Item 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN
OFFICERS.
On June 23, 2021, the Compensation and Leadership Development Committee (the
"Committee") of the Board of Directors (the "Board") of Sysco Corporation (the
"Company" or "Sysco") approved the cancellation and replacement of the
performance share units ("PSUs") previously issued to Mr. Kevin Hourican, the
President and Chief Executive Officer ("CEO") of the Company, on February 12,
2020, in connection with his new hire compensation. These PSUs consisted of (i)
65,259 PSUs issued as part of his fiscal year 2020 annual long-term incentive
award (the "FY20 PSU Award") and (ii) 54,595 PSUs issued as a make-whole award
(the "Make-Whole PSU Award") for outstanding equity issued by Mr. Hourican's
prior employer that was forfeited. The goals for these PSU awards were
established in July 2019, more than six months prior to Mr. Hourican's
appointment as President and CEO.
Summary of Mr. Hourican's New Hire PSU Awards
As disclosed previously, in January 2020, the Board elected Mr. Hourican as
President and CEO, effective February 1, 2020. At the time of his election, the
Committee approved a new hire compensation package for Mr. Hourican with a
significant emphasis on equity-based incentives in order to immediately and
significantly align his interests with the interests of Sysco's stockholders, as
well as to motivate and reward him for driving improvements in the Company's
performance. Specifically, these awards included a target annual equity award
and a make-whole award for shares that Mr. Hourican was forfeiting by leaving
his prior employer, as described further below:
Target
Compensation Component Value Description
Target annual equity $8,500,000 Represents annual LTI target award valued at
award for fiscal 2020 654% of his annual base salary, which was
granted on February 12, approximately at median for Sysco's peer
2020 group at the time.
Awarded 40% in stock options and 60% in PSUs.
The options vest in three equal, annual
installments on August 21, 2020, 2021 and
2022. The PSUs were issued with a performance
period from June 30, 2019 through July 2,
2022.
Equity make whole - $12,800,000 Replaced the value of outstanding equity
forfeited equity awards awards issued by his previous employer that
were scheduled to vest in April 2021
(restricted stock units ("RSUs"), PSUs and
options), April 2022 (PSUs and options) and
April 2023 (options).
Awarded 33% in stock options, 33% in
time-based RSUs and 33% in PSUs. The options
have a 10-year term and vest in three equal,
annual installments on August 21, 2020, 2021
and 2022. The RSUs vest and settle in two
equal installments on the 12-month and
18-month anniversaries of Mr. Hourican's
start date, February 1, 2020. The PSUs were
issued with a performance period from
June 30, 2019 through July 2, 2022.
- 2 -
--------------------------------------------------------------------------------
Impact of COVID-19 Pandemic on New Hire PSUs
Within weeks of Mr. Hourican's appointment, the World Health Organization
declared the coronavirus a pandemic and governments across the U.S. and Europe
initiated lockdowns. These events had an adverse impact on numerous aspects of
Sysco's business, financial condition and results of operations, including the
Company's financial performance with respect to the performance metrics under
its annual and long-term incentive awards. Immediately after the onset of the
crisis, Sysco leadership acted quickly to stabilize the business, including
ensuring access to liquidity, reducing variable and structural costs and
pivoting its business to maximize sales during a period of disruption. In
addition, Mr. Hourican has led the Company's efforts to substantially accelerate
the transformation of its business and strengthen the executive leadership team
required to successfully implement the transformation plan.
In excess of 40% of Mr. Hourican's total new hire equity award was in the form
of PSUs with performance goals that were established in July 2019, prior to
Mr. Hourican's employment. Due to the effects of the pandemic, within months of
the grant date the performance goals under the PSUs granted to Mr. Hourican in
February of 2020 became effectively unachievable, and the Committee deemed those
previously set goals no longer relevant. Although the Committee believes
strongly in pay-for-performance, the circumstances surrounding the impact of the
pandemic on Sysco's business, which occurred almost immediately after
Mr. Hourican's appointment, were extraordinary, and the Committee believes it
would be detrimental to the Company's business to undermine the motivation and
retention of its CEO by allowing his new hire PSUs to remain unachievable. No
adjustments to the PSUs previously issued to any other participant were made or
are contemplated by the Committee.
Approval of Replacement PSU Award
As a result, following careful deliberations, on June 23, 2021, the Committee
approved (i) the cancellation of the FY20 PSU Award and the Make-Whole PSU
Award; and (ii) the issuance, pursuant to the Sysco 2018 Omnibus Incentive Plan,
of a replacement award comprised of an equivalent number of new PSUs. The new
PSUs were granted using the same performance goals as the fiscal year 2021 PSUs
awarded to Sysco's leadership team and described in Sysco's Current Report on
Form 8-K dated July 31, 2020, subject to the following additional terms:
• The shares of common stock received by Mr. Hourican, if any, upon the
vesting of these replacement PSUs will be subject to a two-year holding
requirement;
• Consistent with his original award, 50% of the new PSUs issued to replace
the FY20 PSU Award will vest immediately if Mr. Hourican's employment is
terminated without cause or upon his resignation for good reason, as such
terms are defined in the letter agreement between Sysco and Mr. Hourican
(together, an "Involuntary Termination"); and
• Consistent with his original award, 100% of the new PSUs issued to
replace the Make-Whole PSU Award will vest immediately upon
Mr. Hourican's Involuntary Termination.
This action allowed the Committee to align Mr. Hourican's new hire incentives
with the current business context, recognize the scope and effectiveness of his
strong leadership during this crisis, including the company's business
transformation initiatives, as well as continue to motivate and incentivize
Mr. Hourican's performance with equity compensation that includes achievable,
while still rigorous, goals.
- 3 -
--------------------------------------------------------------------------------
© Edgar Online, source Glimpses