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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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Soliciting Material under §240.14a-12 |
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April 27, 2016
Dear Stockholder:
You are cordially invited to attend The Cheesecake Factory Incorporated ("Company") annual meeting of stockholders on Thursday, June 23, 2016, at 10:00 a.m., Pacific Daylight Time ("Annual Meeting"). The Annual Meeting will be held at the Westlake Village Inn, Lakeside Room, 31943 Agoura Road, Westlake Village, California 91361. The matters to be acted upon at the Annual Meeting are described in the attached Notice of Annual Meeting of Stockholders ("Notice") and Proxy Statement.
Pursuant to rules adopted by the Securities and Exchange Commission, we are providing you access to our proxy materials over the Internet. This method allows us to deliver the proxy materials to you more quickly, lowers our costs and helps to conserve natural resources. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials ("Notice of Availability") to our stockholders who have not asked us to provide proxy materials in printed form. All stockholders receiving the Notice of Availability can request a printed set of proxy materials. All stockholders can access the proxy materials at www.proxyvote.com, irrespective of whether they receive the Notice of Availability or a printed copy of the proxy materials. Instructions on how to access the proxy materials online or request a printed copy may be found in the Notice of Availability and in the attached Proxy Statement. In addition, stockholders may request proxy materials in printed form by mail or electronically by email on an ongoing basis.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Annual Meeting, we urge you to vote and submit your proxy online, by telephone or by mail (see below for instructions) in order to ensure the presence of a quorum. If you attend the Annual Meeting, you will have the right to revoke your proxy and vote your shares in person. If you hold your shares through an account with a brokerage firm, bank or other nominee, please follow the instructions you receive from them to vote your shares.
Sincerely,
/s/ David Overton
David
Overton
Chairman of the Board and Chief Executive Officer
Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Stockholders to Be Held on June 23, 2016:
The Proxy Statement and Annual Report to Stockholders are available at www.proxyvote.com.
Voting online or by telephone is fast and convenient, and your vote is immediately confirmed and posted. To vote online or by telephone, first read the accompanying Proxy Statement and then follow the instructions below:
VOTE ONLINE | VOTE BY TELEPHONE | |
1. Go to www.proxyvote.com. |
1. Using a touch-tone telephone, call 1-800-690-6903. |
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2. Follow the step-by-step instructions provided. | 2. Follow the step-by-step instructions provided. |
THE CHEESECAKE FACTORY INCORPORATED
26901 Malibu Hills Road
Calabasas Hills, California 91301
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
on
June 23, 2016
The 2016 annual meeting of stockholders of The Cheesecake Factory Incorporated, a Delaware corporation ("Company"), will be held at the Westlake Village Inn, Lakeside Room, 31943 Agoura Road, Westlake Village, California 91361, on Thursday, June 23, 2016, beginning at 10:00 a.m., Pacific Daylight Time ("Annual Meeting"), for the following purposes:
The Board of Directors has fixed the close of business on April 25, 2016 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof.
By Order of the Board of Directors,
/s/ Debby R. Zurzolo
Debby
R. Zurzolo
Secretary
Calabasas
Hills, California
April 27, 2016
IF YOU PLAN TO ATTEND THE MEETING
Attendance will be limited to stockholders. Stockholders may be asked to present valid picture identification, such as a driver's license or passport. Stockholders holding stock in brokerage accounts ("street name" holders) will need to bring with them a legal proxy issued in their name from the bank or brokerage in whose name the shares are held in order to vote in person. Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting.
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THE CHEESECAKE FACTORY INCORPORATED
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 23, 2016
This Proxy Statement is furnished to the stockholders of The Cheesecake Factory Incorporated, a Delaware corporation ("Company" and "we," "us" or "our"), in connection with the solicitation of proxies by our Board of Directors ("Board") for use at the annual meeting of stockholders to be held at the Westlake Village Inn, Lakeside Room, 31943 Agoura Road, Westlake Village, California 91361, on Thursday, June 23, 2016, beginning at 10:00 a.m., Pacific Daylight Time, and at any adjournment or postponement thereof ("Annual Meeting"). We intend this Proxy Statement and proxy voting materials to be available to stockholders on or about April 27, 2016.
Internet Availability of Proxy Materials
Pursuant to rules adopted by the Securities and Exchange Commission ("SEC"), we are providing you access to our proxy materials over the Internet. This method allows us to deliver the proxy materials to you more quickly, lowers our costs and helps to conserve natural resources. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials ("Notice of Availability") to our stockholders who have not asked us to provide proxy materials in printed form. All stockholders receiving the Notice of Availability can request a printed set of proxy materials. All stockholders can access the proxy materials at www.proxyvote.com, irrespective of whether they receive the Notice of Availability or a printed copy of the proxy materials. Instructions on how to access the proxy materials online or request a printed copy may be found in the Notice of Availability and in this Proxy Statement.
In addition, the Notice of Availability provides instructions to stockholders regarding receiving proxy materials in printed form by mail or electronically by email on an ongoing basis in the future. Choosing to receive future proxy materials by email will save us the cost of printing and mailing documents to you, enable us to provide you with materials sooner, and will reduce the impact of our annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until you terminate it.
Voting; Quorum; Abstentions and Broker Non-Votes
On April 25, 2016, the record date fixed by the Board for the Annual Meeting ("Record Date"), 48,528,962 shares of our common stock were outstanding, and there were no outstanding shares of any other class of stock. Each holder of common stock is entitled to one vote for each share of common stock held of record. Only stockholders of record at the close of business on April 25, 2016 will be entitled to notice of and to vote at the Annual Meeting or any postponement or adjournment thereof.
The required quorum for the transaction of business at the Annual Meeting is a majority of the shares entitled to vote at the Annual Meeting, present in person or represented by proxy. Shares of common stock represented by a properly signed and returned proxy will be treated as present at the Annual Meeting for purposes of determining a quorum, regardless of whether the proxy is marked as casting a vote or abstaining (an "abstention") or constitutes a broker non-vote.
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For Proposal 1, our Bylaws provide that, in the election of directors, the nominees receiving the highest number of votes, up to the number of directors to be elected, shall be elected; provided, that in an uncontested election, each nominee must agree that if elected, he or she will submit an irrevocable resignation promptly following the election if he or she fails to receive a majority of votes cast. An uncontested election (such as the election held at this Annual Meeting) means that there are as many candidates standing for election as there are vacancies on the Board. A majority of votes cast means that the number of shares cast "FOR" a director's election exceeds the number of votes cast "AGAINST" that director. Abstentions and broker non-votes are not considered a vote cast and, therefore, will have no effect on the outcome of the vote other than to reduce the number of affirmative votes required to elect a director. "Broker non-votes" are shares of stock held in record name by brokers or nominees for which instructions have not been received from the beneficial owners or persons entitled to vote and the broker or nominee does not have discretionary voting power under applicable rules or the instrument under which it serves in such capacity.
Proposals 2 and 3 require the approval of a majority of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on such proposal. Abstentions as to these proposals will count as shares present and entitled to vote on the proposals and, accordingly, will count as votes "AGAINST" the proposal. Broker non-votes are not considered present and entitled to vote on the proposal and will have no effect on the outcome of the vote for the proposal, other than to reduce the number of affirmative votes required to approve the proposal.
Proxies delivered pursuant to this solicitation are revocable prior to their exercise and at the stockholder's option by (i) attending and voting at the Annual Meeting (although attending the Annual Meeting itself will not revoke a proxy), or (ii) filing a written notice with Debby R. Zurzolo, our Secretary, revoking the proxy, or (iii) submitting another duly executed proxy bearing a later date. Unless previously revoked, all proxies representing shares entitled to vote delivered pursuant to this solicitation will be voted at the Annual Meeting by the named attorneys-in-fact and agents, to the extent authorized, in accordance with the directions contained therein.
If no directions are given, the shares represented by such proxies will be voted:
The named proxy holders may vote in their discretion upon such other matters as may properly come before the Annual Meeting, including any motion made for adjournment or postponement (including for purposes of soliciting additional votes).
We pay for the cost of preparing, assembling and mailing the Notice of Internet Availability, the Notice of Annual Meeting and Proxy Statement and the cost of this solicitation. Our directors, officers and other staff members may solicit proxies, without additional remuneration, in person or by telephone, facsimile or email transmission. Banks, brokerage houses and other custodians, nominees or fiduciaries will be asked to forward soliciting material to their principals and to obtain authorization for the execution of proxies, and we will reimburse them for their reasonable out-of-pocket expenses incurred in that regard.
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PROPOSAL ONE
Election of Directors
General
Our Bylaws provide for a board of directors consisting of no less than five and no more than thirteen members. The exact number within this range is determined by resolution of the Board. The Board currently has set the number of directors at seven.
Nominees
The Corporate Governance and Nominating Committee of the Board ("Governance Committee") recommended the nomination, which the Board approved, of the following individuals for re-election to the Board for a term that will expire at the 2017 annual meeting of stockholders and until their respective successors shall be elected and duly qualified: David Overton; Alexander L. Cappello; Jerome I. Kransdorf; Laurence B. Mindel; David B. Pittaway; Douglas L. Schmick; and Herbert Simon. All nominees are current directors of the Company. For biographical information regarding the director nominees, please see the section entitled "Our Board of Directors and Director Nominees" in this Proxy Statement.
Unless a stockholder specifies otherwise, the shares represented by each returned proxy will be voted FOR the election of David Overton, Alexander L. Cappello, Jerome I. Kransdorf, Laurence B. Mindel, David B. Pittaway, Douglas L. Schmick and Herbert Simon.
In the event that any of the nominees becomes unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders will vote the proxies for any substitute nominee designated by the Board to fill the vacancy.
Required Vote
Our Bylaws provide that, in the election of directors, the nominees receiving the highest number of votes, up to the number of directors to be elected, shall be elected; provided, that in an uncontested election, each nominee must agree that if elected, he or she will submit an irrevocable resignation promptly following the election if he or she fails to receive a majority of votes cast. An uncontested election (such as the election held at this Annual Meeting) means that there are as many candidates standing for election as there are vacancies on the Board. A majority of votes cast means that the number of shares cast "FOR" a director's election exceeds the number of votes cast "AGAINST" that director. Abstentions and broker non-votes are not considered a vote cast and, therefore, will have no effect on the outcome of the vote other than to reduce the number of affirmative votes required to elect a director. "Broker non-votes" are shares of stock held in record name by brokers or nominees for which instructions have not been received from the beneficial owners or persons entitled to vote and the broker or nominee does not have discretionary voting power under applicable rules or the instrument under which it serves in such capacity.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF DAVID OVERTON, ALEXANDER L. CAPPELLO, JEROME I. KRANSDORF, LAURENCE B. MINDEL, DAVID B. PITTAWAY, DOUGLAS L. SCHMICK AND HERBERT SIMON TO THE BOARD OF DIRECTORS.
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PROPOSAL TWO
Ratification of Selection of Independent Registered Public Accounting Firm
The Audit Committee of our Board has selected PricewaterhouseCoopers LLP ("PwC") as our independent registered public accounting firm to conduct the audit of our books and records for fiscal 2016. In 2014, after evaluating proposals from various accounting firms, we elected to maintain our relationship with PwC, who has served as our independent registered public accounting firm since our initial public offering in 1992. Representatives of PwC are expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement should they so desire.
Although our governing documents do not require us to submit this matter to stockholders, the Board believes that asking stockholders to ratify the appointment is consistent with best practices in corporate governance. If stockholders do not ratify the selection of PwC, the Audit Committee will regard such vote as a direction to consider the selection of a different independent registered public accounting firm. Even if the selection of PwC is ratified by the stockholders, the Audit Committee has the discretion to select a different independent registered public accounting firm at any time if it determines that a change would be in our and our stockholders' best interests.
Independent Registered Public Accounting Firm Fees and Services. The following table sets forth the aggregate fees billed by PwC to us during the last two fiscal years:
|
Fiscal 2015 | Fiscal 2014 | |||||
---|---|---|---|---|---|---|---|
Audit Fees |
$ | 707,935 | $ | 605,940 | |||
Audit-Related Fees |
| | |||||
Tax Fees |
| 40,515 | | 43,657 | |||
All Other Fees |
1,800 | 1,800 | |||||
| | | | | | | |
Total Fees |
$ | 750,250 | $ | 651,397 | |||
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Audit Fees represent the aggregate fees billed by PwC for the audit of our annual financial statements included in the Annual Report on Form 10-K, review of financial statements included in the Quarterly Reports on Form 10-Q, the audit of our internal control over financial reporting with the objective of obtaining reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects, and services normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings or engagements.
Tax Fees represent the aggregate fees billed by PwC for tax compliance, advice and planning services.
All Other Fees represent the aggregate fees billed by PwC for access to their accounting literature research tool.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Our Independent Registered Public Accounting Firm. The Audit Committee is responsible for appointing, setting compensation for and overseeing the work of our independent registered public accounting firm. The Audit Committee also approves our independent registered public accounting firm's lead engagement partner, who is rotated every five years. The Audit Committee established a policy requiring that it pre-approve all audit and permissible non-audit services provided by the independent auditor, and the Audit Committee's charter authorizes the Audit Committee to delegate to one or more of its members the authority to make such pre-approvals, provided that those members report any pre-approvals to the full Audit Committee at its next regularly scheduled meeting. The Audit Committee considers whether such services are consistent with SEC rules on auditor independence as well as whether the independent auditor can provide the most effective and efficient service, for reasons such as familiarity with our business, staff members, culture, accounting systems, risk profile and other factors, and input from our management. The Audit Committee delegated the authority to address any requests for pre-approval of services between Audit Committee meetings to its Chair, provided that the amount of fees for both audit and non-audit
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accounting services requested does not exceed $25,000 per fiscal quarter, and the Chair is required to report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee's charter does not provide the Audit Committee with authority to delegate to management the Audit Committee's responsibility to pre-approve permitted services of the independent registered public accounting firm. In addition, the policy prohibits our auditors from providing internal control-related services to us unless such engagement has been specifically pre-approved by the Audit Committee. The waiver of pre-approval provisions set forth in applicable rules of the SEC were not used to approve any of the services described above in fiscal 2015.
Required Vote. The ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2016 requires the affirmative vote of a majority of the shares of common stock present in person or by proxy and entitled to vote on the proposal at the Annual Meeting. Abstentions will be included in the number of shares present and entitled to vote on this Proposal 2 and will have the effect of a vote "AGAINST" Proposal 2. Broker non-votes will not be considered as present and entitled to vote on this Proposal 2. Therefore, a broker non-vote will not be counted and will have no effect on this Proposal 2 other than to reduce the number of affirmative votes required to approve this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2016.
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PROPOSAL THREE
Non-Binding Advisory Vote on Executive Compensation
In accordance with Section 14A of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and as a matter of good corporate governance practices, we are asking our stockholders to approve, on a non-binding, advisory basis, the compensation of our principal executive officer, our principal financial officer and our three most highly compensated executive officers (collectively, the "Named Executive Officers") as disclosed pursuant to the compensation disclosure rules of the SEC (commonly referred to as a "say-on-pay vote"). We intend to present this non-binding, advisory vote on executive compensation to our stockholders on an annual basis. Accordingly, you may vote on the following resolution at the 2016 Annual Meeting:
"RESOLVED, that the compensation paid to the Company's Named Executive Officers as disclosed pursuant to the compensation disclosure rules, including the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure contained in this Proxy Statement, is hereby APPROVED."
As described in detail in the "Compensation Discussion and Analysis" section of this Proxy Statement, our compensation programs are designed to motivate our executives to drive the success of our Company. We believe that our compensation programs play a material role in our ability to achieve strong financial results, even during difficult economic times, and attract, retain and motivate a highly experienced and successful team to manage our Company. Our compensation programs reward sustained performance that is aligned with long-term stockholder interests, with a balance of:
Stockholders are encouraged to read the "Compensation Discussion and Analysis," the accompanying compensation tables, and the related narrative disclosure contained in this Proxy Statement for a full description of our executive compensation programs.
This vote is advisory only and non-binding. The Board and the Compensation Committee, which is comprised solely of independent directors, will consider the outcome of this vote when making future executive compensation decisions to the extent appropriate.
Required Vote. The approval of the resolution set forth above requires the affirmative vote of a majority of the shares of common stock present in person or by proxy and entitled to vote on the proposal at the Annual Meeting. Abstentions will be included in the number of shares present and entitled to vote on this Proposal 3 and will count as a vote "AGAINST" Proposal 3. Broker non-votes will not be considered as present and entitled to vote on this Proposal 3. Therefore, a broker non-vote will not be counted and will have no effect on this Proposal 3 other than to reduce the number of affirmative votes required to approve this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL,
ON A NON-BINDING, ADVISORY BASIS, OF THE RESOLUTION SET FORTH ABOVE.
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BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Our Board of Directors and Director Nominees
The Board nominated all seven of the Company's current directors for re-election at the Annual Meeting to serve a one-year term expiring at the 2017 annual meeting of stockholders and until their respective successors shall be elected and qualified. At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the seven nominees named in this Proxy Statement.
Name
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Age | Position | Director Since | Current Term Expiration |
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David Overton |
| 70 | Chairman of the Board, Chief Executive Officer | | 1992 | | 2016 | |||||
Alexander L. Cappello |
60 | Director | 2008 | 2016 | ||||||||
Jerome I. Kransdorf |
| 77 | Lead Director | | 1997 | | 2016 | |||||
Laurence B. Mindel |
78 | Director | 2012 | 2016 | ||||||||
David B. Pittaway |
| 64 | Director | | 2009 | | 2016 | |||||
Douglas L. Schmick |
68 | Director | 2012 | 2016 | ||||||||
Herbert Simon |
| 81 | Director | | 2011 | | 2016 |
David Overton has served as our Chairman of the Board and Chief Executive Officer since our incorporation in 1992. He co-founded the Company with his parents, Evelyn and Oscar Overton. Mr. Overton created the Company's namesake concept and opened the first The Cheesecake Factory restaurant in 1978 in Beverly Hills, California. He grew The Cheesecake Factory® into an international chain and created two other concepts, Grand Lux Cafe® and RockSugar Pan Asian Kitchen®. Under Mr. Overton's leadership, the Company's revenues reached $2.1 billion in 2015. The Cheesecake Factory is a leader in the casual dining industry with average annual sales per restaurant of $10.6 million in fiscal 2015. Mr. Overton's professional honors include the International Foodservice Manufacturers Association "Silver Plate Award," recognizing the most outstanding and innovative talent in foodservice operations; the "Executive of the Year Award" from Restaurants & Institutions Magazine; the "MenuMasters Hall of Fame Award" from Nation's Restaurant News, for his outstanding contributions to menu design and foodservice research and development; the "Entrepreneur of the Year" in the Food Services category for the Los Angeles region by Ernst & Young, for his demonstrated excellence and extraordinary success in innovation, performance and personal commitment to The Cheesecake Factory and the communities our restaurants serve; and the "Leadership Roundtable-Industry Leadership Award." Mr. Overton is also one of the founding members and directors of The Cheesecake Factory Oscar and Evelyn Overton Charitable Foundation ("Foundation"), a 501(c)(3) qualified, non-profit charitable organization that raises funds for a variety of worthy causes and provides a means for the Company's over 37,000 staff members to perform charitable work in their communities.
Alexander L. Cappello has led several public and private companies over the past 43 years, including Cappello Group, Inc. a global merchant bank affiliated with Cappello Global, LLC an investment bank, whose principals have conducted over $155 billion in transactions in over 50 countries. He is a Director of RAND Corporation's Center for Middle East Public Policy, the Center for Global Risk and Security, and the RAND Russia Forum. He is also a Director of Virco MFG Inc. (NASDAQ), Gusmer Enterprises, California Ethanol & Power, Caldera Medical and is a former Chairman of: Intelligent Energy, PLC (LSE), a global technology leader in hydrogen fuel cells, Chairman Inter-Tel (NASDAQ) and Geothermal Resources Intl. (AMEX), as well as is a former Director of Cytrx (NASDAQ), Genius Products (NASDAQ) and Koo Koo Roo, Inc (NASDAQ), International Computer Materials Corp. (NASDAQ), California Republic Bank (NASDAQ), Arcus Data Security (NASDAQ).
Jerome I. Kransdorf has more than 45 years of investment management experience. Mr. Kransdorf retired in September 2014 as President of JaK Direct, a division of Muriel Siebert & Co., Inc. where he worked from 2001 to 2014. From 1997 to 2001, Mr. Kransdorf served as Senior Vice President of J. & W. Seligman & Co. Incorporated, an investment advisory firm. From 1959 to 1997, he was employed in investment and senior management positions at Wertheim & Co. and its successor companies.
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Laurence B. Mindel has 46 years of experience as a restaurant creator, developer and operator and is currently the Managing Partner of Poggio Trattoria, an award-winning Italian restaurant and Copita Tequileria Y Comida, a "modern" Mexican restaurant, both located in Sausalito, and the soon-to-open Convivo, a "nomad Italian" restaurant in Santa Barbara, California. In 1970, he co-founded Spectrum Foods whose restaurant portfolio included, among others, California-based restaurants Ciao, Prego, MacArthur Park, Guaymas and Harry's Bar. Following the acquisition of Spectrum Foods by Saga Corp. (NYSE) in 1984, Mr. Mindel served as President of Saga's restaurant group where he directed the operations of more than 200 restaurants with combined revenue of over $375 million. When Saga was acquired in 1986, Mr. Mindel founded Il Fornaio, a restaurant and bakery company which became public in 1997 (NASDAQ) and was subsequently taken private in 2001. His professional honors include Nation's Restaurant News "Golden Chain" award, International Foodservice Manufacturers Association "Gold Plate" award, and Food Arts Magazine "Silver Spoon" award, and in 1998, he was inducted into the California Restaurant Association's Hall of Fame. In 1985, Mr. Mindel became the first American and the first person of non-Italian descent to be awarded the Caterina de Medici Medal from the Italian government, recognizing excellence in the preservation of Italian heritage outside of Italy.
David B. Pittaway is Senior Managing Director, Senior Vice President and Secretary of Castle Harlan, Inc., a private equity firm. He has been with Castle Harlan since 1987. Mr. Pittaway also has served as Vice President and Secretary of Branford Castle, Inc., an investment company, since October 1986. From 1987 to 1998, Mr. Pittaway was Vice President, Chief Financial Officer and a director of Branford Chain, Inc., a marine wholesale company, where he is now a director and Vice Chairman. Previously, Mr. Pittaway was Vice President of Strategic Planning and Assistant to the President of Donaldson, Lufkin & Jenrette, Inc., an investment banking firm. Mr. Pittaway is a member of the boards of directors of Bravo Brio Restaurant Group (BRIO) and the Dystrophic Epidermolysis Bullosa Research Association of America. He was formerly a director of Morton's Restaurant Group and McCormick & Schmick's Seafood & Steak restaurants. In addition, he is a director and co-founder of the Armed Forces Reserve Family Assistance Fund.
Douglas L. Schmick began his restaurant career over 42 years ago and developed several brands, most notably McCormick & Schmick's Seafood & Steak restaurants. Beginning with Jake's Famous Crawfish restaurant in Portland, Oregon, Mr. Schmick and his partner became leaders and innovators in the affordable, upscale seafood segment and grew the McCormick & Schmick's organization to 96 restaurants nationwide. Mr. Schmick served as Chief Executive Officer and Chairman of the Board for that company from 1974 through 1999 and again from 2007 through 2008. During those years, he guided McCormick & Schmick's through several iterations of ownership, including becoming a publicly-traded company in 2004. He then served as Chairman of the Board until the company's sale in 2012. In 2013, Mr. Schmick joined the Board of Directors of Chuy's Inc., a public company, and Anthony's Coal Fired Pizza, a private group. Mr. Schmick has received many accolades for his work in the restaurant industry, including being named the Ernst & Young Regional "Entrepreneur of the Year" in 2008.
Herbert Simon is the Chairman Emeritus of the board of Indianapolis-based Simon Property Group, Inc., a member of the S&P 500 and the largest U.S. publicly-traded real estate company, and has served on its board since 1993. Throughout his career, Mr. Simon has maintained a leadership position within the retail property industry by developing high profile retail facilities, including, but not limited to, The Forum Shops at Caesars, Roosevelt Field, and The Fashion Centre at Pentagon City. Additional diversified business interests beyond real estate include ownership of a National Basketball Association's franchise, the Indiana Pacers. Mr. Simon also served as the former Chairman of the National Basketball Association's Board of Governors and continues to serve as a member of such board. He is also active in numerous community and civic organizations.
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Except as set forth above, each nominee has been engaged in his principal occupation described above during the past five years. There are no family relationships between any of our directors or executive officers as defined under NASDAQ rules.
The Board has determined each of the following directors to be an "independent director" as defined under SEC and NASDAQ rules: Alexander L. Cappello; Jerome I. Kransdorf; Laurence B. Mindel; David B. Pittaway; Douglas L. Schmick; and Herbert Simon. In this Proxy Statement, these six directors are referred to individually as an "Independent Director" and collectively as the "Independent Directors."
Board Leadership Structure and Lead Director
Our Chief Executive Officer, David Overton, also serves as Chairman of our Board. Mr. Overton, who founded the Company along with his parents, Oscar and Evelyn Overton, was the driving force behind the creation and opening of The Cheesecake Factory restaurant concept and has served in a combined role as Chief Executive Officer and Chairman since 1992. We believe this leadership structure enables Mr. Overton to function as the critical link between the Board and the operating organization. It also streamlines communications with and among the Board on key topics such as our strategic objectives, long-term planning, and enterprise risk management.
In addition to Mr. Overton's leadership on the Board, we determined that the appointment of an independent, lead director ("Lead Director") would be appropriate in order to establish another layer of Board oversight, share certain responsibilities with, and facilitate communication between, our Chairman and our Independent Directors, and continue to follow best practices in corporate governance. To this end, the Board adopted a policy regarding the appointment of a Lead Directorone Independent Director who is selected annually by the Independent Directors. Mr. Kransdorf currently serves as Lead Director.
The role of the Lead Director is to preside at executive sessions of the Independent Directors, serve as principal liaison between the Independent Directors and the Chairman, work with the Chairman to set and approve the schedule and agenda for meetings of our Board and its committees, direct the retention of advisors and consultants who report directly to the Board, serve as liaison for consultation and communication with shareholders, oversee the annual evaluation of our Board and its committees and evaluate, in cooperation with the Compensation Committee and all members of the Board, the Chief Executive Officer's performance and meet with the Chief Executive Officer to discuss the Board's evaluation. For information on where to access this document, please see the section below entitled "Corporate Governance Principles and Guidelines; Corporate Governance Materials Available on Our Website."
Role of Board of Directors in Risk Oversight
While the Audit Committee of the Board monitors risks related to our financial statements, the Board has determined that oversight of Company-wide risk should remain with the full Board due to the strategic nature of enterprise risk management and the Board's desire to receive feedback from a broad spectrum of disciplines regarding management's plans with respect thereto. The Board meets periodically with our management to review the effectiveness of processes for identifying and managing significant risks. The Board also reviews with management the strategic objectives that may be affected by identified risks, the level of appropriate risk tolerance, our plans for monitoring, mitigating and controlling risk, the effectiveness of such plans and our disclosure of risk.
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During fiscal 2015, the Board held eleven meetings and the Independent Directors held four executive sessions without management present. Meetings include both in-person and telephonic meetings. For information regarding committee composition and number of committee meetings held during fiscal 2015, please see the section below entitled "Committees of the Board of Directors." Each of our directors attended at least 75% of the aggregate number of meetings of the Board and the committees on which he served.
Our policy regarding Board members' attendance at our annual meeting of stockholders and our procedure for annual committee membership and chair assignments are both available on our website in our Corporate Governance Guidelines. For information on where to access this document, please see the section below entitled "Corporate Governance Principles and Guidelines; Corporate Governance Materials Available on Our Website." All of our directors were present at the 2015 annual meeting.
Committees of the Board of Directors
The Board has three standing committees: the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee. Committee membership since our 2015 annual meeting of stockholders was as follows:
| | | | | | |
Board Member |
Audit Committee | Compensation Committee |
Corporate Governance and Nominating Committee |
|||
| | | | | | |
David Overton, Chairman of the Board |
- | - | - |
|||
| | | | | | |
Alexander L. Cappello |
Member* | Chair | - |
|||
| | | | | | |
Jerome I. Kransdorf, Lead Director |
- | Member | Chair | |||
| | | | | | |
Laurence B. Mindel |
- | Member | Member | |||
| | | | | | |
David B. Pittaway |
Chair* | - | - |
|||
| | | | | | |
Douglas L. Schmick |
Member* | - | - |
|||
| | | | | | |
Herbert Simon |
- | Member | Member | |||
| | | | | | |
Number of Meetings in 2015 |
10 | 11 | 2 | |||
| | | | | | |
The Board determined that each member of the committees of the Board in service for all of fiscal 2015 met the independence requirements applicable to those committees under SEC and NASDAQ rules. The Governance Committee recommends committee membership and chair assignments to the Board, which the Board considers when making committee membership and committee chair assignments at its meeting held in conjunction with each annual meeting of stockholders. Changes to committee assignments are also made from time to time during the course of the year, as deemed appropriate by the Board. The role of each committee is described below.
Audit Committee. The Audit Committee operates pursuant to a written charter and is primarily responsible for monitoring the quality and integrity of our financial statements and related disclosure, and systems of internal controls regarding risk management, finance and accounting; our compliance with legal and regulatory requirements; our independent auditor's qualifications and independence; and the performance of our internal audit function and independent auditors. The Audit Committee provides an avenue of communication among the independent auditors, management and the Board and issues the report of the Audit Committee required by the SEC to be included in our proxy statement. Our Vice President of Internal Audit reports directly to the Audit Committee and is responsible for conducting comprehensive audits of our internal financial controls and the operational effectiveness of related activities and systems.
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The Audit Committee conducts an annual performance evaluation of its composition, compliance procedures, financial oversight responsibilities and other matters. The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of our public accounting firm engaged to issue an audit report or perform other audit, review or attest services. The Audit Committee pre-approves the audit work, as well as all non-audit work, to be performed by our external auditors after considering its permissibility under SEC rules and its impact on our auditor's independence. The Audit Committee also reviews material written communications the external auditors may provide to management and discusses any concerns with the auditors and management.
We have adopted a written Code of Ethics for our directors, executive officers and senior financial officers, a copy of which is available on our website. Our Code of Ethics requires prompt reporting of potential conflicts to the Audit Committee.
Our Audit Committee also has oversight over the reclamation of any bonus awards paid to our executive officers if we were required by applicable law or applicable accounting or auditing principles to restate our financial statements to correct an accounting error in any interim or annual financial statement filed with the SEC as a result of material noncompliance with applicable financial reporting requirements and the bonus was directly based on such financial statement.
Pursuant to its charter, the Audit Committee reviews our policies and procedures relating to conflicts of interest and approves any proposed "related party transaction." For this purpose, "related party transaction" means a related person transaction required to be disclosed pursuant to Item 404 of Regulation S-K adopted by the SEC. For a discussion of our policies with respect thereto, see "Policies Regarding Review, Approval or Ratification of Transaction with Related Persons" in this Proxy Statement. The Audit Committee conducts an annual evaluation of its charter.
Compensation Committee. The Compensation Committee operates pursuant to a written charter. The Compensation Committee is responsible for determining the compensation of our chief executive officer and all other executive officers. The Compensation Committee reviews and approves all employment, retention and severance agreements for executive officers and prepares, or causes to be prepared, the report of the Compensation Committee required by the SEC to be included in our proxy statement. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation advisor retained by the Compensation Committee. The Compensation Committee also makes recommendations to the Board concerning non-employee director compensation.
The Compensation Committee approves and administers our incentive compensation programs, including our long-term equity and short-term bonus incentive plans. The Compensation Committee makes recommendations to the Board with respect to incentive and equity compensation plan structure and periodically reviews and makes recommendations concerning existing or new executive compensation, performance incentives, employee benefits, stock plans or management perquisites. The Compensation Committee authorizes and approves all grants of equity compensation to our employees under our equity compensation plan. The Compensation Committee conducts an annual evaluation of its charter.
Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee ("Governance Committee") operates pursuant to a written charter. The Governance Committee is responsible for evaluating issues and developments related to corporate governance and making recommendations to the Board with respect to corporate governance standards, corporate governance proposals from stockholders and the establishment and composition of committees of the Board. The Governance Committee is responsible for overseeing and recommending programs and activities for the continuing education of directors. The Governance Committee also identifies potential candidates for nomination or appointment as directors and makes recommendations to the Board concerning nominees to be presented for stockholder approval and to fill any vacancies. The Governance Committee assists the Chief Executive Officer in succession planning for key executive positions. The Governance Committee conducts an annual evaluation of its charter.
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Other Committees. The Board of Directors has the discretion to establish other committees and subcommittees from time to time. No additional committees or subcommittees were established or active in fiscal 2015.
Committee Charters. All of our committee charters are available on our website. For information on where to access these documents, please see the section entitled "Corporate Governance Principles and Guidelines; Corporate Governance Materials Available on Our Website."
Designation of Audit Committee Financial Experts
With the assistance of our outside legal counsel, the Board reviewed the applicable legal standards for independence and criteria for determination as to each individual who may be deemed an "audit committee financial expert," as well as responses to annual questionnaires completed by the directors, and has determined that each of David B. Pittaway, Chairman of the Audit Committee, and Audit Committee members Alexander L. Cappello and Douglas L. Schmick is an "audit committee financial expert" as such term is defined in Item 407(d)(5)(ii) of Regulation S-K adopted by the SEC.
Corporate Governance Principles and Guidelines; Corporate Governance Materials Available on Our Website
Our Board is committed to ethical business practices and believes that good corporate governance is important to ensure that the Company is managed for the long-term benefit of our stockholders. In the spirit of this commitment, the Board has adopted a "Summary of Corporate Governance Principles and Guidelines" ("Corporate Governance Guidelines") which includes, among other topics, the size and operations of our Board and its committees, independence of directors, selection and responsibilities of our Lead Director, Board membership criteria, service by our Board members on boards of other publicly traded companies, director and executive officer stock ownership guidelines, and our policy on communicating concerns to our Board. In addition, the Corporate Governance Guidelines address certain requirements for continuing education of our directors.
Our Corporate Governance Guidelines, as well as other corporate governance information listed below, are available on our website at investors.thecheesecakefactory.com, by clicking on the link for "Corporate Governance:"
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Throughout this Proxy Statement, we may refer to various documents that are available on our website. The contents posted on our website are not incorporated by reference into this Proxy Statement or any of our filings with the SEC and may be revised by us (in whole or in part) at any time and from time to time.
Stockholder Communications with the Board of Directors
Our Corporate Governance Guidelines described above include the policy our Board has adopted for stockholders and employees who wish to communicate any concern directly to the Board. Please refer to Section VI of our Corporate Governance Guidelines at investors.thecheesecakefactory.com for a description of this process.
The Board adopted "Policies and Procedures Regarding Board of Director Candidates" ("Nominations Policy"). The Nominations Policy is available on our website at investors.thecheesecakefactory.com, by clicking on the link for "Corporate Governance." The purpose of the Nominations Policy is to describe the process by which candidates are selected for possible inclusion in the Board's recommended slate of director nominees. The Governance Committee of the Board administers the Nominations Policy and is responsible for identifying candidates for nomination or appointment to the Board. To fulfill this function, the Governance Committee at least annually reviews the size and composition of the Board and its committees, including the number of directors eligible for election at the annual meeting of stockholders, in accordance with our Certificate of Incorporation and Bylaws. The Governance Committee may solicit recommendations for nominees from other directors, members of management or others. In addition, the Governance Committee will consider recommendations of a stockholder of record who timely complies with these policies and procedures.
We implemented a majority vote policy which is set forth in our Bylaws such that in order to be considered for nomination by the Board, an individual must agree that, if elected, he or she will submit an irrevocable resignation effective upon (i) the director's failure to receive a majority vote in an uncontested election at which he or she is subject to reelection, and (ii) acceptance of the resignation by the Board.
Minimum Qualifications. The Nominations Policy contains the following minimum qualifications for candidates for nomination to the Board:
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Criteria for Evaluating Candidates; Diversity. The Nominations Policy provides that, in evaluating nominations, the Governance Committee will take into consideration a balance of different capabilities and overall diversity in its broadest sense including, in the areas of personal and professional experiences, age, gender, ethnicity, geography, financial and managerial and operational knowledge; variety of opinions and perspectives; and other differentiating characteristics with the goal of seeking and selecting candidates who will enhance the Board's ability to perform its responsibilities, increase stockholder value and adhere to good corporate governance practices.
The Governance Committee will consider the following criteria in evaluating candidates for nomination in light of the size and composition of the Board and its committees:
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In addition, the Governance Committee may consider whether the nomination and election of the candidate would result in less than two-thirds of the Board being "independent directors" as defined in our policies and procedures.
Qualifications of Current Directors and Director Nominees. As described above, the Governance Committee of the Board evaluates the qualifications of our director nominees prior to each annual meeting of stockholders. As part of this evaluation process, the Governance Committee reviews the current composition of the Board and assesses whether the qualifications of each director continue to meet the Committee's requirements for Board service. The following is a description of the particular experience, qualifications, attributes and skills that led the Governance Committee to recommend, and the Board to nominate, each person listed below as a director of the Company.
David Overton has served as our Chief Executive Officer and Chairman of the Board since our incorporation in February 1992. When evaluating Mr. Overton's qualifications for continuation of his Board service, the Governance Committee and Board considered Mr. Overton's essential leadership role with us, his unique perspective and understanding of our mission, vision and values, the extent and depth of his knowledge and experience related to us and our concepts, and the importance of Mr. Overton's strategic vision.
Alexander L. Cappello has served on the Board since 2008. When evaluating Mr. Cappello's qualifications for continuation of his Board service, the Governance Committee and the Board considered Mr. Cappello's extensive executive management and financial background, international business experience, international management and marketing experience, prior service as Lead Director of our Company, service as the Chair of our Compensation Committee and member of our Audit Committee, designation by our Board as an "audit committee financial expert," former service on the boards of other public companies, including another restaurant company, and corporate governance expertise, and his current status as an "independent director" under NASDAQ and SEC rules.
Jerome I. Kransdorf has served on the Board since 1997. When evaluating Mr. Kransdorf's qualifications for continuation of his Board service, the Governance Committee and the Board considered Mr. Kransdorf's more than 45 years' of investment management experience, his depth of knowledge and experience specific to us, his current service as Lead Director, Chair of the Governance Committee and member of the Compensation Committee, his prior service on the Audit Committee, and his current status as an "independent director" under NASDAQ and SEC rules.
Laurence B. Mindel has served on the Board since 2012. When evaluating Mr. Mindel's qualifications for continuation of his Board service, the Governance Committee and the Board considered Mr. Mindel's more than 45 years' experience in the restaurant industry, both as a concept creator and an operator, his experience guiding a publicly-traded restaurant company, his prior service as a member of the Compensation Committee and his current status as an "independent director" under NASDAQ and SEC rules.
15
David B. Pittaway has served on the Board since 2009. When evaluating Mr. Pittaway's qualifications for continuation of his Board service, the Governance Committee and the Board considered his extensive financial and industry experience, including his service on audit committees of other public restaurant companies, his legal background and familiarity with SEC rules and regulations related to public companies, his service as a member (and now Chairman) of our Audit Committee and his designation by our Board as an "audit committee financial expert" and his current status as an "independent director" under NASDAQ and SEC rules.
Douglas L. Schmick has served on the Board since 2012. When evaluating Mr. Schmick's qualifications for continuation of his Board service, the Governance Committee and the Board considered Mr. Schmick's more than 40 years in the restaurant industry, both as a concept co-creator and operator, his experience guiding a publicly-traded restaurant company, his prior service as a member of the Audit Committee, his designation by our Board as an "audit committee financial expert" and his current status as an "independent director" under NASDAQ and SEC rules.
Herbert Simon has served on the Board since June 2011. When evaluating Mr. Simon's qualifications for continuation of his Board service, the Governance Committee and the Board considered Mr. Simon's considerable domestic and international commercial real estate experience, including his tenure with Simon Property Group, a publicly-held real estate investment trust of which he is Chairman Emeritus and a member of the board of directors, his service as a member of the Compensation Committee, and his current status as an "independent director" under NASDAQ and SEC rules.
Stockholder Recommendations to the Governance Committee for Nomination of Directors. The Nominations Policy provides that the Governance Committee will consider recommendations for nominations submitted by stockholders of record. In order to give the Governance Committee sufficient time to evaluate a recommended candidate, the recommendation must be received by our Secretary at our principal executive offices no later than the 120th calendar day before the date that our proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders. With respect to the 2017 annual meeting of stockholders, recommendations must be received on or before December 28, 2016. The stockholder's recommendation must include all of the following:
Evaluation of Candidates. All qualified candidates identified through the process outlined above, including incumbents, will be evaluated based on the same criteria. If, based on the initial evaluation, a new candidate continues to be of interest, the Chair of the Governance Committee will interview the candidate and communicate his or her evaluation to the other committee members and the Chairman of the Board. Other members of the Governance Committee and senior management will conduct subsequent interviews. Ultimately, background and reference checks will be conducted, and the Governance Committee will meet to finalize its list of recommended candidates for consideration by the full Board. If an incumbent is nominated, the interview process may be abbreviated at the discretion of the Chair of the Governance Committee. If the Chair of the Governance Committee is being considered for re-nomination, the other Governance Committee members may appoint another member of the Governance Committee to head the review process for the Chair's reconsideration.
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Future Revisions to the Nominations Policy. The Governance Committee's Nominations Policy is intended to provide a flexible set of guidelines for the effective functioning of the director nomination process. The Governance Committee intends to review this policy and procedure at least annually and anticipates that modifications will be necessary from time to time as our needs and circumstances evolve, and to conform with changes in applicable legal or listing standards.
General Nomination Right of All Stockholders. Stockholders may nominate one or more persons for election as a director of the Company at an annual meeting of stockholders if the stockholder complies with the advance notice, information and consent provisions contained in our Bylaws. Stockholder nominations for the election of directors may be made only by a stockholder of record on both the date of giving notice and on the record date for such meeting by giving timely written notice to our Secretary at our principal executive offices. Such notice must be received no less than 90 days or more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders. If notice or prior public disclosure of the date of the annual meeting is given or made to the stockholders for a meeting date that is not within 30 days before or after the anniversary of the immediately preceding annual meeting of stockholders, notice by the stockholder will be timely if received not later than the close of business on the tenth day following the day on which such notice was mailed or such public disclosure was made, whichever is first, or no less than 90 days or more than 120 days prior to the annual meeting. For further information on the timely nomination of a person for election as a director of the Company at the 2017 annual meeting of stockholders, see "Stockholder Proposals for the 2017 Annual Meeting of Stockholders."
In the event that we increase the number of directors to be elected and we make no public announcement, at least 100 days prior to the first anniversary of the preceding year's annual meeting, in which we name all of the nominees for director or specify the size of the increased Board of Directors, a stockholder's notice will be considered timely, but only with respect to nominees for any new positions created by the increase, if the notice is delivered to, or mailed and received at, our principal executive offices (addressed to our Secretary) no less than ten calendar days following the day on which we make the public announcement. In the case of a special meeting of stockholders called for the purpose of electing directors, notice will be timely if the stockholder provides written notice to our Secretary not later than the close of business on the tenth day following the day on which notice of the date of the special meeting was mailed or public disclosure of the meeting date was made, whichever first occurs, or no less than 90 or more than 120 days prior to the meeting. The stockholder's notice must include all of the information required by our Bylaws. If the stockholder provides a statement that the stockholder intends to deliver a proxy statement and form of proxy, the nomination may not be brought before the meeting unless the stockholder has delivered a proxy statement and form of proxy to holders of a percentage of our voting shares reasonably believed by the stockholder to be sufficient to elect the nominee or nominees proposed by the stockholder.
The foregoing summary is not a complete description of the provisions of our Bylaws pertaining to stockholder nominations and proxies. Stockholders may obtain, without charge, a copy of our Bylaws upon written request to our Secretary at our principal executive offices. Our Bylaws are also available on our website at investors.thecheesecakefactory.com, by clicking on the link for "Corporate Governance."
Compensation Committee Interlocks and Insider Participation
During fiscal 2015, Messrs. Cappello, Kransdorf, Mindel and Simon served on the Compensation Committee, with Mr. Cappello serving as Chair. During fiscal 2015, no member of the Compensation Committee was an officer or employee of ours, a former officer of ours or of our subsidiaries or had a relationship requiring disclosure by us under Item 407(e) of Regulation S-K. None of our executive officers served on the board of directors or compensation committee of any other entity that has or has had one or more executive officers who served as a member of our Board or the Compensation Committee during fiscal 2015.
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Board of Directors Compensation
The following table sets forth information regarding the cash compensation arrangements for Independent Directors who served on our Board in fiscal 2015. Any member of the Board who is not an Independent Director does not receive fees for service on the Board or its committees.
| | | | |
Board of Directors Fees(1) |
Fiscal 2015 |
|||
---|---|---|---|---|
| | | | |
Annual cash retainer |
$ | 75,000 | ||
| | | | |
Annual cash payment in lieu of equity grant in 2015(2) |
$ | 95,000 | ||
| | | | |
Lead Director annual fee |
$ | 20,000 | ||
| | | | |
Audit Committee Chair annual fee |
$ | 15,000 | ||
| | | | |
Compensation Committee Chair annual fee |
$ | 10,000 | ||
| | | | |
Governance Committee Chair annual fee |
$ | 7,500 | ||
| | | | |
In order to continue to assure that the interests of our Independent Directors are aligned with the long-term interests of our stockholders, we adopted "Director Stock Ownership Guidelines" which requires our non-employee directors to acquire and thereafter maintain ownership of shares of our Company's common stock equal in fair market value to three times their annual cash retainer. For a full description of our stock ownership policy, please see "Director and Executive Stock Ownership Guidelines, Holding Periods and Other Requirements" below.
On February 11, 2016, the Board of Directors approved a recommendation from the Compensation Committee and its independent compensation consultant, Farient Advisors LLC ("Farient Advisors"), to increase the annual cash payment in lieu of equity by $10,000 to $105,000, the Lead Director's annual fee by $5,000 to $25,000, and the Compensation Committee Chair annual fee by $2,500 to $12,500, effective as of the first day of the 2016 fiscal year.
The following table sets forth certain information regarding the compensation earned by each Independent Director who served on our Board in fiscal 2015. Mr. Overton, as an employee of the Company, is not an Independent Director and is not compensated for his services on the Board.
DIRECTOR COMPENSATION FOR FISCAL 2015
| | | | |
Name |
Total Fees Earned or Paid in Cash |
|||
---|---|---|---|---|
| | | | |
Alexander L. Cappello |
$ | 180,000 | ||
| | | | |
Jerome I. Kransdorf(1) |
$ | 197,500 | ||
| | | | |
Laurence B. Mindel |
$ | 170,000 | ||
| | | | |
David B. Pittaway |
$ | 185,000 | ||
| | | | |
Douglas L. Schmick |
$ | 170,000 | ||
| | | | |
Herbert Simon |
$ | 170,000 | ||
| | | | |
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As of December 29, 2015, the end of our 2015 fiscal year, Mr. Kransdorf held options to purchase 20,014 shares of our common stock under our Non-Employee Director Stock Plan, which expired in May 2007. All outstanding options are fully vested. Messrs. Cappello, Mindel, Pittaway, Schmick and Simon have not been granted equity in connection with their Board service.
Director Eligibility for Participation in the Executive Savings Plan. Members of the Board are eligible to participate in our Executive Savings Plan, a nonqualified deferred contribution plan, by contributing all or a portion of their director fees to this plan. We do not match contributions made by non-employee members of the Board to the Executive Savings Plan. Additional information regarding the Executive Savings Plan appears in the section of this Proxy Statement entitled Nonqualified Deferred Compensation.
Reimbursement of Expenses and Other Perquisites. Each Independent Director is entitled to reimbursement for reasonable out-of-pocket expenses incurred in connection with travel to and from, and attendance at, meetings of the Board or its committees and related activities, including director education courses and materials. Independent Directors also receive dining privileges at our restaurants.
Indemnification of Officers and Directors
As permitted by the Delaware General Corporation Law, our Certificate of Incorporation limits the personal liability of our directors for monetary damages for breach of fiduciary duty of care as a director. Liability is not eliminated for (a) any breach of the director's duty of loyalty to us or our stockholders, (b) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) unlawful payment of dividends or stock purchases or redemptions pursuant to Section 174 of the Delaware General Corporation Law, and/or (d) any transaction from which the director derived an improper personal benefit. Our Certificate of Incorporation also provides that we shall indemnify and advance indemnification expenses on behalf of all directors and officers of ours to the fullest extent permitted by Delaware law. Article VIII of our Bylaws also requires us, subject to certain limitations, to indemnify directors and officers and advance expenses. The indemnification and advancement of expenses provisions of Article VIII are not exclusive of any other rights of indemnification of advancement of expenses.
We also entered into indemnification agreements with all of our directors and Named Executive Officers. Each indemnification agreement requires us to indemnify and hold harmless the director or Named Executive Officer to the fullest extent authorized by the laws of the State of Delaware. Each indemnification agreement also requires us, subject to specific terms and conditions, to advance expenses to the director or officer. Each indemnification agreement also sets forth various procedures and definitions with respect to indemnification and advancement of expenses. We also are obligated to maintain directors' and officers' liability insurance. With specified exceptions, we are not obligated to provide indemnification or advance expenses with respect to actions initiated by the director or officer or to indemnify the director or officer in connection with proceedings by us to enforce non-compete or non-disclosure agreements or our Clawback Policy. To the extent the provisions of the indemnification agreements exceed the indemnification permitted by applicable law, such provisions may be unenforceable or may be limited to the extent they are found by a court of competent jurisdiction to be contrary to public policy.
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Director and Executive Officer Stock Ownership Guidelines, Holding Periods and Other Requirements
Stock Ownership Guidelines for Directors. The Board adopted stock ownership guidelines for non-employee directors in order to further align the interests of our directors with the long-term interests of our stockholders. The guidelines, provide that, on or before December 31, 2013, all non-employee directors who were members of the Board at the time of adoption of the guidelines were required to acquire (and thereafter maintain ownership of) a minimum number of shares of our common stock with a fair market value equal to three times the annual base cash retainer for non-employee directors (the product of such amount being $225,000, based upon the current annual cash retainer of $75,000). In addition, within three years of their respective appointments, all non-employee director appointed after adoption of the guidelines are required to acquire (and thereafter maintain ownership of) a minimum number of shares of our common stock with a fair market value equal to three times the annual base cash retainer payable to the non-employee directors (currently $225,000). For purposes of this policy, stock ownership includes any shares owned by a director or his or her immediate family members or held by him or her as part of a tax or estate plan in which the director retains beneficial ownership. The value of shares held is calculated once per year, on the first day of the fiscal year. For purposes of determining compliance with the policy, "value" means an assumed per-share value based on the average of the closing price of our common stock on the last day of each of the previous four fiscal quarters. A director is not required to acquire shares of our common stock in accordance with the stock ownership guidelines if the purchase would result in a violation of our Special Trading Policy and Procedures and the addendum thereto. In such a scenario, the director is required to comply with the stock ownership guidelines as soon as reasonably feasible thereafter.
All of our non-employee directors are in compliance with our non-employee director stock ownership policy as of the first day of our current fiscal year.
Stock Ownership Guidelines for Executive Officers. In fiscal 2010, the Board adopted stock ownership guidelines for certain of our executive officers, including all current Named Executive Officers, in order to align the interests of our key executives with the long-term interests of our stockholders. The ownership guidelines provide that, on or before December 31, 2015, all executives who, at the time of adoption of the guidelines, held the positions with the Company listed below are required to acquire (and thereafter maintain ownership of) a minimum number of shares of the Company's common stock with a value equal to the multiple of such executive's annual base salary (excluding bonus), as follows:
| | |
Position with Company |
Multiple of Salary |
|
---|---|---|
| | |
Chief Executive Officer of the Company |
6 times annual base salary | |
| | |
President of the Company or of our wholly owned subsidiaries, The Cheesecake Factory Restaurants, Inc. or The Cheesecake Factory Bakery Incorporated |
2 times annual base salary | |
| | |
Executive Vice President of the Company |
2 times annual base salary | |
| | |
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In addition, within five years of the appointment of any officer appointed after the time of adoption of the guidelines, in the positions designated above (other than a newly-appointed Chief Executive Officer, who has seven years to comply), the newly appointed executive is required to acquire (and thereafter maintain ownership of) shares of our common stock with the value set forth above. For purposes of this policy, stock ownership includes (i) any shares owned by an executive or his or her immediate family members or held by him or her as part of a tax or estate plan in which the executive retains beneficial ownership, and (ii) unvested restricted stock or restricted stock units. The value of shares held is calculated once per year, on the first day of the fiscal year. For purposes of determining compliance with the policy, "value" means an assumed per-share value based on the average of the closing price of our common stock on the last day of each of the previous four fiscal quarters. An executive subject to this policy is not required to acquire shares of our common stock in accordance with the stock ownership guidelines if acquisition at such time would result in a violation of our Special Trading Policy and Procedures and the addendum thereto, in which event the executive is required to comply with the guidelines as soon as reasonably feasible thereafter. Certain hardship exceptions are available at the discretion of the Compensation Committee, but no exceptions have been solicited or granted to date.
All of our Named Executive Officers are in compliance with our executive stock ownership policy as of the first day of our current fiscal year.
Members of our Board and our officers and staff members are prohibited from trading in any interest or position relating to the future price of our securities, such as a put, call or short sale, or using our stock as collateral for margin loans.
Policies Regarding Review, Approval or Ratification of Transactions with Related Persons
In accordance with its charter, our Audit Committee reviews and approves any proposed transactions with a "related person." Any related person transaction will be disclosed in the applicable filing as required by rules. For purposes of these procedures, "related person" and "transaction" have the meanings as defined in Item 404 of Regulation S-K. We had no reportable transactions with related persons required to be disclosed under Item 404 of Regulation S-K since the beginning of fiscal 2015.
Certain information included in this Proxy Statement, including the section entitled "Compensation Discussion and Analysis" set forth below, and other materials filed or to be filed by us with the SEC, as well as information included in oral or written statements made by us or on our behalf, may contain forward-looking statements about our current and presently expected performance trends, growth plans, business goals and other matters. These statements may be contained in our filings with the SEC, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. Words or phrases such as "believe," "plan," "will likely result," "expect," "intend," "will continue," "is anticipated," "estimate," "project," "may," "could," "would," "should" and similar expressions are intended to identify forward-looking statements. These statements, and any other statements that are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Acts"), and are based on our current expectations and involve risks and uncertainties which may cause results to differ materially from those set forth in such statements.
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In connection with the "safe harbor" provisions of the Acts, we have identified and are disclosing important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forward-looking statements made by us, or on our behalf (See Item 1ARisk Factors of our Annual Report on Form 10-K for the fiscal year ended December 29, 2015, and our quarterly reports on Form 10-Q and current reports on Form 8-K, as filed with the SEC.) These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward- looking statement or contained in any of our subsequent filings with the SEC. Because of these factors, risks and uncertainties, we caution against placing undue reliance on forward-looking statements. Although we believe that the assumptions underlying forward-looking statements are reasonable, any of the assumptions could be incorrect or incomplete, and there can be no assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. Except as may be required by law, we do not undertake any obligation to modify or revise any forward-looking statement to take into account or otherwise reflect subsequent events, corrections in underlying assumptions or changes in circumstances arising after the date that the forward-looking statement was made.
Compensation Discussion and Analysis
This "Compensation Discussion and Analysis" explains our strategy, design of, and decision-making related to our compensation programs and practices for our principal executive officer, our principal financial officer and our three other most highly compensated executive officers (collectively, "Named Executive Officers"). This "Compensation Discussion and Analysis" also explains how the compensation of our Named Executive Officers aligns with the interests of our stockholders, and is intended to provide perspective on the compensation information contained in the tables that follow this discussion.
For fiscal 2015, our Named Executive Officers were:
While the principal purpose of this "Compensation Discussion and Analysis" is to review Named Executive Officer compensation, many of the programs discussed apply to other members of senior management who, combined with the Named Executive Officers, are collectively referred to herein as "executives."
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2015 "Say-on-Pay" Advisory Vote on Executive Compensation and Changes to Executive Compensation Program. We have provided stockholders a "say-on-say" advisory vote regarding our Named Executive Officers' compensation for several years, and we intend to continue to provide stockholders with a "say-on-say" advisory vote on an annual basis. Historically, our stockholders have indicated their strong support for our executive compensation programs. However, our stockholders' approval of the "say-on-say" advisory vote declined from 93% in 2014 to 79% in 2015. In response to this decline, we held discussions with many of our stockholders concerning their vote, and the Compensation Committee reviewed proxy advisor companies' (Institutional Shareholder Services Inc. and Glass, Lewis & Co.) analyses of our executive compensation practices. Based upon such review, it was determined that we should include more rigorous long-term goals in our long-term incentive plan in addition to time-based vesting, among other revisions, and, accordingly, we made the following adjustments to the Company's compensation programs and strategies:
| | |
2015 |
2016 |
|
---|---|---|
| | |
50%-60% nonqualified stock options vesting ratably over five years |
One-third nonqualified stock options vesting ratably over five years | |
| | |
40%-50% restricted shares with 2 or 3 year earnings per share ("EPS") performance vesting requirement, plus an additional 2 to 3 year time vesting requirement (total of 5 year vesting) |
One-third restricted stock units with 2 or 3 year EBITDA(1) performance vesting requirement, plus an additional 2 to 3 year time vesting requirement (total of 5 year vesting) | |
| | |
No restricted stock units granted |
One-third restricted stock units with 3 year EPS performance vesting requirement, plus an additional 2 year time vesting requirement (total of 5 year vesting) | |
| | |
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With these changes, the Company seeks to ensure that its executive compensation program is aligned with stockholder interests, as described in the summary below:
| | |
What We Do |
What We Don't Do |
|
---|---|---|
| | |
Tie a significant portion of executive compensation to stockholder value creation, as well as Company and individual performance |
Gross-up excise taxes that may be imposed in connection with a change in control | |
| | |
Emphasize long-term equity awards in executive pay mix |
Pay dividend equivalents on unearned, restricted shares or stock units | |
| | |
Apply stock ownership guidelines to align executives' interests with stockholder interests |
Provide perquisites to Named Executive Officers that are not available to other senior management generally | |
| | |
Apply clawback provisions to both our annual incentive program and equity program, when warranted |
Provide automatic acceleration of equity awards upon retirement | |
| | |
Neutralize the impact of dilution from employee equity grants with a share repurchase program |
Permit short sales and transactions in derivatives of Company securities, including hedging transactions | |
| | |
Conduct annual stockholder say-on-pay vote |
Provide automatic "single trigger" acceleration of equity or other benefits in the event of a change in control | |
| | |
2015 Key Pay Decisions. The following summarizes our key pay decisions for fiscal 2015:
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Fiscal 2015 Business Summary. Despite lower than expected guest traffic and wage pressures in fiscal 2015, we accomplished many important financial, strategic and operational objectives in fiscal 2015, including:
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The following table provides additional information related to our fiscal 2015 performance as compared to fiscal 2014.
| | | | | | | | |||||||||
|
| Fiscal 2015 |
| Fiscal 2014 |
| |
| |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
| (in thousands, except percentage and per share amounts) |
| Change % |
| |||||||||||
| | | | | | | | |||||||||
Revenues | | | $ | 2,100,609 | | | | $ | 1,976,624 | | | | 6.3 | | | |
The Cheesecake Factory comparable restaurant sales | | | 2.6 | % | | | 1.5 | % | | | 73.3 | | | |||
Income from operations | | | $ | 165,246 | | | | $ | 144,731 | | | | 14.2 | | | |
Diluted net income per share | | | $ | 2.30 | | | | $ | 1.96 | | | | 17.3 | | | |
Operating margin | | | 7.9 | % | | | 7.3 | % | | | 8.2 | | | |||
Adjusted income from operations(1) | | | $ | 171,257 | | | | $ | 145,427 | | | | 17.8 | | | |
Adjusted diluted net income per share(1) | | | $ | 2.37 | | | | $ | 1.97 | | | | 20.3 | | | |
Adjusted operating margin(1) | | | 8.2 | % | | | 7.4 | % | | | 10.8 | | | |||
Stock price per share as of fiscal year-end | | | $ | 46.83 | | | | $ | 50.55 | | | | (7.4 | ) | | |
| | | | | | | |
Following is a reconciliation of income from operations, net income and diluted net income per share to the corresponding adjusted measures (in thousands, except per share data):
|
2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
Income from operations |
$ | 165,246 | $ | 144,731 | |||
Pre-tax impact from: |
|||||||
Impairment of assets and lease terminations(1) |
| 6,011 | | 696 | |||
| | | | | | | |
Adjusted income from operations |
$ | 171,257 | $ | 145,427 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income |
$ | 116,523 | $ | 101,276 | |||
After-tax impact from: |
|||||||
Impairment of assets and lease terminations(1) |
| 3,607 | | 418 | |||
| | | | | | | |
Adjusted net income |
$ | 120,130 | $ | 101,694 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted net income per share |
$ | 2.30 | $ | 1.96 | |||
After-tax impact from: |
|||||||
Impairment of assets and lease terminations |
| 0.07 | | 0.01 | |||
| | | | | | | |
Adjusted diluted net income per share |
$ | 2.37 | $ | 1.97 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
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Overview of Compensation Program
Compensation Philosophy. In order to maintain a leadership position in our industry and to continue growing our concepts, both domestically and internationally, we need to attract and retain highly motivated executives who bring experience, innovation and operational excellence to our Company. With this in mind, our compensation philosophy centers on:
Elements of Compensation Program. During fiscal 2015, our executive compensation and benefits consisted of the components listed in the table below, which provides a brief description of the principal types of compensation, how performance is factored into each type of compensation, and the primary objectives served by each element.
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Fiscal 2015 Principal Elements of Executive Compensation
| | | | | | |
Element |
Description |
Performance Considerations |
Primary Objectives |
|||
---|---|---|---|---|---|---|
| | | | | | |
Base Salary | Fixed cash payment |
Based on level of responsibility, experience, tenure in role, individual performance, and expected future value/contribution |
Attract and retain talent Provide competitive compensation Recognize career experience Reward individual performance |
|||
| | | | | | |
Annual Performance Incentive Plan | Performance-based annual cash incentive, tied to achieving a stockholder approved financial goal and other annually selected strategic goals |
Amount of bonus tied to certified level of achievement of objectives as well as management position, measured as a percentage of base salary Satisfaction of a stockholder approved performance criteria required for any pay out |
Promote and reward high performance Motivate achievement of Company and divisional annual financial and strategic objectives |
|||
| | | | | | |
Long-term Stock Incentive Plan | Nonqualified stock options, generally vesting ratably over five years Restricted shares and stock units with performance goal, generally vesting over three to five years, if performance goal is achieved |
Value of award directly linked to long-term stock price performance Named Executive Officers' restricted share/unit grants include stockholder approved performance criteria as a vesting condition |
Align executive interests with stockholder interests Attract and retain talent Reward individual performance |
|||
| | | | | | |
Retirement and Welfare Benefits | Medical, dental, vision, life insurance and long-term disability insurance Non-qualified deferred compensation plan Defined benefit retirement agreement (for Chief Executive Officer only) |
Not applicable |
Attract and retain talent Provide competitive compensation Provide reasonable security to allow executives to perform at their best level |
|||
| | | | | | |
Executive Perquisites | Company-leased vehicle or car allowance Semi-annual health physical for executives at Senior Vice Presidents level and above Relocation benefits on a case-by-case basis Vacation and Sabbatical leave program |
Not applicable |
Attract and retain talent Provide competitive compensation Promote health and wellbeing of senior executives (executive physical perquisite, vacation and sabbatical leave program only) |
|||
| | | | | | |
Factors Considered in Making Compensation Decisions. Our compensation strategy is flexible and enables us to appropriately differentiate and reward executives by taking into account:
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All of the factors set forth above are considered by the Compensation Committee in establishing Named Executive Officer compensation, in a subjective manner, without any specific formula. For additional information regarding elements of compensation, please refer to the graphs below entitled "CEO Target Pay" and "Other NEO Target Pay" as well as the section below, entitled "Principal Elements of Compensation."
We believe in driving high performance by tying compensation to our financial, operating, and strategic goals and results, and by providing appropriate rewards. The Compensation Committee considers our competitive environment and historical financial performance when establishing performance targets for the next fiscal year. The Compensation Committee adjusts base salary and performance incentive compensation to reward Named Executive Officers when our financial and strategic objectives are accomplished and may withhold or limit salary increases and disapprove or reduce performance incentive compensation when we fail to fully accomplish our goals and drive results.
Consistent with our belief in pay for performance, we design our executive compensation program, and particularly the compensation of our Chief Executive Officer, to reflect the Company's performance and our stock performance over time. For example, for fiscal year 2015, Mr. Overton received 110% of his target bonus as a result of the Company achieving in excess of 102% of its targeted consolidated operating income objective as well as 100% of its strategic objectives. For fiscal year 2014, while we achieved 100% of our strategic objectives, we did not achieve our Company-wide targeted consolidated operating income objective and, thus, Mr. Overton received only 25% of his target bonus. (See "Fiscal 2014 Performance Objective Achievement" below.) With respect to long-term incentives (targeted for fiscal 2015 at approximately 63% for our Chief Executive Officer's total target compensation), the potential gains that could be realized from option exercises and restricted share and unit vesting are directly impacted by our continued ability to drive even better financial performance in the future, resulting in increased share price. In addition, long term incentives, including stock units and restricted shares granted to our other Named Executive Officers in 2015 and 2016 also included stockholder approved performance criteria as a condition for vesting.
Starting in 2016, the Compensation Committee added a three-year performance target based upon growing EPS and a two-year or three-year performance target, based upon achieving a specified EBITDA, as performance conditions to vesting two-thirds, cumulatively, of the equity we granted under our long-term incentive program. Significant research was conducted to select the correct performance metric, appropriate goal levels, and amount of awards. See "Equity-Based Compensation" below for a full discussion of our equity awards.
In order to assess whether or not compensation strategies are rewarding high performance, the Compensation Committee looks at different analytical assessments, including an alignment methodology performed by Farient Advisors, which assesses the relationship between our Named Executive Officers' compensation and the Company's long-term performance. In addition to conducting quantitative analyses commonly relied upon by independent proxy governance organizations to test the alignment of our Chief Executive Officer's pay and performance, Farient Advisors also used its proprietary pay for performance alignment model to test the alignment of our Chief Executive Officer's average annualized performance-adjusted compensation ("PAC") (including salary, actual bonus, and the performance-adjusted value of long-term incentives) and performance, as indicated by total stockholder return ("TSR", defined as stock
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price appreciation plus dividends, as if those dividends had been reinvested in the Company's stock, over time). In doing so, Farient Advisors compared our Chief Executive Officer's average annualized PAC over successive three-year rolling periods (beginning with the three-year period from January 1, 2003 to December 31, 2005 and ending with the three-year period from January 1, 2013 to December 31, 2015) to our compound annual TSR for the same three-year rolling periods and tested the results against the companies in our executive compensation peer group identified in the section entitled "Market Positioning, Comparison Group for Fiscal 2015" (excluding Chipotle Mexican Grill, Inc. due to its pay practices being substantially different than that of the other peer group companies). As indicated by the chart below, Farient Advisors' analysis of the Company's pay for performance shows that our Chief Executive Officer's pay historically has been and continues to be strongly aligned with the Company's performance and, accordingly, our stockholders' interests. This is indicated by the fact that our Chief Executive Officer's annualized PAC has trended with the Company's performance over time. Specifically, when our TSR is higher, our Chief Executive Officer's PAC is higher, and conversely, when our TSR is lower, our Chief Executive Officer's PAC is lower. In addition, Farient Advisors' analysis indicated that our Chief Executive Officer's average annual PAC, considering the Company's size and performance, has been and continues to be reasonable. Farient Advisors considers PAC to be reasonable for companies that generally pay chief executive officers on a performance-adjusted basis, below the upper boundary of a competitive pay range that Farient Advisors deems to be acceptable based on a company's size, peer group pay practices, and performance. See "Market Positioning-Executive Compensation Peer Group" for a description of our executive compensation peer group and how it was selected.
Additionally, Farient Advisors concluded that we achieved compensation alignment for our Chief Executive Officer through our:
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The Cheesecake Factory CEO Total PACTM
vs. ISS Peer Group(1)
Pay for Performance Alignment
Over 3 Year Period Ending in Year Shown
Pay Mix. A significant portion of our Named Executive Officers' compensation is at risk through short and long-term incentive programs. We do not use specific percentages to allocate between cash and non-cash compensation and short-term versus long-term compensation; however, we believe a significant portion of our Named Executive Officers' pay should be performance-based. For fiscal 2015, 63% of our Named Executive Officers,' other than our Chief Executive Officer, compensation is performance-based. Mr. Overton had and continues to have a proportionately greater percentage (82%) of performance-based compensation as compared to other Named Executive Officers because we believe he has a greater ability to influence both short-term and long-term performance of the Company.
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The following charts show each element of our compensation as a percentage of the target total compensation for our Chief Executive Officer and other Named Executive Officers for fiscal years 2015, 2014 and 2013.
Performance-based pay remains a significant portion of total compensation for our Chief Executive Officer and our other Named Executive Officers, which aligns our executive compensation programs with the interests of our stockholders. This alignment is strengthened further by:
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Market Positioning
Our Compensation Committee, in collaboration with our Chief Executive Officer and Senior Vice President of Human Resources, reviews market data related to pay practices among comparable companies, but does not target specific market positioning of pay when determining compensation for individual Named Executive Officers. Rather, the Compensation Committee uses comparative market data as one of several factors when making individual compensation decisions.
As part of its compensation review process for fiscal 2015, the Compensation Committee reviewed an analysis prepared by Farient Advisors of market pay practices for positions similar to the positions of our Named Executive Officers and other key executives, adjusted to take into account differences, if any, between the scope of our Named Executives Officers' responsibilities compared to their counterparts in positions with similar titles in comparable companies. This analysis used pay comparisons from comparable companies in the restaurant and hotel industry as compiled from their proxy disclosures and other SEC filings as well as two recognized market survey sources, the Mercer Executive Survey and the Chain Restaurant Total Rewards Association (CRTRA) Survey. For the Chief Executive Officer and the Chief Financial Officer, size-adjusted data from the comparable companies listed below was weighted at 50% and the surveys were weighted at 25% each for purposes of determining market pay positions in such analysis. Farient Advisors determined, due to the additional responsibilities assumed by our other Named Executive Officers as compared to their title counterparts at other comparable companies, that there was not sufficient comparable representation in the proxy data, and thus the surveys were weighted at 50% each in such analysis.
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Comparison Groups. When we compare ourselves to other companies, we must account for differences between us and others in terms of ownership structure, dining industry segment, size and complexity of operations, sourcing pool for executive talent, and other differentiators. We use two different peer groups for purposes of comparison depending upon what matter is being compared. The first comparison group, which we refer to as the "2015 Financial Peer Group" (described below), is used to determine appropriate objectives for our Performance Incentive Plan (see "Fiscal 2015 Performance Incentive Plan Design"). We use this group because their business model, dining industry segment, and operational structure most closely compares with ours. We use the second peer group, which we refer to as the "executive compensation peer group," for executive compensation comparisons and compensation program design comparisons, as we believe this group reflects companies most similar in size and complexity of operations and with which we compete for executive talent.
2015 Financial Peer Group. The peer group against which the Compensation Committee compared us for fiscal 2015 (the "2015 Financial Peer Group") is comprised of the following restaurant companies:
| | | | | | | | |
| BJ's Restaurants | Darden Restaurants | Texas Roadhouse, Inc. | |||||
| | | | | | | | |
Bloomin' Brands Inc. | Ignite Restaurant Group | |||||||
| | | | | | | | |
| Bravo Brio Restaurant Group | Ruby Tuesday | | |||||
| | | | | | | | |
In order to be in the 2015 Financial Peer Group, each company had to remain publicly traded with units that are at least 75% company-operated. The potential peer group is evaluated by the Compensation Committee on an annual basis. First, all publicly traded, full service restaurants were reviewed for potential inclusion as peers. Next, the group was further segmented into casual dining (including bar and grill) and upscale casual dining, but excluding companies with revenue of less than $250 million. Finally, the Compensation Committee focused on company owned concepts (in which less than 25% of the store units are franchised). Texas Roadhouse, Inc. was added for fiscal 2015 because their franchise structure changed so as to meet our criteria. The Compensation Committee believes the 2015 Financial Peer Group is a sufficiently large sample and was the most representative competitive set for which data is regularly available.
2015 Executive Compensation Peer Group. The Compensation Committee reviewed the composition of our executive compensation peer group to ascertain whether the group of companies we use as part of our compensation analyses adequately represented those companies that are similar to us in size and complexity of operations and with whom we compete for executive talent. The companies against which we compared ourselves for Named Executive Officers' compensation decisions made for fiscal 2015 were comprised of the following companies that (i) had revenue between $600 million and $5.5 billion (approximately 0.3 times to 2.5 times our revenue), and (ii) in the aggregate, had an overall median revenue of $1.9 billion, which was approximately equal to our revenue:
| | | | | | | | |
| BJ's Restaurants | Chipotle Mexican Grill | Red Robin Gourmet Burgers | |||||
| | | | | | | | |
Bloomin' Brands Inc. | Darden Restaurants(1) | Ruby Tuesday | ||||||
| | | | | | | | |
| Bob Evans Farms | DineEquity | Texas Roadhouse | |||||
| | | | | | | | |
Brinker International | Hyatt Hotels Corp. | Wyndham Worldwide Corp. | ||||||
| | | | | | | | |
| Buffalo Wild Wings | Ignite Restaurant Group | | |||||
| | | | | | | | |
Cracker Barrel Group | Panera Bread Company | |||||||
| | | | | | | | |
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Due to the size differences among these companies and us, Farient Advisors used regression analyses to size-adjust the results and corroborated the findings with data from our survey sources.
While this comparison group provides the Compensation Committee with an important general frame of reference, the Compensation Committee does not target our Named Executive Officers' compensation at any specific percentile or within a specific range of the executive compensation peer group's pay levels. Based upon its review of the size-adjusted competitive market data for the companies set forth above and the Company's stock price assumptions applicable during the period in which compensation levels were being reviewed, the Compensation Committee determined the appropriate total direct compensation (which includes base salary, short-term incentive bonus, and long-term incentives) for fiscal 2015. For our Chief Executive Officer, a significant shift in the compensation of this peer group from the time at which we set our executives' compensation for fiscal 2015 resulted in our Chief Executive Officer being positioned at approximately the 75th percentile compared to our executive compensation peer group, even with the Compensation Committee granting no increase to his compensation for fiscal 2015. For our other Named Executive Officers as a group, the data resulted in them being positioned at approximately the 50th percentile compared to our executive compensation peer group.
2016 Executive Compensation Peer Group. In the last quarter of fiscal 2015, the Compensation Committee again reviewed the composition of our executive compensation peer group for compensation decisions to be made for fiscal 2016. No changes were made to the executive compensation peer group as the underlying financial assumptions remained relatively stable year over year.
For fiscal 2016, the Compensation Committee reviewed the competitive pay data presented by Farient Advisors, which indicated that executive pay generally remained flat to modest with increases of approximately three percent (3%) overall, and agreed that considering the pay positioning of our executive compensation peer group, increases in the range of 3% were appropriate, excluding our Chief Executive Officer. These increases (described in greater detail below) position our Named Executive Officers' total direct compensation at between the 50th and 75th percentile of the executive compensation peer group's pay levels. For the Chief Executive Officer, the Committee found that the compensation paid to comparable positions in our executive compensation peer group increased substantially since 2015, resulting in Mr. Overton's current total direct compensation being at approximately the 60th percentile of the executive compensation peer group's pay levels. The Committee determined that maintaining a substantially similar level for 2016 would be appropriate and approved a 2% increase in Mr. Overton's total direct compensation (attributable only to increases in long-term incentive compensation).
Principal Elements of Compensation
Base Salary. In accordance with our compensation objectives, base salaries for our Named Executive Officers are determined by the Compensation Committee and administered to reflect the individual executive's career experience, contribution and performance, as well as the value of the position relative to the marketplace. During its annual review of base salaries, the Compensation Committee has historically considered each Named Executive Officer's performance during the prior year and the recommendations of our Chief Executive Officer (except with respect to his own compensation), as well as market data provided by Farient Advisors, as discussed above.
Without using any particular formula or assigning a specific weight to any factor, the Compensation Committee also considers:
Our overall performance, including our performance as compared to certain performance objectives established under our 2015 Amended and Restated Annual Performance Incentive Plan ("Performance Incentive Plan) for the applicable fiscal year;
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The following chart shows the annualized base salaries for our Named Executive Officers for fiscal years 2016, 2015 and 2014 and their respective increases, which the Compensation Committee determined were reasonable and appropriate based on the factors described above.
FISCAL 2016, 2015 and 2014 ANNUALIZED BASE SALARIES
| | | | | | | | | | | | | | | |||||||||||
|
|
|
| Fiscal 2016 | | Fiscal 2015 | | Fiscal 2014 | | ||||||||||||||||
| | | | | | | | | | | | | | | |||||||||||
|
| Name and Principal Position |
| $ | | % Increase | | $ | | % Increase | | $ | | ||||||||||||
| | | | | | | | | | | | | | | |||||||||||
|
|
David Overton |
|
$ | 995,000 | | | 0.0 | % | | $ | 995,000 | | | 0.0 | % | | | $ | 995,000 | | | |||
| | | | | | | | | | | | | | | |||||||||||
|
| David Gordon |
| $ | 575,000 | | | 5.5 | % | | $ | 545,000 | | | 3.8 | % | | | $ | 525,000 | | | |||
| | | | | | | | | | | | | | | |||||||||||
|
|
W. Douglas Benn |
|
$ | 515,000 | | | 3.1 | % | | $ | 499,500 | | | 3.0 | % | | | $ | 485,000 | | | |||
| | | | | | | | | | | | | | | |||||||||||
|
| Debby R. Zurzolo |
| $ | 482,000 | | | 3.3 | % | | $ | 466,500 | | | 3.1 | % | | | $ | 452,500 | | | |||
| | | | | | | | | | | | | | | |||||||||||
|
|
Max S. Byfuglin |
|
$ | 425,000 | | | 3.2 | % | | $ | 412,000 | | | 3.0 | % | | | $ | 400,000 | | | |||
| | | | | | | | | | | | | | |
Annual Cash Performance Incentive Compensation. Annual cash performance incentive compensation under the Performance Incentive Plan ("Bonus") for our executives is based on our performance against specific financial and strategic objectives approved by our stockholders at the 2015 annual meeting, such as earnings per share, sales growth, consolidated income from operations, customer satisfaction, product development, net operating profit, cash flow, and/or market share and revenues, among others.
Each executive is assigned a threshold, target and maximum bonus opportunity, all calculated as a percentage of base salary, and he or she may earn a Bonus within that range based on the level of the Company's achievement of performance objectives. At the beginning of each fiscal year, the Compensation Committee establishes both the performance objectives and the formula for computing the Bonus if the performance objectives are achieved within such range. Bonuses are payable, if at all, in the first quarter of the following fiscal year, after the Compensation Committee verifies performance relative to the pre-established objectives and certifies to what extent, if any, Bonuses were earned within the range between and including the threshold and the maximum bonus opportunity.
The Compensation Committee retains negative discretion under our Performance Incentive Plan with respect to payment of Bonuses and may award Bonuses that are less than, and may not award any non-discretionary Bonuses that are higher than, the ranges established under such plan for the applicable fiscal year. In addition, under the terms of our Performance Incentive Plan, the amount of any individual Bonus in any fiscal year may not exceed $2.5 million.
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Fiscal 2015 Performance Incentive Plan Design. For fiscal 2015, the Compensation Committee established the following minimum, threshold, target and maximum bonus opportunities by position for our Named Executive Officers under our Performance Incentive Plan. Actual payouts depend upon performance results with ranges as follows:
| | | | | | | | | | | | | ||||||||||||
|
|
|
| Performance Incentive Plan Bonus as % of Pro-rated Salary(1) |
| |||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
|
| Name |
| Minimum | | Threshold(2) | | Target(3) | | Maximum(4) | | |||||||||||||
| | | | | | | | | | | | | ||||||||||||
|
| Chief Executive Officer |
| | 0 | % | | | 20.6 | % | | | 110 | % | | | 192.5 | % | | |||||
| | | | | | | | | | | | | ||||||||||||
|
| President |
| | 0 | % | | | 14.1 | % | | | 75 | % | | | 131.3 | % | | |||||
| | | | | | | | | | | | | ||||||||||||
|
| Executive Vice President |
| | 0 | % | | | 12.2 | % | | | 65 | % | | | 113.8 | % | | |||||
| | | | | | | | | | | | | ||||||||||||
|
| Subsidiary President |
| | 0 | % | | | 12.2 | % | | | 65 | % | | | 113.8 | % | | |||||
| | | | | | | | | | | | |
Under the Performance Incentive Plan for 2015, for executives other than those in our bakery division, the Compensation Committee established that 75% of potential awards would be based on a Company-wide consolidated operating income objective and that 25% would be based on strategic objectives. However, the 25% of potential awards based on strategic objectives only could be achieved if the Company also achieved a threshold consolidated operating income objective the achievement of which, in and of itself, would not result in any award. For our bakery division executives, the Compensation Committee established that 50% of potential awards would be based on a bakery division operating income objective, 25% of would be based on a Company-wide consolidated operating income objective, and 25% would be based on bakery division strategic objectives. However, the 25% of potential awards based on bakery division strategic objectives only could be achieved if the bakery also achieved a threshold bakery division consolidated operating income objective the achievement of which, in and of itself, would not result in any award.
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For fiscal 2015, the Compensation Committee approved the following potential payout schedules for executives of both the Company as a whole and our bakery division:
Fiscal 2015 Company Bonus Schedule (excludes Bakery)
| | | | | | | | | | | | |
Company Operating Income Achievement (75% weight) |
Award Payout % | Company Strategic Initiative Achievement (25% weight)(3) |
Award Payout % | |||||||||
| | | | | | | | | | | | |
| 115% | 200% (max) | 100% | 100% (max) | ||||||||
| | | | | | | | | | | | |
101%-114% | + approx. 6.7% of award for 1% additional achievement(1) | 1%-99% | +1% of award for 1% additional achievement(4) | |||||||||
| | | | | | | | | | | | |
| 100% | 100% (target) | 0% | 0% | ||||||||
| | | | | | | | | | | | |
86%-99% | +5% of award for 1% additional achievement(2) | |||||||||||
| | | | | | | | | | | | |
| 85% | 25% (threshold) | ||||||||||
| | | | | | | | | | | | |
<85% | 0% | |||||||||||
| | | | | | | | | | | | |
Fiscal 2015 Bakery Bonus Schedule
| | | | | | | | | | | | | | |
Bakery Operating Income Achievement (50% weight) |
Award Payout % | Company Operating Income Achievement (25% weight) |
Award Payout % | Bakery Strategic Initiatives Achievement (25%)(3) |
Award Payout % | |||||||||
| | | | | | | | | | | | | | |
115% | 200% (max) | 115% | 200% (max) | 100% | 100% (max) | |||||||||
| | | | | | | | | | | | | | |
101%-114% | + approx. 6.7% of award for 1% additional achievement(1) |
101%-114% | + approx. 6.7% of award for 1% additional achievement(1) |
1%-99% | +1% of award for 1% additional achievement(4) | |||||||||
| | | | | | | | | | | | | | |
100% | 100% (target) | 100% | 100% (target) | 0% | 0% | |||||||||
| | | | | | | | | | | | | | |
86%-99% | +5% of award for 1% additional achievement(2) | 86%-99% | +5% of award for 1% additional achievement(2) | |||||||||||
| | | | | | | | | | | | | | |
85% | 25% (threshold) | 85% | 25% (threshold) | |||||||||||
| | | | | | | | | | | | | | |
<85% | 0% | <85% | 0% | |||||||||||
| | | | | | | | | | | | | | |
38
Fiscal 2015 Performance Objectives.
At the time the Compensation Committee was considering financial and strategic performance objectives for our Performance Incentive Plan for fiscal 2015, industry experts, such as Technomic, were forecasting modest sales growth trends for fiscal 2015 as compared to both 2014 and 2013. While consumer confidence had improved somewhat, the underlying drivers of under-employment and slow discretionary income growth had not changed significantly and continued to negatively impact the Company's assumptions around customer traffic growth and the ability to take pricing which otherwise might have driven a potential increase in average check. Casual dining was expected to have significant cost headwinds and uncertainty in fiscal 2015, including wage increases and ongoing commodity volatility. Also, the Company, in particular, was expected to continue to experience higher than historical levels for health costs, primarily resulting from continued unusually high individual claims.
Given these concerns, any of which could adversely impact stockholder value, the Compensation Committee decided to continue to select operating income as the most heavily weighted performance target. Operating income is a key driver of stockholder value in that it (i) affects not only earnings per share but also overall cash flow from operations, (ii) supports return on invested capital percentage rates, and (iii) is a key driver of a publicly traded restaurant company's stock multiple. With respect to the specific operating income goals for the Company as a whole, the Compensation Committee took into consideration the operating environment for casual dining restaurant companies that was anticipated for fiscal 2015, Company specific attributes such as certain cost factors and development and growth objectives, as well as ensuring general alignment with the Company's publicly announced longer-term strategic priorities. At the time these goals were established, the Company stated that its financial objective was to deliver mid-teens earnings per share growth, on average, over the next five years. The operating income growth objectives, when combined with the targeted share repurchase program announced by the Company, were consistent with this longer-term earnings growth positioning. In addition, the operating income goals were consistent with the Company's annual operating plan approved by the Board for fiscal 2015.
Additional factors considered by the Compensation Committee included:
39
Additionally, the Compensation Committee considered factors that were important to the continued growth and success of our bakery division, including:
Taking all of these factors into account, the Compensation Committee set the following performance objectives under the Performance Incentive Plan for fiscal 2015, which the Compensation Committee believed at that time were appropriate, reasonably difficult to achieve and, if achieved, would likely deliver significant value to the Company and our stockholders:
2015 Targets for Executives Other than Bakery Division
Weight
|
Performance Targets | |
---|---|---|
75% | Company consolidated operating income target of $163.6 million(1). | |
25% |
Additional strategic objectives, including: |
|
Minimum consolidated operating income threshold of $130 million for any strategic objectives to pay out(2). |
||
Fiscal 2015 operating margin greater than the average of our 2015 Financial Peer Group(3). |
||
Continued international expansion and operational excellence objectives, including specific milestones for Latin America, Asia and the Middle East. Depending on the specific issues facing us in each of these geographic areas, these milestones included objectives concerning improving local product approval processes, improving supply chain, reducing pre-opening and construction costs, enhancing labor programs, conducting business reviews, opening/approving new sites and conducting cultural training. This performance target also required the Company to develop media crisis response plans for certain international areas. |
||
Technology and infrastructure scalability, security and disaster recovery objectives, including outsourcing our financial accounting infrastructure, implementing an end-to-end encryption solution for credit card data, enhancing our active directory environment, and improving our data recovery solutions. |
||
Enhanced commodities management objectives, including establishing a cross functional oversight committee and increasing use of risk management strategies, tools, and outside resources to help identify areas of quantifiable commodities risk and opportunity in a more timely and actionable manner. |
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2015 Targets for Bakery Division Executives (including Mr. Byfuglin)
Weight
|
Performance Targets | |
---|---|---|
50% | Bakery division operating income target of $9.7 million(1). | |
25% |
Company-wide consolidated operating income target of $163.6 million(2). |
|
25% |
Additional strategic objectives, including: |
|
Minimum bakery specific consolidated operating income threshold of $7.5 million prior to any strategic objectives to pay out(3). |
||
Engage bakery staff in a culture of excellence, by improving talent and engagement by communication improvements, with primary focus on work-group level teamwork and recognition; implementing a more selective pre-employment screening process for hourly production staff; developing an engagement survey and implementing higher frequency usage of such survey; and achieving a specified percentage increase in overall annual, engagement survey scores. |
||
Improve profitability of external bakery business by achieving certain cost of sales requirements and minimum sales objectives, and by managing overhead costs to budgeted levels. |
||
Enhance sales and marketing strategy by strengthening and streamlining systematic go-to-market processes (as demonstrated with documented analysis and standard operating procedures); and supporting Company international trademark strategy by executing bakery sales in certain designated international markets. |
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The performance targets were selected from a stockholder-approved list of performance incentive targets under our Performance Incentive Plan intended to qualify for deductibility by us under Section 162(m) of the Code. However, due to the complexities of Section 162(m) and technical requirements related thereto that may change from time to time, we can provide no assurance regarding deductibility under Section 162(m) of the Code.
Fiscal 2015 Performance Objective Achievement: In February 2016, the Compensation Committee reviewed our performance against the Company's performance objectives for fiscal 2015 and certified that we achieved the following results:
|
Target | Actual | Performance vs. target |
||||
---|---|---|---|---|---|---|---|
Operating Income Target (75% of award)(1): |
| ||||||
Fiscal 2015 Company consolidated operating income |
$163.6 million | $167.4 million | 102% | ||||
Strategic Initiatives (25% of award)(2): |
|
|
|
||||
Threshold operating income |
$130 million | $167.4 million | 100%(2) | ||||
Fiscal 2015 operating margin greater than the average of the 2015 Financial Peer Group(3) |
>5.6% | 8.1%(4) | | Achieved | |||
Continued international expansion and operational excellence objectives(5) |
Achieved | ||||||
Technology and infrastructure scalability, security and disaster recovery(5) objectives. |
| | | Achieved | |||
Commodities management objectives(5) |
Achieved |
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The Compensation Committee then reviewed our bakery division's performance against its performance objectives for fiscal 2015 and certified that the bakery division achieved the following results:
|
Target | Actual | Performance vs. target |
||||
---|---|---|---|---|---|---|---|
Bakery Operating Income Target (50% of award): |
| ||||||
Fiscal 2015 bakery division operating income |
$9.7 million | $10.3 million | 107% | ||||
Company Consolidated Operating Income (25% of award)(1): |
|
|
|
||||
Fiscal 2015 Company consolidated operating income |
$163.6 million | $167.4 million | 102% | ||||
Bakery Strategic Objectives (25% of award)(2): |
|
|
|
||||
Threshold bakery operating income |
$7.5 million | $10.3 million | 100%(2) | ||||
Improve talent and engagement of bakery staff members in the bakery(3) |
| | | Not Achieved | |||
Improve profitability of external bakery business(3) |
Achieved | ||||||
Strengthen and streamline systematic processes and marketing strategy by specified objectives and support Company's international intellectual property strategy by specified objectives(3) |
| | | Partially Achieved |
The following payout percentages, as a percentage of the target opportunity, were then calculated based on the payout schedules approved by the Compensation Committee as set forth above:
Company:
| | | | | | | | | | ||||||||||||
Component |
| % Attained |
| % Payout |
| Weighted |
| Actual Payout as % of Target |
| ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | ||||||||||||
Company Consolidated Operating Income |
| | 102 | % | | | 113.3 | % | | | 75 | % | | | 85 | % | | ||||
| | | | | | | | | | ||||||||||||
Strategic Objectives |
| | 100 | % | | | 100 | % | | | 25 | % | | | 25 | % | | ||||
| | | | | | | | | | ||||||||||||
Total Award |
| | | | | | | | | | | | | | 110 | % | | ||||
| | | | | | | | | |
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Bakery Division:
| | | | | | | | | | ||||||||||||
Component |
| % Attained |
| % Payout |
| Weighted |
| Actual Payout as % of Target |
| ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | ||||||||||||
Bakery Operating Income |
| | 107 | % | | | 146.7 | % | | | 50 | % | | | 73.34 | % | | ||||
| | | | | | | | | | ||||||||||||
Company Consolidated Operating Income |
| | 102 | % | | | 113.3 | % | | | 25 | % | | | 28.33 | % | | ||||
| | | | | | | | | | ||||||||||||
Bakery Strategic Objectives |
| | 58.3 | % | | | 58.3 | % | | | 25 | % | | | 14.58 | % | | ||||
| | | | | | | | | | ||||||||||||
Total Award |
| | | | | | | | | | | 116.25 | % | | |||||||
| | | | | | | | | |
As a result of the Company's fiscal 2015 performance, our Named Executive Officers received performance incentive awards under our fiscal 2015 Performance Incentive Plan, as follows:
| | | | | | | | | | ||||||||||
Name |
| Target Performance Incentive as % of Salary |
| Actual Payout as % of Target |
| Actual Payout as % of Salary(1) |
| 2015 Performance Incentive Award |
| ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | ||||||||||
David Overton |
| | 110 | % | | | 110.0 | % | | | 121.0 | % | | $ | 1,203,950 | | |||
| | | | | | | | | | ||||||||||
David Gordon |
| | 75 | % | | | 110.0 | % | | | 82.5 | % | | $ | 446,769 | | |||
| | | | | | | | | | ||||||||||
W. Douglas Benn |
| | 65 | % | | | 110.0 | % | | | 71.5 | % | | $ | 355,348 | | |||
| | | | | | | | | | ||||||||||
Debby R. Zurzolo |
| | 65 | % | | | 110.0 | % | | | 71.5 | % | | $ | 331,815 | | |||
| | | | | | | | | | ||||||||||
Max S. Byfuglin |
| | 65 | % | | | 116.3 | % | | | 75.6 | % | | $ | 309,746 | | |||
| | | | | | | | | |
In late fiscal 2015 and early fiscal 2016, the Compensation Committee, with the assistance of Farient Advisors, reviewed the design of our performance incentive program for fiscal 2016 under the Performance Incentive Plan and made no changes in the plan design with respect to the potential payout schedules for fiscal 2016 for either the Company as a whole or our bakery division.
We believe that equity-based compensation should be a significant component of total executive compensation to align executive compensation with our long-term performance and to encourage executives to make value-enhancing decisions for the benefit of our stockholders. Each of our Named Executive Officers is eligible to receive equity compensation, which historically consisted of a mix of nonqualified stock options and restricted stock, and more recently, restricted stock units, to encourage a focus on long-term stockholder value and to foster long-term retention. In 2016 we revised our equity-based compensation program to introduce additional performance criteria as a condition to vesting restricted stock units. For a description of these performance criteria, see the section below entitled "Equity Grants in 2016."
Nonqualified stock options. The Compensation Committee believes that nonqualified stock options are an appropriate equity vehicle for a portion of long-term equity compensation because they are intrinsically performance-based since they provide value only if our stock price increases over time, which aligns our executives' interests with those of our stockholders. Our stock option grants generally have a five-year prorated vesting period and are exercisable over an eight-year period from grant, once vesting has occurred.
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Restricted Stock Units. The Compensation Committee historically granted a portion of equity awards in the form of restricted shares of our Company's common stock, not only to align our executives' interests with those of our stockholders with respect to increases in stock value, but also to enhance executive retention, since the executive would receive some economic value even if our stock price were to remain flat or decline (provided that the executive remains with the Company for a minimum period of time, historically starting at three years). Commencing in 2013 for our Chief Executive Officer, and in 2014 for all of our other Named Executive Officers, the restricted share grants all were conditioned upon the Company achieving a long-term financial goal measured by cumulative EPS over a two-year period or, if the goal was not initially achieved, a three-year period. If the goal was achieved, 60% of the award would vest after three years from the grant date, and the remaining 40% of the award would be subject to time-based vesting equally over two years. Commencing in 2016, two-thirds of the equity granted to Named Executive Officers will be in the form of restricted stock units (versus restricted shares), subject to specified financial goals and time-based vesting as described below.
Optimizing Share Usage. Because we approach equity compensation grants by considering the overall value of the grant (as opposed to a focus on the number of nonqualified stock options, restricted shares, and/or stock units granted), as our stock price increases, we anticipate using fewer shares overall, while still delivering equivalent value to our executives. In addition, the combined use of nonqualified stock options, restricted shares and stock units reduces our total share usage versus granting only nonqualified stock options. The Compensation Committee approves equity grants to all staff members, including Named Executive Officers and other executives and, in doing so, considers past grants, corporate and individual performance, the valuation of grants, and recommendations of our Chief Executive Officer and its consultant, Farient Advisors. The Compensation Committee has not established formal guidelines or performance criteria for the size of individual equity grants for our Named Executive Officers. However, the Compensation Committee considers total direct compensation market data in making such decisions. See "Market Positioning" above.
Our equity incentive program includes our restaurant general managers, executive kitchen managers, area directors and area kitchen operation managers. Grants under this program provided for nonqualified stock options in the past and now provide for stock units. These stock units vest at the end of an initial five-year period commencing upon entry into the respective position. Additional grants of stock units typically occur every five years thereafter, vesting over a three-year to five-year period, while the individual continues to serve in our management program. We believe that making these awards at the restaurant management level encourages our managers to think and act as business owners, assists in long-term retention of restaurant management, and aligns our managers' interests with those of our stockholders.
The exercise price of nonqualified stock options is the closing price of our stock on the grant date, which is also used to calculate the grant date fair value of shares of restricted stock and restricted stock units. We do not time our release of material non-public information for the purpose of affecting the value of our executives' compensation, nor do we time our grants of equity-based compensation to take advantage of material non-public information. While our equity plan allows awards to be made on a more frequent basis, our Compensation Committee generally makes grants to our corporate executives, including our Named Executive Officers, on an annual basis, except in the case of newly hired executives, mid-year promotions or other extraordinary events. We believe that making awards on an annual basis enables the Compensation Committee to evaluate individual and corporate performance over a reasonable period of time and to adjust the size and terms of the equity grants accordingly. Our equity grant procedures are available on our website at investors.thecheesecakefactory.com, by clicking on the link for "Corporate Governance."
45
Equity Grants in 2015. Following its historical practices and as part of its annual review of executive compensation, in March 2015, the Compensation Committee approved grants of nonqualified stock options and restricted shares as set forth below to our Named Executive Officers in recognition of their performance during fiscal 2014 and expected future contributions, and to target competitive compensation levels appropriate to the executive's tenure in his or her role:
| ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
| Number of Nonqualified stock options(1) |
| Number of Restricted Shares(2) |
| Value of Combined Grants (thousands) |
| |||||||||
| ||||||||||||||||
David Overton |
| | 135,000 | | | | 35,000 | | | | $ | 3,593 | | | ||
| ||||||||||||||||
David Gordon |
| | 25,500 | | | | 7,700 | | | | $ | 731 | | | ||
| ||||||||||||||||
W. Douglas Benn |
| | 14,500 | | | | 5,200 | | | | $ | 455 | | | ||
| ||||||||||||||||
Debby R. Zurzolo |
| | 13,000 | | | | 4,400 | | | | $ | 395 | | | ||
| ||||||||||||||||
Max S. Byfuglin |
| | 12,000 | | | | 3,800 | | | | $ | 352 | | | ||
|
Equity Grants in 2016. As part of its annual review of executive compensation, in March 2016, the Compensation Committee determined that an equity mix of approximately one-third nonqualified stock options, one-third restricted stock units (subject to EPS performance condition) and one-third restricted stock units (subject to EBITDA performance condition) best aligns the interests of our executives with those of our stockholders and the long-term performance of the company. In the future, this allocation may vary, new performance targets may be chosen and new forms of equity may be used.
46
In March 2016, the Compensation Committee approved grants under the 2010 Stock Plan of nonqualified stock options and restricted stock units as set forth below to our Named Executive Officers in recognition of their performance during fiscal 2015 and expected future contributions, to target competitive compensation levels appropriate to such executive's tenure in his or her role, and to align their interests with the long-term interests of our stockholders:
Name |
Number of Nonqualified stock options |
Number of Restricted Stock Units-EPS Target |
Number of Restricted Stock Units-EBITDA Target |
Value of Combined Grants (thousands)(1) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
David Overton |
| 82,000 | | 25,000 | | 25,000 | $ | 3,729 | |||||
David Gordon |
19,300 | 5,750 | 5,750 | $ | 864 | ||||||||
W. Douglas Benn |
| 10,200 | | 3,050 | | 3,050 | $ | 458 | |||||
Debby R. Zurzolo |
8,900 | 2,650 | 2,650 | $ | 398 | ||||||||
Max S. Byfuglin |
| 8,100 | | 2,400 | | 2,400 | $ | 361 | |||||
Nonqualified stock options. One-third of the equity granted to Named Executive Officers in 2016 was in the form of options to purchase the Company's common stock, granted at an exercise price of $50.26 per share, which was the closing price of our common stock on the date of grant. The options are subject to time-based vesting at a rate of 20% per year over five years and expire eight years from the date of grant.
Restricted Stock Units (with EPS Performance Condition). EPS is one of the performance conditions approved by stockholders under the 2010 Stock Plan. Significant research was conducted to select the correct performance metric, appropriate goal levels, and amount of awards. One-third of the equity granted to Named Executive Officers in 2016 was in the form of restricted stock units subject to achievement of a three-year EPS performance target. These grants provide that the award and the number of shares vesting are subject to achieving a targeted cumulative diluted EPS for fiscal years 2016, 2017, and 2018, measured once after the end of the 2018 fiscal year. Fiscal year 2016 was the first time the Compensation Committee granted restricted stock units with a defined three-year performance hurdle and a one-time ability to achieve such goal under the 2010 Stock Plan. The Compensation Committee determined that it was appropriate to include this type of award in the long-term incentive program to achieve even more alignment of pay with Company performance, which is demonstratively connected to shareholder return. This performance condition was selected based upon the following considerations:
47
increases in our stock price, which suggests that our EPS is closely related to our shareholder return. (See below chart)
Based on these considerations, the Compensation Committee decided that cumulative EPS growth over a three-year period is an appropriate metric to use for a portion of the restricted stock unit grants.
Threshold Payout |
80-90% Probability | |
Target Payout |
50-60% Probability | |
Maximum Payout |
10-20% Probability |
In addition to such algorithms, the Compensation Committee also evaluated the Company's EPS growth rates versus our executive compensation peer group's EPS, to ensure that the targets and growth rates were reasonable given our industry's historic performance.
| | | | | | |
| Below Threshold | 0% of restricted stock units subject to vesting | ||||
| | | | | | |
Threshold | 60% of restricted stock units subject to vesting | |||||
| | | | | | |
| Between Threshold and Target | Specified range between 60%-100% of restricted stock units subject to vesting | ||||
| | | | | | |
Target | 100% of restricted stock units subject to vesting | |||||
| | | | | | |
| Between Target and Maximum | Specified range between 100%-125% of restricted stock units subject to vesting | ||||
| | | | | | |
Maximum | 125% of restricted stock units subject to vesting | |||||
| | | | | | |
48
Restricted Stock Units (with EBITDA performance condition). Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is one of the performance conditions approved by stockholders under the 2010 Stock Plan. Significant research was conducted to select the correct performance metric, appropriate goal levels, and amount of awards. The final one-third of the equity grants to Named Executive Officers in 2016 were in the form of restricted stock units subject to the EBITDA of the Company being equal to or greater than (i) a combined, cumulative target for fiscal 2016 and 2017, or (ii) a combined, cumulative target for fiscal 2016, 2017 and 2018, whichever occurs earlier. If the EBITDA performance condition is satisfied, the grants then would be subject to time-based vesting at the rate of 60% on March 3, 2019, and 20% of the shares on each of March 3, 2020 and March 3, 2021. The Compensation Committee determined that it was appropriate to include this type of award in the long-term incentive program based upon the following considerations:
Retirement Plans
Nonqualified Deferred Compensation. We established The Cheesecake Factory Executive Savings Plan ("Executive Savings Plan"), a nonqualified deferred compensation plan, in order to provide a tax-deferred savings vehicle for our "highly compensated" executives (as defined in the Executive Savings Plan), as well as our non-employee directors. At the end of fiscal 2015, over 600 staff members including our Named Executive Officers, other executives, restaurant general managers and executive kitchen managers, and all our non-employee directors, were eligible to participate in the Executive Savings Plan and continue to be eligible in fiscal 2016. At the end of fiscal 2015, all of our Named Executive Officers, approximately 430 other staff members and one non-employee director maintained account balances in the Executive Savings Plan. Additional information regarding this plan appears in this Proxy Statement in the section entitled "Nonqualified Deferred Compensation."
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The Executive Savings Plan permits us to match a portion of participants' contributions with Company contributions, on a pre-tax basis to participants (other than non-employee directors). Since inception, we made a partial matching contribution to the Executive Savings Plan, except during the period of May 2009 through October 2011, when the Company match was suspended. We currently match 25% of the first 4% of salary or bonus deferred. One hundred percent of a participant's bonus, if any, may be deferred and, in 2015, we increased the percent of salary that a participant could defer from 25% to 50%.
Pension Benefits. We do not maintain a pension plan for executives or staff members. However, in order to continue to retain Mr. Overton's services as our Chief Executive Officer and in recognition of his unique contributions as our founder, Mr. Overton's employment agreement provides for a "Founder's Retirement Benefit" pursuant to which Mr. Overton (or his beneficiary or estate, if he is deceased) is entitled to fixed annual payments of $650,000 for a period of ten years following his separation from service for any reason, payable in equal monthly installments, as further described in his employment agreement. The current Founder's Retirement Benefit replaced an earlier variable payment benefit provided under Mr. Overton's 2004 employment agreement. Our obligation with respect to the Founder's Retirement Benefit is unfunded and unsecured, and is payable from our general, unrestricted assets. For additional information concerning Mr. Overton's employment agreement, see the section in this Proxy Statement entitled "Employment Agreements," which also describes amounts payable upon termination of employment or change in control.
Other Benefits and Perquisites
All of our executives, including our Named Executive Officers, are eligible to participate in our broad-based benefit programs, which include medical, dental, vision, life insurance and long-term disability programs, as well as paid vacation and a sabbatical leave program. We provide group term life insurance to our executives, including each of our Named Executive Officers, as well as all other salaried staff members, at the lesser of one times base salary or $750,000. The life insurance benefit is reduced to 65% of base salary at age 65 and 50% of base salary at age 70, with a limit of $750,000. The IRS requires that the portion of the value of such policy exceeding $50,000 be deemed imputed income to the staff member and provides a formula by which the imputed income is calculated.
We also provide the following perquisites to our executives, including Named Executive Officers, that vary based on the executive's level:
50
We believe that these perquisites enhance our ability to attract and retain high-quality talent at a modest cost relative to the benefit we receive from providing these perquisites and helps to elevate our Company as an employer of choice among our competitors and in 2016 FORTUNE® Magazine recognized the Company for the third year in a row as one of the "100 Best Companies to Work For®" . The amounts we paid related to perquisites provided to our Named Executive Officers in fiscal 2015 are disclosed in the section entitled Summary Compensation Table and the accompanying footnotes in this Proxy Statement.
The Compensation Committee does not think it is generally appropriate to accelerate unvested equity or provide other benefits upon a change in control unless another aggravating factor is present that causes an unfair detriment to our executives, such as a termination without cause, a "constructive termination," or a failure by the acquirer to assume or continue our equity program for executives who remain with the Company following such a change in control (a so called "double trigger"). The Compensation Committee believes that limited acceleration of equity and other severance benefits should be provided if a change in control is accompanied by such double trigger aggravating factors. Under our existing employment agreements, equity incentive plan and award agreements, the Company may provide limited benefits to our Named Executive Officers in the event of a change in control, as described below. For detailed information concerning change in control agreements with our Named Executive Officers, see the section entitled "Potential Payments upon Termination or Change in Control" in this Proxy Statement.
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Oversight of Named Executive Officer Compensation
Compensation Committee. The Compensation Committee of our Board determines our Named Executive Officers' base salary, performance incentive awards, equity compensation plans, and other compensation related matters, and is supported in that process by an independent compensation consultant and members of senior management, including our Chief Executive Officer, Senior Vice President of Human Resources and Vice President of Compensation and Benefits. The Compensation Committee regularly evaluates our compensation programs to ensure they support our business objectives, which include (i) continued quality restaurant growth that generates acceptable returns, (ii) sustainability of our brands and brand expansion, (iii) profitability, (iv) operational excellence, (v) infrastructure security and scalability, and (vi) the creation of long-term value for our stockholders. The Compensation Committee operates according to a written charter that is available on our website at investors.thecheesecakefactory.com, by clicking on the link for "Corporate Governance."
Role of Outside Consultants. Since fiscal 2008, the Compensation Committee has engaged Farient Advisors to provide detailed evaluation and recommendations regarding our executive and Board compensation programs and to advise the Compensation Committee with respect to structuring our compensation plans to achieve our business objectives. Farient Advisors conducts research as directed by the Compensation Committee and supports the Compensation Committee in the design of executive and Board compensation. Although Farient Advisors works with management, including our Chief Executive Officer, to develop programs that support our business objectives while carrying out its duties for the Compensation Committee, Farient Advisors is retained by and reports directly to the Compensation Committee and does not provide any other services to the Company other than those for which it has been retained by the Compensation Committee.
Role of Chief Executive Officer in Compensation Decisions. Our Chief Executive Officer provides the Compensation Committee with his assessment of the performance of each Named Executive Officer (other than himself) and his perspective on the factors described above under "Factors Considered in Making Compensation Decisions" when developing his recommendations for each Named Executive Officer's compensation (other than his own), including salary adjustments, long and short-term performance incentive compensation, discretionary bonuses, and compensation adjustments in conjunction with promotions. The Compensation Committee discusses our Chief Executive Officer's recommendations, consults with Farient Advisors, and then approves or modifies the recommendations in collaboration with the Chief Executive Officer.
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Roles of Senior Vice President of Human Resources and Vice President of Compensation & Benefits in Compensation Decisions. Our Senior Vice President of Human Resources and our Vice President of Compensation & Benefits work with our Chief Executive Officer when developing his recommendation for each Named Executive Officer's compensation (other than his own) by reviewing benchmarking information provided by our outside consultant, Farient Advisors, as well as performance factors. They then present the initial recommendations to both our outside consultant and to the Chair of the Compensation Committee for initial input prior to final submission to the Compensation Committee.
Compensation of our Chief Executive Officer. Our Chief Executive Officer's compensation is determined solely by the Compensation Committee, which approves the terms of, and makes recommendations to the Board with respect to, his employment agreement, and adjusts his base salary, long and short-term performance incentive compensation and other benefits from year to year. Please see the section entitled "Employment Agreements" in this Proxy Statement for a summary of the material terms of Mr. Overton's employment agreement. The Compensation Committee solicits our Chief Executive Officer's perspective on his own compensation, but makes determinations regarding his compensation independently and without him or other Named Executive Officers present. The Compensation Committee reviews Mr. Overton's annual cash and long and short-term performance incentive compensation at approximately the same time and following the same process as compensation levels are reviewed for all other Named Executive Officers, as further described in this Compensation Discussion and Analysis.
Risk Considerations. The Compensation Committee reviews the Company's employee compensation policies and practices, including those for non-executive officers, on an annual basis to assess how those policies and practices may affect risk taking by employees. During its review in fiscal 2015, the Compensation Committee determined that the Company's compensation programs are appropriately weighted toward long-term incentives and include policies designed to deter undue risk taking by employees. These policies include the Clawback Policy, stock retention and ownership policies, and policies against short sales and hedging, as discussed below.
Clawback Policy. Our Clawback Policy (i) requires certain of our executives to agree in writing to repay all or a portion of any bonus, to the extent permitted by law and deemed appropriate by the Audit Committee, when we are required by applicable law or applicable accounting or auditing principles to restate our financial statements to correct an accounting error in any interim or annual financial statement filed with the SEC as a result of material noncompliance with applicable financial reporting requirements, and the bonus was directly based on those financial statements (ii) allows the Compensation Committee to cause the cancellation of any bonus and require reimbursement of any bonus by a Named Executive Officer and effect any other right of recoupment of equity or other compensation provided under the Performance Incentive Plan or otherwise in accordance with Company policies and/or applicable law and (iii) allows the Compensation Committee to cancel any equity award, require reimbursement of any award proceeds or other compensation and effect any other right of recoupment of equity or other compensation provided under the 2010 Stock Plan or otherwise in accordance with Company policies and/or applicable law (see "Executive Compensation-Pay for Performance-Pay Mix" section of this Proxy Statement for further discussion regarding our Clawback Policy).
The Board believes that executives who are responsible for material noncompliance with applicable financial reporting requirements resulting in accounting errors leading to financial statement restatements should not benefit monetarily from such noncompliance. Our Clawback Policy was adopted to permit the Audit Committee and the Compensation Committee of our Board to use appropriate discretion to recapture monetary awards of bonus compensation and equity awards, respectively, paid to executives in the designated positions who may bear responsibility for such noncompliance. In determining the portion of any bonus required to be repaid, or equity award to be recaptured, the Audit Committee or the
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Compensation Committee, as the case may be, may take into account those matters it deems appropriate in its sole discretion, including whether the executive engaged in any fraud, negligence or misconduct that contributed to the need for the restatement and the amount of the bonus or value of the award, if any, that would have been awarded to the executive had the financial results been properly reported. In addition, the Company may dismiss the executive (subject to the terms of any employment agreement), authorize legal action, or take other actions to enforce the executive's agreement as the Audit Committee or the Compensation Committee, as the case may be, may deem appropriate and advisable in view of all of the circumstances at that time. We believe that our Clawback Policy diminishes the likelihood that our executives will take actions that could result in material excessive risk to us.
In fiscal 2015, we had no financial statement corrections requiring restatements, and neither the Audit Committee nor the Compensation Committee has needed to consider taking any action under the Clawback Policy. A copy of the Clawback policy is available on our website at investors.thecheesecakefactory.com, by clicking on the link for "Corporate Governance."
Stock Ownership Requirements. Our Named Executive Officers are required to own a specified value of our common stock based upon a multiple of their respective base salaries. See "Director and Executive Officer Stock Ownership Guidelines, Holding Periods and Other Requirements" in this Proxy Statement for the material terms of our stock ownership and retention policies. We believe that stock ownership requirements further align our executives' interests with those of our stockholders. In addition to our stock ownership requirements, certain option grants awarded to executive officers after June 4, 2008 and prior to August 2, 2012 contain a holdback provision such that 33% of the net shares acquired upon exercise of the stock option (net of the tax impact that the exercise has on the individual) must be held for at least nine months following the date of exercise. In light of the adoption of our executive stock ownership requirements, we eliminated the holdback requirement for option grants made to Named Executive Officers on or after August 2, 2012. As of the end of our 2015 fiscal year, all of our Named Executives Officers were in compliance with our stock ownership and retention policies.
Impact of Accounting and Tax Treatments on Compensation. Accounting and tax considerations play an important role in the design of our executive compensation program. Accounting rules, such as Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718, require us to expense the estimated fair market value of our stock based compensation, which reduces the amount of our reported profits. The Compensation Committee considers the amount of this expense and the financial impact to us in determining the amount of equity compensation awards to grant to executives.
In addition, Section 162(m) of the Code and the regulations promulgated thereunder limit the allowable Company deduction for compensation paid to no more than $1 million per taxable year, subject to specified exceptions, with respect to any employee, who as of the close of the taxable year is a "Covered Employee" as defined under Code Section 162(m). Certain compensation is exempt from this deduction limitation, including certain performance-based compensation, if it is paid under a plan, the material performance terms of which are approved by stockholders at least once every five years, and the plan is administered by a committee of independent directors, among other requirements. Our performance achievement bonuses payable for fiscal 2015 under our Performance Incentive Plan and our performance-based equity awards issued under the 2010 Stock Plan are intended to qualify for deductibility under Code Section 162(m) under such exception.
In light of Code Section 162(m), the Compensation Committee may modify, where reasonably necessary, our executive compensation program to maximize the tax deductibility of compensation paid to Covered Employees. At the same time, the Compensation Committee also believes that the overall performance of our executives cannot in all cases be reduced to a fixed formula and that the prudent use of discretion in determining the form and amount of compensation is in our best interests and those of our
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stockholders. Under some circumstances, the Compensation Committee's use of discretion in determining appropriate amounts and components of compensation may result in compensation that may not be fully deductible to us under Code Section 162(m). In fiscal 2015, all restricted shares granted and bonus compensation awarded by the Company to Covered Employees was intended to qualify for deductibility by us under Code Section 162(m). For fiscal 2016, all restricted stock units granted and bonus compensation which may be awarded to Covered Employees is intended to qualify as performance-based compensation, thereby enabling the Company to deduct such compensation under Code Section 162(m). However, certain non-performance based restricted stock awards made in prior years may not qualify for deductibility under Code Section 162(m) due to the increase in our stock price as of the vesting date, which may result in certain Covered Employees' total non-performance based compensation exceeding the $1 million deductibility limit. Due to the complexities of Code Section 162(m) and technical requirements related thereto that may change from time to time, we can provide no assurance regarding deductibility of such compensation under Code Section 162(m).
In addition, Code Section 409A limits flexibility with respect to the time and form of payment of nonqualified deferred compensation. If a payment or award is subject to Code Section 409A but does not meet the requirements that exempt such amounts from taxation under that section, the recipient is subject to (i) income tax at the time the payment or award is not subject to a substantial risk of forfeiture, (ii) an additional 20% federal tax at that time, (iii) plus possible interest and penalties, and (iv) possible additional state taxes. While Code Section 409A is also very complex and we cannot guaranty compliance with all of its requirements, we have made modifications to our plans and arrangements such that payments or awards under those arrangements either are intended not to constitute "deferred compensation" for Code Section 409A purposes (and will thereby be exempt from the requirements of Code Section 409A) or, if they constitute "deferred compensation," are intended to comply with the Code Section 409A statutory provisions and final regulations.
The 2016 Employment Agreements provide that, if the executive is subject to additional taxes imposed by Code Section 409A which relate solely to the timing of payment for the severance benefits under their prior employment agreements, then within 60 days after the determination that such Code Section 409A taxes are due, the Company would pay the executive a cash payment so that the executive would be in the same position on an after-tax basis that the executive would have been in if no Code Section 409A taxes and related interest and/or penalties had been imposed (the "409A Tax Equalization Benefit"). The 409A Cash Equalization Benefit was made a part of the 2016 Employment Agreements in consideration for our Named Executive Officers (other than our Chief Executive Officer) agreeing to relinquish the gross-up for taxes imposed by Code Section 280G, which had been included under their prior employment agreements.
The 2016 Employment Agreements eliminate a provision for reimbursement of the executive for any excise tax imposed by Code Section 4999 for payments that are non-deductible by the Company under Code Section 280G contained in the prior employment agreements and now provide that if any amounts paid would constitute payments as defined in Code Section 280G that would trigger the Code Section 4999 excise tax, such payments shall be calculated and reduced as necessary to provide the executive with the best after-tax benefit.
Policy Regarding Hedging Short Sales, Publicly Traded Derivatives, Margin Accounts and Pledges. We have a policy prohibiting our Board, officers and other employees from trading in any interest or position relating to the future price of our securities, such as a put, call or short sale, or using our stock as collateral for margin loans. The Board believes it is inappropriate for our executives or non-employee directors to take personal financial positions that may inadvertently or, in some cases overtly, influence their deliberations or decisions concerning the best and proper course of action for us to take or bring into question the propriety of any deliberations or decisions made with respect to us. By prohibiting these types of speculative trading in or encumbering of our stock in margin loans, the Board seeks to discourage those
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types of behaviors. In addition, other types of collateralization of our stock by executives or non-employee directors require advance approval and satisfaction of specified criteria under our policies.
The following Compensation Committee report does not constitute soliciting material and is not deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates this Compensation Committee report by reference thereto.
The Compensation Committee has reviewed the Compensation Discussion and Analysis and has discussed its content with management. Based on this review and our discussions with management, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and be incorporated by reference in the Company's Annual Report on Form 10-K.
Dated: April 7, 2016 | Respectfully submitted, | |
Alexander L. Cappello, Chairman Jerome I. Kransdorf Laurence B. Mindel Herbert Simon |
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COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth summary compensation information with respect to our Named Executive Officers for the fiscal year ended December 29, 2015.
Name and Principal Position |
Fiscal Year |
Salary $ |
Restricted Stock/Units Awards $(1) |
Option Awards $(1) |
Non-Equity Incentive Plan Compensation $ |
All Other Compensation $(2) |
Total $ |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
David Overton |
| 2015 | | 995,000 | | 1,680,350 | | 1,912,950 | | 1,203,950 | | 125,369 | | 5,917,619 | ||||||||
Chairman of the Board and |
| 2014 | | 994,135 | | 1,783,030 | | 2,235,900 | | 273,387 | | 107,824 | | 5,394,276 | ||||||||
Chief Executive Officer |
| 2013 | | 984,973 | | 1,602,900 | | 1,895,250 | | 800,157 | | 84,830 | | 5,368,110 | ||||||||
David M. Gordon |
2015 | 541,538 | 369,677 | 361,335 | 446,769 | 47,501 | 1,766,820 | |||||||||||||||
President |
2014 | 520,673 | 385,520 | 385,500 | 97,626 | 47,701 | 1,437,020 | |||||||||||||||
The Cheesecake Factory Incorporated |
2013 | 490,316 | 320,580 | 270,750 | 293,607 | 38,710 | 1,413,963 | |||||||||||||||
W. Douglas Benn |
| 2015 | | 496,990 | | 249,652 | | 205,465 | | 355,348 | | 30,907 | | 1,338,362 | ||||||||
Executive Vice President and |
| 2014 | | 481,712 | | 265,045 | | 231,300 | | 78,278 | | 30,179 | | 1,086,514 | ||||||||
Chief Financial Officer |
| 2013 | | 462,984 | | 249,340 | | 194,940 | | 244,461 | | 30,973 | | 1,182,698 | ||||||||
Debby R. Zurzolo |
2015 | 464,077 | 211,244 | 184,210 | 331,815 | 36,035 | 1,227,381 | |||||||||||||||
Executive Vice President, |
2014 | 449,471 | 216,855 | 215,880 | 73,039 | 32,273 | 987,518 | |||||||||||||||
General Counsel and Secretary |
2013 | 432,151 | 213,720 | 173,280 | 228,181 | 31,389 | 1,078,721 | |||||||||||||||
Max S. Byfuglin |
| 2015 | | 409,923 | | 182,438 | | 170,040 | | 309,746 | | 39,084 | | 1,111,231 | ||||||||
President, |
| 2014 | | 397,923 | | 192,760 | | 200,460 | | 12,933 | | 34,767 | | 838,843 | ||||||||
The Cheesecake Factory |
| 2013 | | 385,486 | | 213,720 | | 157,035 | | 100,130 | | 34,603 | | 890,974 | ||||||||
Bakery Incorporated |
| | | | | | | |||||||||||||||
Name
|
Automobile Program $(a) |
ESP Company Match $(b) |
Dividends Paid or Accrued on Unvested Restricted Stock $(c) |
Life Insurance $(d) |
Executive Physical Exam $(e) |
Total ($) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Overton |
| 21,547 |
|
- |
| 97,155 | | 6,667 |
|
- |
| 125,369 | |||||||
Mr. Gordon |
19,217 | 7,073 | 19,900 | 1,311 | - | 47,501 | |||||||||||||
Mr. Benn |
| 3,926 | | 8,334 | | 15,202 | | 3,445 |
|
- |
| 30,907 | |||||||
Ms. Zurzolo |
10,800 | 7,782 | 12,998 | 2,079 | 2,376 | 36,035 | |||||||||||||
Mr. Byfuglin |
| 14,400 | | 7,199 | | 12,294 | | 5,191 |
|
- |
| 39,084 |
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For a description of actions taken by the Compensation Committee with respect to base salaries of our Named Executive Officers for fiscal 2016, please see "Base Salary" in the "Compensation Discussion and Analysis" section of this Proxy Statement.
For a description of the material terms of the Named Executive Officers' employment agreements, see the section entitled "Employment Agreements" in this Proxy Statement. For a description of our Non-Equity Incentive Plan Compensation, see the section entitled "Annual Cash Incentive Compensation" in the "Compensation Discussion and Analysis" section of this Proxy Statement.
For a description of our Performance Incentive Plan and the Compensation Committee's determination of awards under this plan for our Named Executive Officers for fiscal 2015, please see "Fiscal 2015 Performance Incentive Plan" in the "Compensation Discussion and Analysis" section of this Proxy Statement. For the vesting schedules of outstanding options and restricted stock and restricted stock units, please see "Outstanding Equity Awards" in this Proxy Statement.
The Named Executive Officers did not receive any benefits from the Company under defined pension or defined contribution plans during the fiscal year ended December 29, 2015. None of our Named Executive Officers are currently eligible to participate in our tax deferred qualified 401(k) plan. However, Mr. Overton is entitled to the Founder's Retirement Benefit described in the "Retirement Plans" section of this Proxy Statement under "Pension Benefits."
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Nonqualified Deferred Compensation
We adopted The Cheesecake Factory Incorporated Executive Savings Plan ("Executive Savings Plan") in order to provide a tax-deferred savings vehicle to help us attract, retain and motivate executives with the essential qualifications to manage our Company successfully. The Executive Savings Plan is a nonqualified deferred compensation plan for our non-employee directors and for our highly compensated executives (as defined in the Executive Savings Plan) who are otherwise ineligible to participate in our qualified defined contribution savings plan under Section 401(k) of the Internal Revenue Code ("Code"). The Executive Savings Plan allows our employee-participants to defer the receipt of up to 50% of their base salaries and up to 100% of their eligible non-equity incentive plan compensation (bonus) and allows our independent directors to defer up to 100% of their director fees.
Under the Executive Savings Plan, we currently provide a matching contribution at a rate of 25% of the first 4% of base salary and bonus deferred under the plan. We do not provide a match for deferrals by non-employee directors. Our matching contributions vest 25% per year after the staff member's second year of participation in the Executive Savings Plan, such that staff members with five years of service with us would be 100% vested in our matching contributions. All of our Named Executive Officers' are currently 100% vested in our matching contribution. Staff member deferrals and our matching contribution, if any, are deposited into a "rabbi" trust established by us, and the funds are generally invested in individual variable life insurance contracts owned by us, which are specifically designed to informally fund savings plans of this nature. Upon a participant's termination from employment, he or she will receive a distribution of his or her account balance, including earnings and vested company contributions, in accordance with his her distribution election and the terms of the Executive Savings Plan. For any plan year, a participant may elect, in accordance with the terms of the Executive Savings Plan, to have a portion of his or her account paid on a scheduled in-service distribution date; provided, such a distribution may not occur earlier than the second plan year after the plan year to which such an election applies. The following table shows the compensation (including bonus) earned for fiscal 2015 that was deferred into the Executive Savings Plan by each Named Executive Officer during fiscal 2015:
| ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
| Executive Contributions in Fiscal 2015 $(1) |
| Company Contributions in Fiscal 2015 $(2) |
| Aggregate Earnings/(Losses) in Fiscal 2015 $ |
| Aggregate Withdrawals or Distributions in Fiscal 2015 $ |
| Aggregate Balance at December 29, 2015 $ |
| |||||||||||||||
| ||||||||||||||||||||||||||
David Overton |
| |
- |
|
- |
| (743 | ) | | |
- |