the 2017 Annual Report on Form 10-K. |
The Compensation Committee makes equity awards to our Chairman, CEO and President (salary band A) based on its assessment of our performance and competitive data and its review of our Chairman, CEO and President’s individual performance. The Compensation Committee reviews various equity award scenarios, including advancement potential and past awards of those companies within the CSG, to establish an appropriate range of awards for our NEOs other than our Chairman, CEO and President. The awards are granted on the date of Compensation Committee approval, and no individual is guaranteed an award.
Financial Performance Measures for 2017 PSUs
The Compensation Committee designated (1) adjusted diluted EPS growth and (2) relative TSR (vs. the companies that comprise the S&P 500 Food, Beverage & Tobacco Index as of January 1, 2017 and remain in the index as of December 31, 2019) as the performance measures for the PSUs granted in 2017 because these measures link to our long-term financial goals of:
● |
growing adjusted diluted EPS at an average annual rate of 7% to 9% over the long term; and |
● |
maintaining a target dividend payout ratio of approximately 80% of our adjusted diluted EPS. |
These measures are intended to focus executives on achieving results that contribute to creating long-term shareholder value. The score for each financial measure determines the number of shares payable under the PSUs and may not exceed 130% of target. The Compensation Committee believes that the combination of these measures provides the best alignment between Altria’s business strategy and our shareholders’ interests: our executives are rewarded when our shareholders are rewarded.
ALTRIA GROUP, INC. – Proxy Statement 43
EXECUTIVE COMPENSATION |
Long-Term Incentives: 2017 – 2019 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 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 performance during the entire award cycle. Each executive has an award target based on their 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 |
■ |
Because no LTIP cycle concluded in 2017 (the current cycle concludes in 2019), total compensation for 2017 shown in the Summary Compensation Table significantly decreased from 2016 |
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 periodically considers 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 believes that reducing fluctuations is outweighed by the clarity of long-term performance incentives and the retention value of end-to-end performance cycles.
The 2017 – 2019 LTIP performance cycle will conclude on December 31, 2019. This performance cycle will reward achievement of key financial and strategic performance measures (each weighted 50%) intended to create substantial value for shareholders. The financial measures for 2017 - 2019, which have a combined weighting of 50%, are:
● |
Relative 2017 – 2019 TSR versus the S&P 500 Food, Beverage & Tobacco Index |
● |
Three-Year Adjusted Diluted EPS CAGR |
Specific details regarding the strategic performance initiatives were defined for executives, but are not disclosed publicly before the end of the cycle due to their competitively sensitive nature. We will disclose relevant performance metrics for the 2017 – 2019 LTIP performance cycle, as appropriate, after the compensation decisions for the then-current NEOs have been made.
Following the conclusion of the 2017 – 2019 LTIP performance cycle, the Compensation Committee will assess our performance on each of the financial and strategic measures to determine the final LTIP rating, which can range from 0% to 130%. The Compensation Committee, with respect to the CEO, and the CEO, with respect to the other NEOs, will also assess the individual performance of each executive to determine the executive’s individual performance rating, which can range from 0% - 150%. The final LTIP award is then determined based on the following formula:
Year-end Salaries for Each Plan Year |
X | Award Target (prorated for time in salary band) |
X | Business Performance Rating |
X | Individual Performance Factor |
= | Three-Year LTIP Award |
44 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
The award target percentages and performance factor ranges for executives in salary band A and B for the 2017 – 2019 LTIP performance cycle are:
Band | Individual Award Target (1) (%) |
Business Performance Factor (%) |
Individual Performance Factor (%) | |||
A | 250 | 0 - 130 | 0 - 150 | |||
B | 140 | 0 - 130 | 0 - 150 |
(1) |
Individual award target percentages are applied to each year-end base salary over the three-year performance cycle. |
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 2017 are set forth in the All Other Compensation table on page 49. 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. Under a time-sharing agreement with Altria, Mr. Barrington agreed to reimburse us for annual personal aircraft usage in excess of $250,000. The Compensation Committee considers the potential value of personal aircraft usage in determining the other components of Mr. Barrington’s total compensation. Mr. Barrington did not accept as a perquisite the company-paid automobile and executive physical in 2017.
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 53 to 54) and the Non-Qualified Deferred Compensation table (page 56). |
● |
Change in Control Payments. Our 2015 Performance Incentive Plan (“2015 PIP”) includes a double-trigger provision for vesting or payment of 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 the 2015 stock awards remained unvested at the end of 2017, provides for the vesting and payment 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 56 to 60). |
● |
Termination Payments. The Severance Pay Plan for Salaried Employees, which is generally applicable to all 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 56 to 60). |
Retirement of Executive Vice President and General Counsel
After over 40 years of exceptional service, Ms. Keane retired as Executive Vice President and General Counsel effective July 1, 2017. In connection with her retirement, the Compensation Committee approved a prorated cash award under the 2017 Annual Incentive Award plan at target business and individual performance in accordance with the terms of the plan:
Payment | Award Target (%) |
Proration | Award Amount ($) |
Date Paid | ||||
2017 Annual Incentive Award plan | 95 | 181 of 365 days | 462,100 | Feb. 2018 |
ALTRIA GROUP, INC. – Proxy Statement 45
EXECUTIVE COMPENSATION |
In accordance with the terms of the 2010 PIP and the 2015 PIP and the related award agreements, her previously awarded outstanding equity grants vested due to her retirement at age 65:
Grant | Shares (#) |
Value Realized on Vesting ($) (1) | ||
1/28/2015 RSUs | 28,948 | 2,155,758 | ||
1/26/2016 RSUs | 27,563 | 2,052,617 | ||
1/28/2017 RSUs | 18,170 | 1,353,120 | ||
1/28/2017 PSUs | 12,236 | 911,215 |
(1) |
Based on $74.47, the closing price of Altria common stock on June 30, 2017. PSU vesting was based on the target number of shares and also included a $32,113 cash payment of dividend equivalents. Delivery of the shares and cash payment were delayed for six months following Ms. Keane’s retirement under Internal Revenue Code Section 409A. |
Ms. Keane is also entitled to payments and benefits under the normal terms and conditions of our benefit plans.
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 executive’s acquisition period. The Compensation Committee set the requirements as 12 times base salary for salary band A (CEO) and six times base salary for salary band B (other NEOs). In addition, we have 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 and PSUs (at target amount). 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, 2017, all our NEOs exceeded their stock ownership requirements.
We have policies prohibiting our NEOs from engaging in hedging and pledging activities with respect to our 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 or PSUs, 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 RSU and PSU award agreements also include “clawback” provisions.
46 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
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 compensation programs. One such consideration is Internal Revenue Code Section 162(m), which limits our ability to deduct compensation paid to each covered officer for tax purposes to $1.0 million annually. Section 162(m) was amended and expanded under the federal tax bill enacted at the end of 2017.
For payments made in 2017, covered officers include the principal executive officer and our next three highest paid executive officers, other than our principal financial officer. For 2017, the Section 162(m) limitation did not apply to performance-based compensation, provided we satisfied certain conditions. We have taken appropriate actions, to the extent feasible, to preserve the deductibility of annual and long-term cash incentive awards paid and equity awards granted in 2017.
For 2018 and subsequent years, covered officers include the principal executive officer, principal financial officer and next three highest paid named executive officers. Compensation paid in 2018 and later years will generally be subject to the deduction limits of Section 162(m), without an exception for performance-based compensation. This includes annual and long-term incentive awards paid and equity awards granted in 2018 and later years.
Although the Compensation Committee considers tax deductibility in making its compensation program decisions, the Compensation Committee’s primary consideration is whether the compensation programs promote our Mission and align the interests of executives with those of our shareholders.
ALTRIA GROUP, INC. – Proxy Statement 47
EXECUTIVE COMPENSATION |
Compensation Tables and Other Matters
The following table provides the compensation information of our NEOs for 2017, 2016 and 2015.
Non-Equity Incentive Plans | ||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) |
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, Chairman, Chief Executive Officer and President, Altria Group, Inc. |
2017 | 1,470,000 | 6,500,104 | 3,700,000 | – | 3,705,592 | 327,481 | 15,703,177 | ||||||||||||||||
2016 | 1,408,333 | 6,500,010 | 3,900,000 | 12,060,000 | 3,363,075 | 342,148 | 27,573,566 | |||||||||||||||||
2015 | 1,333,333 | 5,600,071 | 3,500,000 | – | 2,606,735 | 256,229 | 13,296,368 | |||||||||||||||||
William F. Gifford, Jr., Executive Vice President and Chief Financial Officer, Altria Group, Inc. |
2017 | 666,167 | 2,250,078 | 910,000 | – | 1,379,892 | 87,482 | 5,293,619 | ||||||||||||||||
2016 | 640,833 | 1,700,038 | 950,000 | 3,700,600 | 879,815 | 96,713 | 7,967,999 | |||||||||||||||||
2015 | 594,167 | 2,650,282 | 900,000 | – | 650,130 | 76,596 | 4,871,175 | |||||||||||||||||
Howard A. Willard III, Executive Vice President and Chief Operating Officer, Altria Group, Inc. |
2017 | 868,333 | 2,250,078 | 1,165,000 | – | 1,746,506 | 99,599 | 6,129,516 | ||||||||||||||||
2016 | 833,333 | 1,700,038 | 1,300,000 | 5,572,800 | 1,400,173 | 120,080 | 10,926,424 | |||||||||||||||||
2015 | 780,333 | 3,150,551 | 1,200,000 | – | 998,455 | 106,113 | 6,235,452 | |||||||||||||||||
Craig A. Johnson, President and Chief Executive Officer, Altria Group Distribution Company |
2017 | 929,500 | 1,750,037 | 1,142,000 | – | 1,128,270 | 119,483 | 5,069,290 | ||||||||||||||||
2016 | 901,667 | 1,275,058 | 1,219,000 | 6,331,200 | 348,405 | 132,544 | 10,207,874 | |||||||||||||||||
2015 | 871,833 | 1,275,496 | 1,100,000 | – | 660,369 | 111,585 | 4,019,283 | |||||||||||||||||
Murray R. Garnick, Executive Vice President and General Counsel, Altria Group, Inc. |
2017 | 774,133 | 1,237,603 | 910,000 | – | – | 259,228 | 3,180,964 | ||||||||||||||||
Denise F. Keane, Former Executive Vice President and General Counsel, Altria Group, Inc. |
2017 | 616,225 | 2,250,078 | 462,100 | – | 745,010 | 78,777 | 4,152,190 | ||||||||||||||||
2016 | 938,500 | 1,700,038 | 1,450,000 | 6,612,000 | 755,050 | 139,165 | 11,594,753 | |||||||||||||||||
2015 | 912,667 | 1,650,289 | 1,350,000 | – | 390,030 | 125,311 | 4,428,297 |
(1) |
The amount shown is the aggregate grant date fair value of stock awards determined pursuant to FASB Codification Topic 718. The number of RSUs and PSUs awarded in 2017, together with their grant date values, is disclosed in the Grants of Plan-Based Awards during 2017 table on page 50. The assumptions we used in calculating the grant date fair values of the RSUs and the PSUs awarded in 2017 are described in Note 2 under “Stock-Based Compensation” to our consolidated financial statements in the 2017 Annual Report on Form 10-K. The table below provides the grant date fair value of the PSUs awarded in January 2017 for each of our NEOs assuming the maximum performance level is achieved. |
Martin J. Barrington ($) |
William F. Gifford, Jr. ($) |
Howard A. Willard III ($) |
Craig A. Johnson ($) |
Murray R. Garnick ($) |
Denise F. Keane ($) | |||||
3,380,057 | 1,169,952 | 1,169,952 | 910,002 | 643,505 | 1,169,952 |
(2) |
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. End-to-end performance cycles result in LTIP compensation shown in this column for 2016 only, and not for 2015 or 2017. |
The table below reflects the target 2017 allocation of the 2017 – 2019 LTIP performance cycle, which will conclude on December 31, 2019. This target amount will be adjusted based on actual business and individual performance at the end of the three-year plan period. There is no guarantee of any payment under the plan. |
Year | Martin J. Barrington ($) |
William F. Gifford, Jr. ($) |
Howard A. Willard III ($) |
Craig A. Johnson ($) |
Murray R. Garnick ($) |
Denise F. Keane (a) ($) |
2017 | 3,700,000 | 938,000 | 1,223,600 | 1,307,600 | 981,151 | 0 |
(a) |
Ms. Keane retired as Executive Vice President and General Counsel effective July 1, 2017. She is not eligible to receive a payment under the terms of the plan. |
48 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
(3) |
The amounts show the change in the present value of each NEO’s pension benefits for each year from December 31 of the prior year to December 31 of the applicable year. The amount shown for Ms. Keane for 2017 represents the change in present value of her pension benefits from December 31, 2016 to July 1, 2017, her date of retirement. The change in 2017 was 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 and mortality assumptions. Mr. Garnick was hired after January 1, 2008 and, therefore, is not covered under our pension plans. |
(4) |
Details of other compensation for each of our NEOs appear in the All Other Compensation table shown below. |
(a) |
Amounts represent allocations to tax-qualified and non-qualified supplemental defined contribution plans. |
(b) |
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. |
(e) |
For Mr. Barrington, this amount includes security expenses. For Ms. Keane, this amount reflects a retirement gift valued at $4,500 and a tax gross-up of $4,087 related to the retirement gift. For Mr. Garnick, this amount reflects relocation expenses of $75,118 and a tax gross-up of $36,848 related to the relocation expenses. |
ALTRIA GROUP, INC. – Proxy Statement 49
EXECUTIVE COMPENSATION |
Grants of Plan-Based Awards during 2017
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards |
Estimated Future Payouts Under Equity Incentive Plan Awards (3) |
All Other Stock Awards: Number of Shares of Stock or Units (4) (#) |
Grant Date Fair Value of Stock Awards ($) | |||||||||||||||||||
Name | Grant Date | Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||
Martin J. Barrington | 2017 | – | 2,220,000 (1) | 10,000,000 (1) | ||||||||||||||||||
2017 – 2019 | – | 11,100,000 (2) | 24,000,000 (2) | |||||||||||||||||||
1/30/2017 | – | 36,938 | 48,019 | 2,600,066 (5) | ||||||||||||||||||
1/30/2017 | 54,849 | 3,900,038 (6) | ||||||||||||||||||||
William F. Gifford, Jr. | 2017 | – | 636,500 (1) | 10,000,000 (1) | ||||||||||||||||||
2017 – 2019 | – | 2,814,000 (2) | 24,000,000 (2) | |||||||||||||||||||
1/30/2017 | – | 12,786 | 16,621 | 900,007 (5) | ||||||||||||||||||
1/30/2017 | 18,987 | 1,350,071 (6) | ||||||||||||||||||||
Howard A. Willard III | 2017 | – | 830,300 (1) | 10,000,000 (1) | ||||||||||||||||||
2017 – 2019 | – | 3,670,800 (2) | 24,000,000 (2) | |||||||||||||||||||
1/30/2017 | – | 12,786 | 16,621 | 900,007 (5) | ||||||||||||||||||
1/30/2017 | 18,987 | 1,350,071 (6) | ||||||||||||||||||||
Craig A. Johnson | 2017 | – | 887,300 (1) | 10,000,000 (1) | ||||||||||||||||||
2017 – 2019 | – | 3,922,800 (2) | 24,000,000 (1) | |||||||||||||||||||
1/30/2017 | – | 9,945 | 12,928 | 700,029 (5) | ||||||||||||||||||
1/30/2017 | 14,767 | 1,050,008 (6) | ||||||||||||||||||||
Murray R. Garnick (7) | 2017 | – | 760,000 (1) | 10,000,000 (1) | ||||||||||||||||||
2017 – 2019 | – | 3,360,000 (2) | 24,000,000 (2) | |||||||||||||||||||
1/30/2017 | – | 7,033 | 9,142 | 495,053 (5) | ||||||||||||||||||
1/30/2017 | 10,443 | 742,550 (6) | ||||||||||||||||||||
Denise F. Keane | 2017 | – | 931,950 (1) | 10,000,000 (1) | ||||||||||||||||||
2017 – 2019 | – | 4,120,200 (2) | 24,000,000 (2) | |||||||||||||||||||
1/30/2017 | – | 12,786 | 16,621 | 900,007 (5) | ||||||||||||||||||
1/30/2017 | 18,987 | 1,350,071(6) |
(1) |
Reflects the target and maximum awards under the 2017 Annual Incentive Award plan. Actual awards paid under the 2017 Annual Incentive Award plan are shown 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 have produced a maximum award lower than $10 million. |
(2) |
Represents the possible lump-sum awards for the full three-year performance cycle of the 2017 – 2019 LTIP to be paid in early 2020. The 2017 – 2019 LTIP performance cycle commenced on January 1, 2017 and will conclude on December 31, 2019. 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 $24 million. |
(3) |
Reflects target and maximum PSUs granted to our NEOs on January 30, 2017 that will vest on February 11, 2020. The actual number of units that vest will range between 0% and 130% of target, depending on actual performance during the performance period. Holders of PSUs will accrue dividend equivalents during the performance period, which will be paid at the end of the performance period on PSUs that vest. |
(4) |
Reflects RSUs granted to our NEOs on January 30, 2017 that will vest on February 11, 2020. Holders of RSUs are entitled to any cash dividend equivalents paid quarterly during the vesting period. |
(5) |
Reflects the value of the target PSUs granted using a $70.39 grant date fair value, which was determined using 50% of the RSU grant date fair value added to 50% of the TSR fair value. The TSR fair value was calculated by multiplying the RSU grant date fair value by a Monte Carlo simulation fair value factor of 97.99%. |
(6) |
Reflects the grant date fair value of the RSUs, which was determined using $71.105, the average of the high and low trading prices of Altria common stock on the grant date. |
(7) |
Mr. Garnick’s actual award under the 2017 Annual Incentive Award plan was determined by adjusting his target award for the portion of 2017 before July 1 when he was at a salary band C level. |
50 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
Outstanding Equity Awards as of December 31, 2017
Stock Awards | ||||||||||||||||||||||
RSUs | PSUs | |||||||||||||||||||||
Name | Grant Date |
Vesting Date |
Number of Shares or Units of Stock That Have Not Vested (#) |
Market Value of Shares or Units of Stock That Have Not Vested (1) ($) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (2) (#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested (1) ($) | ||||||||||||||||
Martin J. Barrington | 1/30/2017 | 2/11/2020 | 54,849 | 3,916,767 | 36,938 | 2,637,743 | ||||||||||||||||
1/26/2016 | 2/7/2019 | 110,123 | 7,863,883 | |||||||||||||||||||
1/28/2015 | 2/7/2018 | 102,650 | 7,330,237 | |||||||||||||||||||
William F. Gifford, Jr. | 1/30/2017 | 2/11/2020 | 18,987 | 1,355,862 | 12,786 | 913,048 | ||||||||||||||||
1/26/2016 | 2/7/2019 | 28,802 | 2,056,751 | |||||||||||||||||||
1/28/2015 | 2/7/2018 | 21,080 | 1,505,323 | |||||||||||||||||||
1/28/2015 | 2/11/2020 | 27,500 | 1,963,775 | |||||||||||||||||||
Howard A. Willard III | 1/30/2017 | 2/11/2020 | 18,987 | 1,355,862 | 12,786 | 913,048 | ||||||||||||||||
1/26/2016 | 2/7/2019 | 28,802 | 2,056,751 | |||||||||||||||||||
1/28/2015 | 2/7/2018 | 30,250 | 2,160,153 | |||||||||||||||||||
1/28/2015 | 2/11/2020 | 27,500 | 1,963,775 | |||||||||||||||||||
Craig A. Johnson | 1/30/2017 | 2/11/2020 | 14,132 | 1,009,166 | 9,517 | 679,609 | ||||||||||||||||
1/26/2016 | 2/7/2019 | 20,673 | 1,476,259 | |||||||||||||||||||
1/28/2015 | 2/7/2018 | 22,373 | 1,597,656 | |||||||||||||||||||
Murray R. Garnick | 1/30/2017 | 2/11/2020 | 10,443 | 745,735 | 7,033 | 502,227 | ||||||||||||||||
1/26/2016 | 2/7/2019 | 19,492 | 1,391,924 | |||||||||||||||||||
1/28/2015 | 2/7/2018 | 21,090 | 1,506,037 | |||||||||||||||||||
1/28/2015 | 2/11/2020 | 18,340 | 1,309,659 | |||||||||||||||||||
Denise F. Keane (3) | 1/30/2017 | 2/11/2020 | 12,236 | 873,773 | – | – | ||||||||||||||||
1/30/2017 | 2/11/2020 | 18,170 | 1,297,520 | |||||||||||||||||||
1/26/2016 | 2/7/2019 | 27,563 | 1,968,274 | |||||||||||||||||||
1/28/2015 | 2/7/2018 | 28,948 | 2,067,177 |
(1) |
Market values are based on $71.41, the closing price of Altria common stock on December 29, 2017, assuming target performance for PSUs. |
(2) |
Amount assumes target performance goals are achieved. The actual number of units that vest will range between 0% and 130% of target, depending on actual performance during the performance cycle. |
(3) |
Due to Ms. Keane’s retirement, her PSUs granted in 2017 were no longer subject to performance criteria per the terms of the grant agreement. Accordingly, her January 30, 2017 grant of 12,236 PSUs is shown under the RSUs column. In accordance with the six month delay requirement of Internal Revenue Code Section 409A, all of Ms. Keane’s outstanding equity awards shown in this table were delivered on January 3, 2018 following Ms. Keane’s retirement. |
ALTRIA GROUP, INC. – Proxy Statement 51
EXECUTIVE COMPENSATION |
Stock Option Exercises and Stock Vested during 2017
Option Awards | Stock Awards | |||||||||||
Name | Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($) | ||||||||
Martin J. Barrington | – | – | 292,960 | 20,987,338 | ||||||||
William F. Gifford, Jr. | – | – | 31,320 | 2,260,521 | ||||||||
Howard A. Willard III | – | – | 44,930 | 3,242,823 | ||||||||
Craig A. Johnson | – | – | 37,719 | 2,702,021 | ||||||||
Murray R. Garnick | – | – | 31,330 | 2,261,243 | ||||||||
Denise F. Keane (1) | – | – | 135,755 | 9,971,076 |
(1) |
In accordance with the six month delay requirement of Internal Revenue Code Section 409A, 86,917 shares ($6,472,709) were delivered on January 3, 2018 following Ms. Keane’s retirement. |
The Pension Benefits table and the Non-Qualified Deferred Compensation table below generally reflect amounts accumulated as a result of service over the NEO’s full career with Altria and our affiliates. The increments related to 2017 are reflected in the “Change in Pension Value” column of the Summary Compensation Table or, in the case of defined contribution plans, the “Allocation to Defined Contribution Plans” column of the All Other Compensation table. Mr. Garnick was hired after January 1, 2008 and, therefore, is not covered under our pension plans.
Name | Plan Name | Number of Years of Credited Service (1) (#) |
Present Value of Accumulated Benefits (2) ($) |
Payments During Last Fiscal Year (3) ($) | ||||||||||
Altria Retirement Plan | 24.67 | 1,531,797 | – | |||||||||||
Martin J. Barrington | Benefit Equalization Plan – Pre-2005 | 11.67 | 1,978,773 | – | ||||||||||
Benefit Equalization Plan – Post-2004 | 24.67 | 18,877,175 | – | |||||||||||
Altria Retirement Plan | 23.25 | 1,036,171 | – | |||||||||||
William F. Gifford, Jr. | Benefit Equalization Plan – Pre-2005 | – | – | – | ||||||||||
Benefit Equalization Plan – Post-2004 | 23.25 | 4,078,244 | – | |||||||||||
Altria Retirement Plan | 25.17 | 1,439,994 | – | |||||||||||
Howard A. Willard III | Benefit Equalization Plan – Pre-2005 | 12.17 | 619,815 | – | ||||||||||
Benefit Equalization Plan – Post-2004 | 25.17 | 7,173,050 | – | |||||||||||
Altria Retirement Plan | 26.75 | 1,596,238 | – | |||||||||||
Craig A. Johnson | Benefit Equalization Plan – Pre-2005 | 13.75 | 2,350,393 | – | ||||||||||
Benefit Equalization Plan – Post-2004 | 26.75 | 9,279,592 | – | |||||||||||
Altria Retirement Plan | 40.50 | 2,483,660 | 68,407 | |||||||||||
Denise F. Keane | Benefit Equalization Plan – Pre-2005 | 28.00 | – | 2,895,350 | ||||||||||
Benefit Equalization Plan – Post-2004 | 35.00 | 3,055,448 | – |
(1) |
As of December 31, 2017, each NEO’s total years of service with Altria and our affiliates were: Mr. Barrington, 24.67 years; Mr. Gifford, 23.25 years; Mr. Willard, 25.17 years; Mr. Johnson, 26.75 years; and Ms. Keane, 40.50 years. Years shown in this column are only those taken into account for benefit accrual purposes under the named plan. Ms. Keane’s years of service taken into account under the applicable formula for the Benefit Equalization Plan (“BEP”) – Post-2004 are limited to 35.00 under the terms of that plan. |
52 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
(2) |
The amounts shown in this column are based on a single life annuity (other than for Ms. Keane whose amount is based on the form of payment she selected at retirement, a 50% joint and survivor annuity) and otherwise use the same assumptions applied for year-end 2017 financial disclosure under FASB authoritative guidance relating to retirement benefits, except that (a) the BEP – Post-2004 amount for Mr. Johnson is based on the lump sum required to purchase an annuity providing the after-tax equivalent of the post-2004 pension component of that plan assuming an interest rate of 3.50%, (b) the BEP – Pre-2005 and BEP – Post-2004 amounts for Messrs. Barrington, Gifford and Willard are based on a lump sum form of payment assuming an interest rate of 3.50% (3.37% for Mr. Gifford), (c) in accordance with SEC requirements, all benefits are assumed to commence at the earliest date on which, assuming continued employment, the individual would be eligible for benefits that are not reduced for early commencement and (d) the BEP – Post-2004 amount shown for Ms. Keane is based on the actual payment she received in January 2018 and is net of the accumulated value of prior Target Payments attributable to her supplemental pension benefits. See Note 16 to our consolidated financial statements in the 2017 Annual Report on Form 10-K for a description of the financial accounting assumptions referred to above. As a result of payments previously made to or for certain employees, including our NEOs other than Mr. Gifford, our liabilities or those of our operating subsidiaries under the BEP – Pre-2005 will be less than shown in the table. Our liability for BEP – Post-2004 pension benefits will also be less than that reflected in this column because it is also reduced by the portion of the accumulated value, at the employee’s retirement or other termination of employment, of prior Target Payments attributed to supplemental pension benefits. The amounts by which these prior payments reduce our liabilities will fluctuate over time with investment performance and as credits for the amounts previously paid are reduced to reflect payments to cover taxes on earnings on these amounts. For further discussion, see “Defined Benefit Plans” below. |
(3) |
In connection with her retirement on July 1, 2017, Ms. Keane received a lump sum payment of her BEP – Pre-2005 benefit in September 2017. Ms. Keane’s BEP – Pre-2005 payment and BEP – Post-2004 amount (which was paid in January 2018) reflect that these amounts were reduced by Funding Payments and Target Payments that were paid to Ms. Keane in prior years (see “Defined Benefit Plans – BEP Pension” section on page 54). The Funding Payments and Target Payments were reported in Altria’s proxy statements for those prior years. |
Our NEOs, along with the other salaried employees (except those hired after certain dates, including Mr. Garnick, and those who cease to accrue further benefit service), participate in the Retirement Plan, a tax-qualified defined benefit pension plan. In addition, our eligible NEOs and other executives participate in the BEP, which is an unfunded supplemental plan providing benefits in excess of those provided under the Retirement Plan. Additional information regarding the plans follows.
Retirement Plan
The majority of our salaried employees hired prior to January 1, 2008 with at least five years of service are eligible for an annual, lifetime pension benefit from the Retirement Plan, a funded, tax-qualified, non-contributory pension plan. The benefit for the majority of those plan participants, including all our eligible NEOs, is based on the following formula and terms:
Pension Benefit |
= |
1.45% of five-year average |
+ |
1.75% of five-year average |
X |
Years of |
Under the terms of the Retirement Plan, credited service is limited to 35 years if incentive compensation is included in the determination of the five-year average compensation. Five-year average compensation is the highest average annual compensation (annual base salary plus incentive compensation) during a period of 60 consecutive months within the last 120 months of employment. If incentive compensation is not included in the determination of the five-year average compensation, then credited service is not limited to 35 years and the benefit for credited service over 35 years is 1.45% of the employee’s five-year average compensation. Social Security covered compensation is generally an amount equal to the average of the Social Security taxable wage bases for the 35-year period that ends in the year the participant reaches Social Security Full Retirement Age.
ALTRIA GROUP, INC. – Proxy Statement 53
EXECUTIVE COMPENSATION |
Pension benefit amounts are expressed as a single life annuity payable commencing at age 65, the Retirement Plan’s normal retirement age. The amount may be reduced as a result of permitted elections of continued payments to beneficiaries in the event of the retiree’s death and/or for commencement of payments before attaining normal retirement age. Employees who terminate employment before age 55 with vested benefits may elect to commence payment of their accrued pensions after attaining age 55. For such employees, the election to commence payments before age 65 results in a reduction in the annual amount payable at a rate of 6% per year multiplied by the number of full and partial years by which benefit commencement precedes attainment of age 65. For employees who continue in employment until age 55 or older and have completed five years or more of credited service, the reduction for early commencement is 6% for each year and partial year by which the benefit commencement precedes age 60.
If upon termination, an employee is at least age 55 with 30 years of service or age 60 or older with five years of service, the annuity immediately payable upon early retirement is 100% of that payable at normal retirement age. The result of becoming eligible for such an early retirement benefit is an increase in the present value of the pension. Messrs. Barrington and Johnson currently are eligible for such unreduced early retirement benefits. Ms. Keane was eligible for, and received, an unreduced normal retirement benefit upon her retirement in 2017. Messrs. Gifford and Willard are not currently eligible for either reduced or unreduced early retirement benefits.
BEP Pension
Tax laws applicable to the Retirement Plan limit the annual compensation that can be taken into account under that plan. As a result of these and/or certain other tax requirements, only a portion of the benefits calculated under the Retirement Plan described above can be paid to our eligible NEOs and a number of other employees from the Retirement Plan. To compensate for benefits that would be lost by the application of these tax limits, all our eligible NEOs accrue supplemental pension benefits under the BEP (“BEP Pension”). BEP Pension accruals relating to periods after 2004 are paid in a lump sum following retirement. Distribution of the pre-2005 supplemental plan benefits are subject to the BEP Pension terms applicable on December 31, 2004.
The annual cash incentive compensation considered for purposes of pension determinations as described above for executives in salary bands A and B is limited to the lesser of either (a) actual annual cash incentive or (b) annual cash incentive at an Annual Incentive Award rating of 100% and individual performance rating of the fourth highest level on a five point scale. Our eligible NEOs are subject to this limit. Awards under the 2017 Annual Incentive Award plan paid in early 2018 and the amount recognized for future pension calculations for our eligible NEOs are as follows:
Name | 2017 Annual Incentive Award ($) |
Amount of 2017 Award Recognized for Future Pension Calculations ($) | ||||||
Martin J. Barrington | 3,700,000 | 2,553,000 | ||||||
William F. Gifford, Jr. | 910,000 | 731,975 | ||||||
Howard A. Willard III | 1,165,000 | 954,845 | ||||||
Craig A. Johnson | 1,142,000 | 1,020,395 |
The amounts payable by Altria under the BEP Pension are determined taking into account certain payments made to the executives before 2008 in order to prevent duplicative benefit payments.
● | From 1996 through 2007, a number of our employees, including our NEOs (except Messrs. Gifford and Garnick), received Funding Payments with respect to pre-2005 vested benefits that were made either to individual trusts established by the employee or directly to the employees themselves. |
● | From 2005 through 2007, accruals under the BEP Pension ceased for a number of employees, including our NEOs (except Messrs. Gifford and Garnick), and these employees received annual Target Payments that were calculated to approximate (after paying taxes on the payments) the after-tax value of the additional benefits they would have earned had they remained covered by the BEP Pension. Accruals under the BEP Pension commenced again effective January 1, 2008. |
54 ALTRIA GROUP, INC. – Proxy Statement
EXECUTIVE COMPENSATION |
Non-Qualified Deferred Compensation
Name | Plan Name | Executive Contributions in Last Fiscal Year ($) |
Registrant Contributions in Last Fiscal Year (1) ($) |
Aggregate Earnings in Last Fiscal Year (2) ($) |
Aggregate Withdrawals / Distributions in Last Fiscal Year ($) |
Aggregate Balance at Last Fiscal Year-End (3) ($) | ||||||||||||
Martin J. Barrington | Benefit Equalization Plan |
– | 120,000 | 37,871 |