UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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KFORCE INC.
(Name of Registrant as Specified In Its Charter)
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2019 | Proxy Statement |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
You are cordially invited to attend the 2019 Annual Meeting of Kforce Inc. Shareholders (the Annual Meeting) that will be held on Tuesday, April 23, 2019 at 1001 East Palm Avenue, Tampa, Florida 33605, commencing at 8:00 a.m., eastern time.
We are holding this meeting to:
1. | Elect three Class I directors to hold office for a three-year term expiring in 2022; |
2. | Ratify the appointment of Deloitte & Touche LLP as Kforce’s independent registered public accountants for 2019; |
3. | Conduct an advisory vote on executive compensation; |
4. | Approve the Kforce Inc. 2019 Stock Incentive Plan; and |
5. | Attend to other business properly presented at the meeting. |
Kforce’s Board of Directors (the Board) has selected February 22, 2019 as the record date (the Record Date) for determining shareholders entitled to vote at the meeting.
The proxy statement, proxy card and Kforce’s 2018 Annual Report to Shareholders are being mailed on or about March 22, 2019. Whether or not you plan to attend the annual meeting, we encourage you to vote your shares by using the internet, telephone, or by signing, dating and returning the enclosed proxy card.
If you need further assistance, please contact Kforce Investor Relations at (813) 552-5000. Thank you for your continuing support.
BY ORDER OF THE BOARD OF DIRECTORS
David M. Kelly
Corporate Secretary
Tampa, Florida
March 22, 2019
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on April 23, 2019. This proxy statement and our 2018 Annual Report to Shareholders are available at http://investor.kforce.com/investor-relations/financial-information/annual-reports-and-proxy. |
1 Kforce 2019 Proxy Statement
LETTER TO OUR SHAREHOLDERS
At Kforce, we believe the selection, development and retention of Great People leads to Great Results for our clients, consultants, employees and you, our shareholders.
2018 marked a year of focus, execution and progression for our Firm and this year’s Proxy Statement reflects our commitment toward building long-term, sustainable performance, transparent corporate governance and regular communication with our shareholders.
OUR COMPANY
We realize the power of a meaningful occupation and take pride in the work of our Great People. In 2018, our associates worked diligently to provide opportunities for over 34,000 highly skilled professionals with clients of all sizes, including 70% of the Fortune 100.
SOCIAL RESPONSIBILITY
While we focus on Great Results, a key aspect of our success is our commitment to corporate culture, exemplified by our core values of stewardship and community, respect, integrity, trust, and exceptional service. These values promote a sense of greater purpose and drive our commitment to our employees, our clients, and our communities. In 2018, Kforce and its employees supported numerous charities throughout the year, with a focus on organizations that provide education, human services and community development for those in need. In November, we held our annual Day of Giving, an impactful day where 1,600 employees nationwide volunteered over 5,400 hours at 70 different events in their local communities.
SHAREHOLDER ENGAGEMENT
Our commitment to shareholder engagement is grounded in open, effective and transparent communication. This year we have continued our efforts to simplify and improve the readability of our Proxy Statement. We encourage you to learn more about our governance and compensation practices by reading this Proxy Statement and visiting the Investor Relations page on our website at www.kforce.com.
During 2018, we also conducted our annual shareholder outreach effort and spent time engaging with shareholders on a variety of topics. The feedback and perspective we received from our shareholders has and will continue to inform our corporate governance and executive compensation practices and strategies. We believe our programs create the proper incentives and rewards for executive officers while creating long-term value for our shareholders and expect our continued board refreshment and succession planning activities will promote a balanced mix of perspective and experience within our Board of Directors. We thank all of those who participated and remain open to and invite your feedback during 2019.
We thank you for your ownership and support of Kforce and for allowing us the privilege of serving you.
 |  |
David L. Dunkel Chairman and Chief Executive Officer | Ralph E. Struzziero Lead Independent Director |
2 Kforce 2019 Proxy Statement
TABLE OF CONTENTS
3 Kforce 2019 Proxy Statement
CORPORATE GOVERNANCE
OUR BOARD OF DIRECTORS
The Board currently consists of ten directors who are divided into three classes serving staggered three-year terms. The following table sets forth the names, ages (as of February 22, 2019), and certain other information for each of our directors (including those who are nominees for election at the Annual Meeting).
Class | Age | Position | Director Since | Current Term Expires | Expiration of Term for Which Nominated | Independent | Audit Comm | Comp. Comm | Nomin. Comm | Corp. Gov. Comm | Exec. Comm | |
Directors with Terms Expiring at the Annual Meeting/Nominees | ||||||||||||
Randall A. Mehl (1) | III | 51 | Director | 2017 | 2021 | 2022 | ü |   | | |||
Elaine D. Rosen | I | 66 | Director | 2003 | 2019 | 2022 | ü |  | | | ||
Ralph E. Struzziero (2) | I | 74 | Director | 2000 | 2019 | 2022 | þ | | | |||
Continuing Directors | ||||||||||||
John N. Allred | II | 72 | Director | 1998 | 2020 | N/A | ü | | | | ||
Richard M. Cocchiaro | II | 64 | Director | 1994 | 2020 | N/A | | |||||
Ann E. Dunwoody | II | 66 | Director | 2016 | 2020 | N/A | ü | | | |||
A. Gordon Tunstall | II | 75 | Director | 1995 | 2020 | N/A | ü | | | | | |
David L. Dunkel | III | 65 | Chairman, CEO Director | 1994 | 2021 | N/A | | |||||
Mark F. Furlong | III | 61 | Director | 2001 | 2021 | N/A | ü | | | | ||
N. John Simmons | III | 63 | Director | 2014 | 2021 | N/A | ü | | | |||
Non-Continuing Directors | ||||||||||||
Howard W. Sutter (1) | I | 70 | Director | 1994 | 2019 | N/A | | |||||
(1) On January 31, 2019, Howard W. Sutter informed Kforce that due to his long tenure as a member of the Board and consistent with the Board’s refreshment initiatives, he would not stand for re-election as a Class I Director at the Annual Meeting. Mr. Sutter's decision to not stand for re-election was not the result of any disagreements with the Board, management or the Firm. In January 2017, Kforce increased the size of its Board of Directors to 11 people and appointed Randall A. Mehl to the vacancy created. Although the size of the Board will be reduced back to 10 people after the Annual Meeting, the Board is committed to continuing its refreshment activities and its size could fluctuate in the future. Because of Mr. Sutter’s decision not to stand for re-election, we would have an unbalanced Board of Directors (two Class I directors, four Class II directors and four Class III directors), which is not permitted under Florida law. Accordingly, to rectify this potential issue, Randall A. Mehl will resign as a Class III director effective immediately prior to the Annual Meeting and is standing for election as a Class I Director.
(2) In the course of determining Mr. Struzziero’s independence, the Board specifically considered the employment of Mr. Struzziero’s son described below in the “Related Party Transactions” section and determined that it did not impair Mr. Struzziero’s independence. Mr. Struzziero’s son ceased employment with Kforce in October 2018.
Legend: | þ | Lead Independent Director | | Chair | | Member | | Financial Expert |
The Class I nominees identified above have been nominated to serve as directors for a three-year term expiring at the 2022 annual meeting of shareholders. All of the nominees are currently directors of Kforce and were previously elected by the shareholders.
4 Kforce 2019 Proxy Statement
BIOGRAPHICAL INFORMATION FOR OUR DIRECTOR NOMINEES
The biographies for each of our director nominees are set forth below along with a description of the experiences, qualifications, attributes or skills that caused the Nomination Committee and the Board to determine that they should serve as a director of Kforce.
NOMINEES FOR ELECTION, CLASS I DIRECTORS - TERMS EXPIRE IN 2022
Randall A. Mehl | |||
 | Mr. Mehl is President and Chief Investment Officer of Stewardship Capital Advisors, LLC, which manages an equity fund focused on making investments in business and technology services. He also currently serves on the Board of Directors of two public companies, Insperity, Inc. and ICF International, Inc., as well as Stowell Associates Inc., a privately held home care agency. He previously served as a Managing Director and a partner with Baird Capital, a middle market private equity group, leading a team focused on the business and technology services sector from 2005 to 2016. From 1996 to 2005, Mr. Mehl was a senior equity research analyst with Robert W. Baird & Company, covering various areas within the broader business and technology services sector, including staffing. Mr. Mehl is an Audit Committee financial expert. Mr. Mehl has also previously served on various boards of directors, including Workforce Insight LLC, Myelin Communications, Vitalyst LLC, MedData, LLC, now a subsidiary of MEDNAX, American Auto Auction, LLC, Accume Partners, Inc, and Harris Research Inc. Mr. Mehl has previously served on the investment committee for several funds, and has expertise analyzing, acquiring and selling businesses. | ||
Director since 2017 | Other Current Public Company Board(s): ICF International, Inc. (NASDAQ: ICFI); Insperity, Inc. (NYSE: NSP) | Kforce Board Committee(s): Audit and Corporate Governance | |
Age | 51 | ||
Elaine D. Rosen | |||
 | Ms. Rosen has served as a director of Assurant, Inc., a provider of specialized insurance and insurance-related products and services since March 2009 and became the non-executive Chair of the Board in November 2010. Ms. Rosen has also served as the Chair of the Board of The Kresge Foundation since January 2007. Ms. Rosen serves as trustee or director of several non-profit organizations, is a past Chair of the Board of Preble Street, a homeless collaborative in Portland, Maine, and has served as a trustee of the Foundation for Maine’s Community Colleges since 2008. Ms. Rosen was a director of the Elmina B. Sewall Foundation from 2008 to 2012 and Downeast Energy Corp., a privately-held company that provides heating products and building supplies, from 2003 until its sale in April 2012. From 1975 to March 2001, Ms. Rosen held a number of positions with Unum Life Insurance Company of America, including President. Ms. Rosen has extensive experience as a senior executive in the insurance industry and as a director of several companies, as well as substantial experience with charitable organizations, particularly as the Chair of one of the largest private foundations in the country. With her background and experience as Chair of the Compensation Committee of Kforce; on the Board of Assurant, Inc., where she currently serves as the non-executive Chair and serves on the compensation committee, she has considerable expertise in, among other things, executive compensation, which is a subject matter that is undergoing dynamic change. | ||
Director since 2003 | Other Current Public Company Board(s): Assurant, Inc. (NYSE: AIZ) | Kforce Board Committee(s): Compensation (Chair); Nomination; and Corporate Governance | |
Age | 66 | ||
Ralph E. Struzziero | |||
 | Since 1995, Mr. Struzziero has operated an independent business consulting practice, providing interim executive-level advisory and professional services to a variety of organizations. In addition, he served as an adjunct professor at the University of Southern Maine from 1997 to 2006. Mr. Struzziero previously served as Chairman (1990-1994) and President (1980-1994) of Romac & Associates, Inc., one of Kforce’s predecessors. Mr. Struzziero is also currently a director of Automobile Club of Southern California, a travel club and property and casualty insurer in California, AAA of Northern New England, a travel club serving Maine, New Hampshire and Vermont, and Auto Club Enterprise, a holding company of these two companies. Mr. Struzziero previously served on the Board of Directors of Prism Medical Ltd., a publicly traded corporation on the TSX Venture Exchange in Canada and manufacturer and distributor of moving and handling equipment for the mobility challenged, from July 2011 until its sale in August 2016, and Downeast Energy Corp., a privately-held company that provides heating products and building supplies, from January 2001 until its sale in April 2012. Mr. Struzziero has extensive experience in the staffing industry. The Board believes this gives Mr. Struzziero, in his capacity as Lead Independent Director, a unique insight among the non-employee directors relating to Kforce’s business and operations. | ||
Director since 2000 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Compensation; and Corporate Governance (Chair) | |
Age | 74 | ||
5 Kforce 2019 Proxy Statement
PROPOSAL 1. ELECTION OF DIRECTORS
NOMINEES
The Nomination Committee has recommended, and our Board has approved, each of Randall A. Mehl, Elaine D. Rosen and Ralph E. Struzziero as nominees for election as Class I directors at the Annual Meeting. If elected, the Class I directors will serve until our 2022 annual meeting of shareholders, and until their successors are duly elected and qualified. Each of the nominees is currently a director of the Firm. For information concerning the nominees, please see the section titled “Biographical Information for our Director Nominees.”
Each of the nominees is willing and able to stand for election at the Annual Meeting, and we do not know of any reason why any of the nominees would be unable to serve as a director. If any nominee becomes unable or unwilling to stand for election, the Board may reduce its size or designate a substitute. If a substitute is designated, proxies voting for the original nominee will be cast for the substituted nominee.
VOTE REQUIRED
We use a majority voting standard for uncontested elections. The election of directors at this year’s Annual Meeting is an uncontested election and thus the majority voting standard applies.
To be elected, the votes “for” a director must exceed 50% of the votes actually cast with respect to the director’s election. Votes actually cast include votes where the authority to cast a vote for the director’s election is explicitly withheld and excludes abstentions and broker non-votes.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1. |
BIOGRAPHICAL INFORMATION FOR OUR OTHER DIRECTORS
CLASS II DIRECTORS - TERMS EXPIRE IN 2020
John N. Allred | |||
 | Mr. Allred has served as President of A.R.G., Inc., a provider of temporary and permanent physicians located in the Kansas City area since January 1994. He was a director at Source Services Corporation (Source) prior to its merger with Kforce in 1998 and served in various capacities with Source from 1976 to 1993 including Vice President (1987-1993), Regional Vice President (1983-1987) and Kansas City Branch Manager (1976-1983). Mr. Allred has extensive experience in the staffing industry and is particularly knowledgeable in the area of healthcare. His staffing industry experience (other than his directorship in Kforce) is with companies other than Kforce, which the Board believes allows him to address operational issues from a different perspective. | ||
Director since 1998 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Audit; Nomination (Chair); and Corporate Governance | |
Age | 72 | ||
Richard M. Cocchiaro | |||
 | Mr. Cocchiaro served as a Vice Chairman of Kforce from 2004 through his retirement in January 2016, during which time he oversaw Customer First, our customer loyalty program, and served on both Kforce’s internal executive committee and innovation council. Previously, Mr. Cocchiaro served as Vice President of Strategic Accounts for Kforce (2000–2004), Vice President of Strategic Alliances for Kforce.com Interactive (1999) and National Director of Strategic Solutions within Kforce’s emerging technologies group (1994-1999). Mr. Cocchiaro has served in numerous leadership roles within Kforce including, among others, the financial services group, leading the Chicago market, the emerging technologies group, strategic alliances, national accounts and most recently leading Customer First, our customer loyalty program. He has extensive experience with Kforce’s field operations on a national basis, bringing an important perspective to the Board. | ||
Director since 1994 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Executive | |
Age | 64 | ||
6 Kforce 2019 Proxy Statement
Ann E. Dunwoody | |||
 | General (Ret.) Dunwoody was the first woman in U.S. military history to achieve the rank of four-star general. From 2008 until her retirement in 2012, she led and ran the largest global logistics command in the Army comprising 69,000 military and civilian individuals, located in all 50 states and over 140 countries with a budget of $60 billion dollars. General (Ret.) Dunwoody also served as a strategic planner for the Chief of Staff of the Army. During her 38-year military career, she was decorated for distinguished service and has received many major military and honorary awards. General (Ret.) Dunwoody currently serves on the Board of Directors of L-3 Communications and Logistics Management Institute and previously served on the Board of Directors of Republic Services, Inc. She also serves on the Council of Trustees for the Association of the United States Army and the Board of Trustees for the Florida Institute of Technology and she is the president of First 2 Four LLC, a leadership mentoring and strategic advisory services company that offers visionary insights for managing large organizations to posture them for the future. She authored “A Higher Standard: Leadership Strategies from the First Female Four Star General” and is a recipient of The Ellis Island Medal of Honor. General (Ret.) Dunwoody brings to the Board extensive military and management experience, including managing a significant portion of the United States Army’s budget as Commanding General, U.S. Army Materiel Command. General (Ret.) Dunwoody is also certified as an NACD Governance Fellow. She serves as a member of the Board of Directors on another publicly traded company and is also engaged in numerous charitable and civic activities, which the Board believes allows her to provide valuable and varied perspective. | ||
Director since 2016 | Other Current Public Company Board(s): L-3 Communications (NYSE: LLL) | Kforce Board Committee(s): Nomination and Corporate Governance | |
Age | 66 | ||
A. Gordon Tunstall | |||
 | Mr. Tunstall is the founder, and for more than 30 years has served as President, of Tunstall Consulting, Inc., a provider of strategic consulting and financial planning services. He has also served as a director of Tabula Rasa Healthcare, Inc., a medication risk management and distribution pharmacy, since March 2012. Mr. Tunstall previously served as a director for JLM Industries, Inc., Orthodontics Center of America, Inc., Discount Auto Parts, Inc., Advanced Lighting Technologies Inc., Health Insurance Innovations, Horizon Medical Products Inc., and L.A.T. Sportswear. Mr. Tunstall also qualifies as an Audit Committee financial expert and stands willing to assume this role if for any reason the current Audit Committee financial experts cease to serve on the Board. He provides the Board a unique point of view regarding strategy given his background as a successful strategic consultant for over 30 years advising a large number of companies in a variety of industries. | ||
Director since 1995 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Nomination; Corporate Governance; and Executive | |
Age | 75 | ||
CLASS III DIRECTORS - TERMS EXPIRE IN 2021
David L. Dunkel | |||
 | Mr. Dunkel has served as Kforce’s Chairman, Chief Executive Officer and a director since the Firm’s incorporation in 1994 and possesses a deep and unique understanding of the Firm’s business and operations. The Board believes that this experience, coupled with his extensive knowledge of the staffing industry, provides strong, consistent leadership and allows him to serve as a highly effective bridge between the Board and management. In addition, in his capacity as CEO, Mr. Dunkel frequently meets with shareholders, clients and other Firm stakeholders to communicate our business and strategy and to understand their various perspectives and insights, which he is then able to relay to the full Board for consideration and assessment. | ||
Director since 1994 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Executive (Chair) | |
Age | 65 | ||
7 Kforce 2019 Proxy Statement
Mark F. Furlong | |||
 | Mr. Furlong has served as a director of Heska Corporation, a manufacturer of veterinary and animal health diagnostic and specialty products, since March 2019 and of Boston Private Financial Holdings, Inc., a provider of wealth management, trust and private banking services, since September 2016; he has also served as a director of Antares Capital, a provider of financing solutions for middle market, private equity-backed transactions, since December 2015. He served as the President and Chief Executive Officer of BMO Harris Bank, N.A. from July 2011 to June 2015. Mr. Furlong served as a director of BMO Harris Bank, N.A. and BMO Financial Corporation from July 2011 to June 2015. Prior to its acquisition by BMO Harris Bank, N.A. in 2011, he served as Chairman of Marshall & Ilsley Corporation from October 2010, Chief Executive Officer from April 2007 and as President from July 2004. He also served as Chief Financial Officer of Marshall & Ilsley Corporation from April 2001 to October 2004. Mr. Furlong’s prior experience also includes service as an audit partner with Deloitte & Touche LLP. Mr. Furlong is an Audit Committee financial expert. Kforce believes his considerable expertise, including his experience as President and Chief Executive Officer of BMO Harris Bank, N.A., the former Chairman, President and Chief Executive Officer of Marshall & Ilsley Corporation and a former audit partner with Deloitte & Touche LLP, brings unique insight to the Board concerning capital allocation strategies and banking issues, in addition to his overall management and financial expertise. | ||
Director since 2001 | Other Current Public Company Board(s): Boston Private Financial Holdings, Inc. (NASDAQ: BPFH); Heska Corporation (NASDAQ: HSKA) | Kforce Board Committee(s): Audit (Chair); Compensation; and Corporate Governance | |
Age | 61 | ||
N. John Simmons | |||
 | Mr. Simmons is the Chief Operating Officer and Chief Financial Officer of DeMert Brands, Inc., a designer, manufacturer and distributor of haircare products. He previously served as the Chief Executive Officer of Growth Advisors, LLC, a provider of C-level advisory services to high-growth companies. He has served on various boards of directors, including Bonds.com Group, Inc. from 2013 to 2014, Loyola University New Orleans Board of Trustees from 2009 to 2015, during which he was Chairman of the Audit Committee and an Executive Committee member; Lifestyle Family Fitness, Inc. from 2001 to 2012; Technology Research Corporation as Chairman of the Compensation Committee from 2010 to 2011 and as Lead Director and Chairman of the Governance and Nominating Committee from 2009 to 2010; Medquist, Inc. as Chairman of the Audit Committee from 2005 to 2007; and SRI Surgical Express, Inc. as Lead Director, then Chairman of the Board from 2001 to 2008. He served as the CEO and President of Lifestyle Family Fitness, Inc. from 2008 to 2012. Mr. Simmons’ prior experience also includes service as President of New Homes Realty, a Florida-based residential real estate company operating in 35 states for two years, President of Quantum Capital Partners, a privately held venture capital firm for 14 years, Vice President and Controller for Eckerd Corporation for three years, Chief Financial Officer of Checkers Drive-In Restaurants for two years and as an audit partner with KPMG Peat Marwick. Mr. Simmons is an Audit Committee financial expert; he has extensive financial, accounting, management and director experience in several different industries. As a result, the Board believes that he brings valuable insight due to his extensive and varied experiences as a chief executive officer, chief financial officer, audit partner and director. | ||
Director since 2014 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Audit and Corporate Governance | |
Age | 63 | ||
NON-CONTINUING DIRECTORS - TERM EXPIRES IN 2019
Howard W. Sutter | |||
 | Mr. Sutter has served as Kforce’s SVP, Leader Development since January 2017 and previously served as Vice Chairman since 2005; he also participates in Kforce’s mergers, acquisitions and divestitures. Prior to August 1994, Mr. Sutter served as Vice President of Romac-FMA (1984-1994) and Division President of Romac-FMA’s South Florida location (1982-1994). Mr. Sutter led Kforce’s merger, acquisition, and divestiture efforts for 19 years and, over this time, has led the effort on a significant number of acquisitions, including those of two public companies, and several divestitures. Mr. Sutter also has extensive experience in staffing operations. The Board believes that Mr. Sutter’s knowledge of the staffing industry, and more specifically the mergers and acquisition market, brings an important expertise to the Board. | ||
Director since 1994 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Executive | |
Age | 70 | ||
8 Kforce 2019 Proxy Statement
ROLE OF THE BOARD
The Board’s primary functions are to:
• | oversee management performance on behalf of our shareholders; |
• | advocate on behalf of the long-term interests of our shareholders; |
• | discuss and consider the Firm’s strategic and executive succession planning; |
• | be actively involved in the oversight of risk that could affect Kforce; |
• | promote the exercise of sound corporate governance; and |
• | carry out other duties and responsibilities as may be required by state and federal laws, as well as the NASDAQ rules. |
Sound corporate governance is fundamental to the overall success of Kforce. Our key governance documents, including our Corporate Governance Guidelines, are available at http://investor.kforce.com/investor-relations/corporate-governance.
At each regular Board meeting, various operational, strategic, financial and legal compliance areas, trends, progress and risks are reviewed by the Board, in conjunction with management, through management reports and dialogue with executive leadership on different areas of the business.
Materials and updates provided regularly to the Board are set forth below.
At each Board meeting our Board receives: | On a monthly basis our Board receives: | ||
l | an executive summary that includes, among other items, a risk factors section; | l | a description of certain significant events and risk factors, if any, that have occurred in each period; |
l | Kforce’s financial and operational performance, including progress against its strategies; | l | a financial update from management; and |
l | management’s assessment of the current state of the capital markets and macro-economic environment; | l | any other necessary items requiring the attention of the Board. |
l | management’s analysis on the current state of the staffing industry and corporate development activities; | ||
l | a claims, litigation and ethics hotline summary; | ||
l | a report on the Firm’s Enterprise Risk Management (ERM) program; and | ||
l | reports on other matters that may arise from time to time, that require reporting to the Board. | ||
COMPOSITION AND DIVERSITY
Our Board exhibits a wide range of backgrounds, skills, attributes and experiences. Our directors have served in leadership and management positions across fields such as banking, executive compensation, healthcare, investment banking, strategic advisory, insurance, government, military and staffing. These fields enable valuable oversight of our business and promote a broad understanding of the markets, products and industries of our client base. Four of our directors qualify as audit committee financial experts, bringing important points of view and skills to the Board. The Nomination Committee periodically reviews the composition of the Board and its committees to ensure a well-functioning mix of diverse backgrounds and expertise.
The Nomination Committee strives to identify directors who will: (1) bring to the Board a variety of skills and backgrounds; (2) bring substantial senior management experience, financial expertise and other skills that would enhance the Board’s effectiveness; and (3) represent the balanced, best interests of our shareholders as a whole and the interests of our stakeholders, as appropriate, rather than special interest groups or constituencies. In selecting individual nominees, the Nomination Committee assesses independence, character and integrity, potential conflicts of interest, experience, diversity of background and the willingness to devote sufficient time to carrying out the responsibilities of a director. While the Board has not adopted a formal policy on diversity, the Nomination Committee is committed to considering diversity during the director nomination process with the goal of creating a Board that best serves the Company and the interests of its shareholders.
9 Kforce 2019 Proxy Statement
The Nomination Committee has established a detailed director recruitment process by which it, the entire Board, the Firm’s independent directors and key management personnel all play a role in the identification, review, screening and interviewing of director candidates. The Committee’s procedures for identifying and selecting director candidates are designed to ensure each candidate is evaluated for their qualifications, independence, potential conflicts and other issues of import to the Firm and Board composition. When identifying candidates, the Nomination Committee takes into account overall board composition. The priorities for recruiting new directors are based on the Firm’s strategic needs and the skills composition of the Board at any given time.
The Committee also understands the importance of Board refreshment and is committed to the process in a manner that promotes a balance of perspective, experience and continuity. Since 2014, we have advanced the refreshment and diversity of our Board through the addition of three new board members.
LEADERSHIP STRUCTURE
Our current leadership structure includes Mr. Dunkel’s service as both Chairman and Chief Executive Officer of the Firm. This role is coupled with, and balanced by, a lead independent director as well as independent Audit, Compensation, Nomination, and Corporate Governance committees and a majority of independent directors. The Board believes that this structure has served our shareholders well historically and continues to provide the most effective, efficient and appropriate framework for board oversight and governance.
Mr. Dunkel has served as Kforce’s Chairman, CEO and a director since the Firm’s incorporation in 1994 and as a result he possesses a deep and unique understanding of the Firm’s business and operations. The Board believes that this experience, coupled with his extensive knowledge of the staffing industry, provides strong, consistent leadership and allows him to serve as a highly effective bridge between the Board and management. In addition, in his capacity as CEO, Mr. Dunkel frequently meets with shareholders, clients and other Firm stakeholders to communicate our business and strategy and understands their various perspectives and insights, which he is then able to relay to the full Board for consideration and assessment. Mr. Dunkel’s beneficial ownership of approximately 4% of Kforce’s outstanding common stock further aligns his interests with those of our shareholders and the Board continues to believe that his in-depth knowledge and experience places him in the best position to both guide and implement the Board’s direction.
Our Corporate Governance Guidelines recognize the importance of a lead independent director in the absence of an independent Chairman and sets forth specific roles and responsibilities of the lead independent director, including: presiding at executive sessions of the independent directors; serving as a liaison between the independent directors and the Chairman and CEO; and having oversight of CEO hiring and succession. In addition, the chairs and all members of the Board’s Audit, Compensation, Nomination, and Corporate Governance Committees are independent directors. As a result, the oversight of the critical issues within the purview of these committees is entrusted to the independent directors and serves to further uphold effective governance standards.
The Board remains open to, and regularly seeks, shareholder feedback with regard to governance topics such as its leadership structure and considers the feedback provided as part of its assessment process.
COMMITTEES AND MEETINGS
Our Board has established five standing committees consisting of an Audit Committee, Compensation Committee, Nomination Committee, Corporate Governance Committee and Executive Committee. These committees facilitate a more in-depth assessment of certain important areas than can be addressed during a full Board meeting. The Board has determined that the chair and each of the committee members of its Audit, Compensation, Nomination, and Corporate Governance Committees are independent within the meaning of the NASDAQ and SEC Rules. The committee members and independent directors meet regularly in executive session without management. Additional information regarding the composition and responsibilities of the committees is described below. Each Committee has the authority to retain or obtain the advice of legal counsel, accountants, and other advisors. Written charters of each committee are available at http://investor.kforce.com/investor-relations/corporate-governance.
Audit Committee | |
Members: | Roles and Responsibilities of the Committee: |
Mark F. Furlong (Chair) | The Audit Committee oversees the accounting and financial reporting processes of the Firm and the audits of the Firm’s financial statements. In discharging this oversight role, the Audit Committee is empowered to investigate any matter brought to its attention, with full access to all books, records, facilities and personnel of Kforce, and the power to retain outside counsel or other experts. This committee also has the responsibility for selecting, evaluating, compensating, and monitoring the independence and performance of the Firm’s independent auditors, reviewing and approving related party transactions and overseeing the Firm’s internal audit function and ERM program, including cybersecurity risk assessment. At each quarterly meeting, and more frequently as needed, the members of the Audit Committee meet in executive session. The Audit Committee also meets regularly in separate executive sessions with the Firm’s Vice President of Internal Audit, General Counsel, and Deloitte & Touche LLP, our independent registered public accountants. The Board has determined that Messrs. Furlong, Mehl and Simmons, who are all members of the Audit Committee, as well as Mr. Tunstall are considered an “audit committee financial expert,” as defined by SEC Rules. |
John N. Allred | |
Randall A. Mehl | |
N. John Simmons | |
Number of Meetings: | |
5 | |
10 Kforce 2019 Proxy Statement
Compensation Committee | |
Members: | Roles and Responsibilities of the Committee: |
Elaine D. Rosen (Chair) | The Compensation Committee is responsible for development of the compensation principles to guide the design of the Firm’s executive compensation program. It is also responsible for reviewing and approving the executive compensation and benefit policies and practices of the Firm, approving any new or amended employment agreements for executive management including grants or awards to executive management under the Firm’s long-term incentive program and preparing an annual report on the Firm’s executive compensation policies and practices as required by SEC Rules. In the discharge of its duties, the Compensation Committee also has the authority to select and utilize a compensation consultant to assist in the evaluation of director and executive officer compensation. |
Mark F. Furlong | |
Ralph E. Struzziero | |
Number of Meetings: | |
6 | |
Nomination Committee | |
Members: | Roles and Responsibilities of the Committee: |
John N. Allred (Chair) | The Nomination Committee is responsible for providing assistance to the Board in the selection of director candidates for election. In addition to identifying and recommending candidates for election to the Board, this committee also makes recommendations to the Board regarding the size and composition of the Board and establishes procedures for the nomination process. The Nomination Committee has the authority to retain a search firm to be used to identify director candidates and to approve the search firm’s fees and other retention terms. The Nomination Committee has not established “minimum qualifications” for director nominees because it is the view of this committee that the establishment of rigid “minimum qualifications” might preclude the consideration of otherwise desirable candidates for election to the Board. The Nomination Committee will consider director candidates recommended by shareholders. Refer to the section titled “Shareholder Communications, Proposals and Other Matters” below. |
Ann E. Dunwoody | |
Elaine D. Rosen | |
A. Gordon Tunstall | |
Number of Meetings: | |
4 | |
Corporate Governance Committee | |
Members: | Roles and Responsibilities of the Committee: |
Ralph E. Struzziero (Chair) | The functions of the Corporate Governance Committee are to: encourage and enhance communication among independent directors; provide a forum for independent directors to meet separately from management; provide leadership and oversight related to ethical standards; and provide a channel for communication with the CEO. The Corporate Governance Committee also coordinates a formal, written annual evaluation of the performance of the Board and each of its committees. Each member of the Board who is independent, within the meaning of these rules, serves on the Corporate Governance Committee. This committee is designed to fulfill the requirements of NASDAQ Rule 5605(b)(2) (i.e., through the meetings of this committee, our “independent” directors (as determined under the NASDAQ Rules) meet at least once annually in executive session without any of our management present). The Firm’s Lead Independent Director serves as the Chair of the Corporate Governance Committee. |
John N. Allred | |
Ann E. Dunwoody | |
Mark F. Furlong | |
Randall A. Mehl | |
Elaine D. Rosen | |
N. John Simmons | |
A. Gordon Tunstall | |
Number of Meetings: | |
4 | |
Executive Committee | |
Members: | Roles and Responsibilities of the Committee: |
David L. Dunkel (Chair) | The Executive Committee has the authority to act in place of the Board on all matters that would otherwise come before the Board, except for such matters that are required by law or by our Articles of Incorporation or Bylaws to be acted upon exclusively by the Board. |
Richard M. Cocchiaro | |
Howard W. Sutter | |
A. Gordon Tunstall | |
Number of Meetings: | |
None | |
During 2018, the Board held four meetings and the five committees of the Board held a total of 19 meetings. Each director attended 100% of the Board meetings and 100% of the committee meetings on which he or she served. Our Corporate Governance Guidelines invite, but do not require, our directors to attend our annual meeting of shareholders and one director attended our 2018 annual meeting of shareholders.
11 Kforce 2019 Proxy Statement
RISK OVERSIGHT
The Board, as a whole and at the committee level, has an active role in overseeing the management of the Firm’s risks. The Board’s primary mechanism for assessing overall risk to the Firm as well as management’s actions to address and mitigate those risks is a comprehensive, integrated ERM program. The Firm’s ERM program divides risk into four categories: financial/strategic risk, client risk, operational risk and employment/legal risk. The ERM risk assessment process is led by Kforce’s Vice President of Risk and Compliance and coordinated by the compliance team, which, together with business unit leadership, delivers regular risk assessment reports to the Audit Committee. The Audit Committee reviews these reports with members of management as part of the process.
The Board exercises an oversight role with respect to risks facing our Firm and has designated the Audit Committee with the primary responsibility for overseeing the Firm’s ERM program. The Audit Committee dedicates a portion of its meetings to reviewing and discussing specific areas of risk, focusing on high risk topics in greater detail. In particular, it engages in periodic reviews of how cybersecurity risk is assessed and mitigated by the company. These reviews include discussions with third party experts that have been engaged by management to perform various cybersecurity testing and assessments. The Audit Committee provides the Board with periodic reports on the Firm’s risks and ERM program findings, including cybersecurity risk and incident issues. In addition, the Firm’s internal audit function, which reports to the Audit Committee, sets forth a comprehensive internal audit plan that is approved by the Audit Committee on an annual basis. This plan is formulated based on internal audit’s assessment of risks within Kforce, which is primarily based on financial asset protection and reporting, data security, and other ERM program findings, discussions with Kforce’s officers, directors and other key personnel, and the results of their previous operational and financial audits.
The individual committees also consider risk within their areas of responsibility as summarized below. The committee chairs provide reports of their activities to the Board at each regular Board meeting including apprising the Board of any significant risks within their areas of responsibility and management’s response to those risks.
Audit | Compensation | Nomination | Corporate Governance | ||||
l | Responsible for the Firm’s risk assessment and ERM program | l | Oversees executive compensation risk | l | Oversees director succession risk | l | Leadership and oversight of ethical standards |
l | Monitors risk relating to the Firm’s financial statements, systems, reporting process and compliance | l | Responsible for preparation and required disclosures regarding compensation practices | l | Establishes procedures for the Board’s nomination process | l | Provides a forum for Board independent directors to meet separately from management |
l | Reviews and approves related party transactions and relationships involving directors and executive officers | l | Responsible for review of the overall compensation and benefits policies and practices of the Firm, including determining whether such policies and practices are reasonably likely to have a material adverse effect on the Firm | l | Recommends candidates for election to the Board | l | Reviews and recommends to the Board any changes to the corporate governance guidelines |
l | Monitors and receives reports on the Firm’s cyber- security risks and incidents | l | Oversees the Board’s evaluation process | ||||
CODE OF ETHICS AND GOVERNANCE GUIDELINES
The Board has adopted a Commitment to Integrity, which is applicable to all directors, officers and employees of Kforce, including the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. It is intended to help Firm personnel recognize and deal with ethical issues, deter wrongdoing and provide mechanisms to report dishonest or unethical conduct. The Firm also has a set of Corporate Governance Guidelines that sets forth the Firm’s corporate governance policies and practices and serves to guide the operation and direction of the Board. These guidelines, together with the charters for the standing committees of the Board and the Commitment to Integrity, are available at http://investor.kforce.com/investor-relations/corporate-governance.
RELATED PARTY TRANSACTIONS, COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Audit Committee is responsible for reviewing and approving all related party transactions that Kforce is required to disclose in accordance with Item 404 of Regulation S-K. The Board believes that the Audit Committee’s practices and processes around the review, approval and ratification of transactions with related persons provides adequate evaluations of all potential related party transactions, including considerations on whether the transaction is on terms that are in the best interests of Kforce and our shareholders. The following related party transactions have been reviewed and approved by the Audit Committee.
12 Kforce 2019 Proxy Statement
Mr. Struzziero’s son was employed by Kforce Government Solutions (KGS), a wholly-owned subsidiary of Kforce in a business development role, from January 2011 through October 2018. Mr. Struzziero’s son had no involvement in management decisions of Kforce. Mr. Struzziero had no influence in the hiring of his son or his son’s decision to terminate his employment with KGS, nor did he have any involvement in the ongoing compensation and performance-related decisions. Total remuneration paid to Mr. Struzziero’s son in 2018 was approximately $255,000, which consisted of base salary and incentive-based compensation. The Nomination Committee specifically considered the employment of Mr. Struzziero’s son by KGS when determining whether to renominate Mr. Struzziero and concluded that his son’s past employment did not impair Mr. Struzziero’s independence.
During 2018, Kevin Oskison, the brother of our Chief Operations Officer, Kye Mitchell, was employed by Kforce as a Tech Strategic Delivery Director and received compensation of approximately $129,000 for employment services provided in 2018. Mr. Oskison has served in this role since January 2016 and has been employed with the Firm since 2009. Ms. Mitchell does not supervise or evaluate Mr. Oskison’s performance, nor does she have any input into his compensation.
In 2018, the Firm’s Compensation Committee consisted of Elaine D. Rosen (Chair), Mark F. Furlong and Ralph E. Struzziero. Mr. Struzziero served as the Chairman (1990-1994) and President (1980-1994) of Romac & Associates, Inc., a company acquired by Kforce in 1994. None of the other members of the Compensation Committee is currently or was formerly an officer or an employee of Kforce or its subsidiaries or had any relationship with Kforce requiring disclosure under Item 404 of Regulation S-K. During 2018, none of the Firm’s executive officers served on the board of directors or compensation committee of any entity that had one or more of its executive officers serving on the Board or the Compensation Committee.
COMPENSATION OF DIRECTORS
The following table shows the annual compensation components for the year ended December 31, 2018 and the aggregate outstanding stock awards as of December 31, 2018 for our directors who served on the Board during 2018, except Mr. Dunkel:
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | All Other Compensation ($)(3) | Total ($) | Unvested Restricted Stock (4) | Deferred Restricted Stock Units (4) | ||||||||||
John N. Allred | $ | 107,000 | $ | 99,987 | $ | 2,348 | $ | 209,335 | 3,769 | — | ||||||
Richard M. Cocchiaro | $ | 50,000 | $ | 99,987 | $ | 4,494 | $ | 154,481 | 3,769 | 4,566 | ||||||
Ann E. Dunwoody | $ | 77,000 | $ | 99,987 | $ | 4,494 | $ | 181,481 | 3,769 | 4,566 | ||||||
Mark F. Furlong | $ | 107,000 | $ | 99,987 | $ | 2,348 | $ | 209,335 | 3,769 | — | ||||||
Randall A. Mehl | $ | 77,000 | $ | 99,987 | $ | 2,348 | $ | 179,335 | 3,769 | — | ||||||
Elaine D. Rosen | $ | 107,000 | $ | 99,987 | $ | 7,826 | $ | 214,813 | 3,769 | 10,144 | ||||||
N. John Simmons | $ | 77,000 | $ | 99,987 | $ | 2,348 | $ | 179,335 | 3,769 | — | ||||||
Ralph E. Struzziero | $ | 92,000 | $ | 99,987 | $ | 7,826 | $ | 199,813 | 3,769 | 10,144 | ||||||
Howard W. Sutter (5) | $ | — | $ | 150,006 | $ | 446,726 | $ | 596,732 | 3,973 | — | ||||||
A. Gordon Tunstall | $ | 77,000 | $ | 99,987 | $ | 2,348 | $ | 179,335 | 3,769 | — | ||||||
(1) | Fees earned or paid in cash consisted of: (a) annual retainer for each director of $30,000; (b) annual retainers for each committee chairperson of $15,000; (c) quarterly fees for each quarter of board service of $5,000; and (d) quarterly fees for each quarter of committee service of $3,750 for each of the Audit Committee, Compensation Committee and Nomination Committee and $3,000 for the Corporate Governance Committee. |
(2) | The amounts in this column represent the aggregate grant date fair value in accordance with FASB ASC 718. The amounts for all directors, except for Mr. Sutter, reflect a grant of 3,717 shares of restricted stock with a closing stock price on the grant date of $26.90. For Mr. Sutter, the amount represents compensation for his employment at Kforce, which included a grant of 3,932 shares of restricted stock with a closing stock price on the grant date of $38.15. Mr. Sutter was not compensated for his service on the Board. |
(3) | The amounts reported in this column for all directors, except Mr. Sutter, represent the dollar value of dividend equivalents credited on unvested restricted stock and deferred restricted stock units in the form of additional restricted stock. For Mr. Sutter, the amount in this column represents employment compensation, which consisted of: $300,000 in salary, $137,850 in bonus, $7,456 in matching contributions made by Kforce attributable to defined contribution plans, and $1,420 in dividend equivalents credited on unvested restricted stock. Mr. Sutter was not compensated for his service on the Board. |
(4) | The beneficial ownership of common shares as of the Record Date for each of our directors is presented below under the heading of “Security Ownership of Certain Beneficial Owners and Management.” |
(5) | On January 31, 2019, Howard W. Sutter informed Kforce that due to his long tenure as a member of the Board and consistent with the Board’s refreshment initiatives, he would not stand for re-election as a Class I Director at the Annual Meeting. |
13 Kforce 2019 Proxy Statement
EXECUTIVE OFFICERS
The ages (as of February 22, 2019) and biographies for each of our executive officers is set forth below.
David L. Dunkel | Age: | 65 | |
Chairman and Chief Executive Officer | Mr. Dunkel has served as Kforce’s Chairman, Chief Executive Officer and a director since its incorporation in 1994. He previously served as President and Chief Executive Officer of Romac-FMA, one of Kforce’s predecessors, for 14 years. | ||
Michael R. Blackman | Age: | 64 | |
Chief Corporate Development Officer | Mr. Blackman has served as Kforce’s Chief Corporate Development Officer since December 2009, prior to which he served as the Firm’s Senior Vice President of Investor Relations from 1999 to 2009 and Director of Selection and Senior Consultant in the healthcare services specialty from 1992 to 1999. | ||
Jeffrey B. Hackman | Age: | 40 | |
Senior Vice President, Finance and Accounting | Mr. Hackman has served as Kforce’s Principal Accounting Officer since October 2015 and as Senior Vice President of Finance and Accounting since March 2015. He is responsible for overseeing Kforce's finance, accounting, SEC reporting, tax, treasury, procurement, real estate and business operations (time capture, billing, accounts receivable and cash applications) functions. He previously served as the Firm’s Chief Accounting Officer and Principal Accounting Officer from February 2009 until September 2013 and as Kforce’s SEC Reporting Director from September 2007 to February 2009. Mr. Hackman served as the Global Chief Accounting Officer of Cunningham Lindsey from September 2013 until he rejoined Kforce in March 2015. Prior to 2007, he was an Audit Senior Manager with Grant Thornton LLP. | ||
David M. Kelly | Age: | 53 | |
Chief Financial Officer | Mr. Kelly has served as Kforce’s Senior Vice President and Chief Financial Officer since January 2013 and Corporate Secretary since February 2013. Mr. Kelly joined Kforce in 2000 and has served as Senior Vice President of Finance and Accounting from February 2009 to December 2012, Corporate Assistant Secretary from October 2010 to February 2013, Vice President of Finance from January 2005 to February 2009, Chief Accounting Officer from November 2000 to January 2005 and Group Financial Officer from January 2000 to November 2000. Before joining Kforce, Mr. Kelly served in various roles with different companies that included treasury director, vice president, and controller. | ||
Joseph J. Liberatore | Age: | 55 | |
President | Mr. Liberatore has served as Kforce’s President since January 2013. He previously served as Corporate Secretary from February 2007 to February 2013, Chief Financial Officer from October 2004 to December 2012, Executive Vice President from July 2008 to December 2012, Senior Vice President from 2000 to July 2008, Chief Talent Officer from 2001 to 2004 and Chief Sales Officer from September 2000 to August 2001. Mr. Liberatore has served in various other roles in Kforce (and its predecessors) since he joined the Firm in 1988. | ||
Kye L. Mitchell | Age: | 49 | |
Chief Operations Officer | Ms. Mitchell has served as Kforce’s Chief Operations Officer since March 2016. Before her appointment as Chief Operations Officer, Ms. Mitchell served as Chief Operations Officer for the East Region from January 2013 to March 2016, Field President from January 2009 through December 2012, Market President from February 2006 to December 2008, and Market Vice President from February 2005 through January 2006. Ms. Mitchell joined Kforce in 2005 when Kforce acquired VistaRMS where she served as President. | ||
Andrew G. Thomas | Age: | 52 | |
Chief Marketing Officer | Mr. Thomas has served as Kforce’s Chief Marketing Officer since July 2018. In his current role, he leads the Firm’s marketing, digital strategy, training and development, human resources, compensation and benefits organizations. Prior to this role, Mr. Thomas was the Firm’s Chief Field Services officer from December 2013 to July 2018. He has also served as the Executive Director of Kforce’s Finance and Accounting product offering where he oversaw strategy, operating model and critical activities, as well as various other roles in Kforce since he joined the Firm in 1997. | ||
14 Kforce 2019 Proxy Statement
PROPOSAL 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Our consolidated financial statements for the year ended December 31, 2018, have been audited by Deloitte & Touche LLP, independent auditors. The Audit Committee of the Board has selected Deloitte & Touche LLP, subject to ratification by shareholders, to audit our consolidated financial statements for the year ending December 31, 2019, to provide review services for each of the quarters in the year then ended, and to perform other appropriate services. A representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting to respond to appropriate questions and to make any other statements deemed appropriate.
Deloitte & Touche LLP has audited Kforce’s financial statements since the fiscal year ended December 31, 2000.
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS - FEE INFORMATION
Fee Type | 2018 | 2017 | |||||
Audit Fees (1) | $ | 879,827 | $ | 813,422 | |||
Audit-Related Fees (2) | $ | 11,500 | $ | 11,500 | |||
Tax Fees (3) | $ | 35,467 | $ | — | |||
All Other Fees (4) | $ | 1,895 | $ | 1,895 | |||
(1) | Represents fees associated with the annual audit and the review of our financial statements included in our Quarterly Reports on Form 10-Q. |
(2) | Includes assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements, or other filings that are not captured under “Audit Fees” above. These services included consultations as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, and other regulatory or standard-setting bodies; internal control reviews, including consultation, under Section 404 of the Sarbanes-Oxley Act of 2002; due diligence services and audits and accounting consultations related to dispositions. |
(3) | Represents fees for tax advice, tax planning and tax consultation for contemplated transactions and state income tax notices. |
(4) | Represents fees for an annual subscription to a Deloitte & Touche LLP research database and continuing education courses. The Audit Committee considered whether Deloitte & Touche LLP’s provision of the above non-audit services is compatible with maintaining such firm’s independence and satisfied itself as to Deloitte & Touche LLP’s independence. |
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors to ensure that the provision of such services does not impair the auditor’s independence. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific limit above which separate pre-approval is required. Management periodically reports to the Audit Committee the pre-approved services provided by the independent auditors as well as the fees for the services performed.
During the year ended December 31, 2018, 100% of services were pre-approved by the Audit Committee in accordance with this policy.
VOTE REQUIRED
Approval of this proposal requires the affirmative vote of a majority of the shares entitled to vote on the matter. An abstention is considered as present and entitled to vote and will have the effect of a vote against the proposal. A broker non-vote is considered not entitled to vote and will not affect the voting.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2. |
15 Kforce 2019 Proxy Statement
AUDIT COMMITTEE REPORT
Kforce Inc.’s Audit Committee is composed of four directors, all of whom the Board has determined to be independent within the meaning of the NASDAQ and SEC Rules. The Audit Committee assists the Board in general oversight of Kforce Inc.’s financial accounting and reporting process, system of internal control and audit process.
Kforce Inc.’s management has primary responsibility for Kforce Inc.’s consolidated financial statements and for maintaining effective internal control over financial reporting. Kforce Inc.’s independent auditors, Deloitte & Touche LLP, are responsible for expressing an opinion on Kforce Inc.’s consolidated financial statements as to whether they present fairly, in all material respects, Kforce Inc.’s financial position, results of operations and cash flows, in conformity with GAAP and an opinion on the effectiveness of Kforce’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This opinion is based on their audits.
In this context, the Audit Committee reports as follows:
1. | The Audit Committee has reviewed and discussed the audited consolidated financial statements with Kforce Inc.’s management; |
2. | The Audit Committee has discussed with the independent auditors the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard 1301; |
3. | The Audit Committee has received the written disclosures and the letter from the independent auditors required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the audit committee concerning independence, and has discussed with the independent auditors the independent auditors’ independence; and |
4. | Based on the review and discussion referred to in the above paragraphs, the Audit Committee recommended to the Board that the audited financial statements be included in Kforce Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018, for filing with the SEC. The Audit Committee has also selected Deloitte & Touche LLP, subject to ratification by shareholders, to audit our consolidated financial statements for the year ending December 31, 2019, and to provide review services for each of the quarters in the year ending December 31, 2019. |
Submitted by the Audit Committee
Mark F. Furlong (Chair)
John N. Allred
Randall A. Mehl
N. John Simmons
The above report shall not be deemed “soliciting material” or “filed” with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into such filings.
16 Kforce 2019 Proxy Statement
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee Report The Compensation Committee of Kforce (the Committee) has reviewed and discussed the Compensation Discussion and Analysis (CD&A) required by Item 402(b) of Regulation S-K with management and based on such review and discussions, the Committee recommended to the Board that the CD&A be included in this Proxy Statement and incorporated into Kforce’s Annual Report on Form 10-K for the year ended December 31, 2018. Submitted by the Compensation Committee Elaine D. Rosen (Chair) ¦ Mark F. Furlong ¦ Ralph E. Struzziero |
The above report shall not be deemed “soliciting material” or “filed” with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into such filings.
EXECUTIVE SUMMARY
The CD&A primarily focuses on the compensation of our Named Executive Officers (NEOs) for the year ended December 31, 2018. Kforce’s NEOs for the year ended December 31, 2018 were:
• | David L. Dunkel, Chairman and Chief Executive Officer |
• | Joseph J. Liberatore, President |
• | David M. Kelly, Chief Financial Officer |
• | Kye L. Mitchell, Chief Operations Officer |
• | Andrew G. Thomas, Chief Marketing Officer |
During 2018, Kforce:
• | Attained 99.9% of our target revenue and 109% of our target diluted earnings per share (EPS). |
• | Attained above target performance for our long-term incentive (LTI) metric; Kforce’s relative total shareholder return (TSR) over the past three years (January 1, 2016 through December 31, 2018) of 31% ranked 2nd versus our industry peer group of 7 direct competitors, and attained a 50th percentile ranking versus our separately designated peer group. |
• | Continued to make progress on our strategic initiatives including implementing new and upgrading existing technologies, improving our alignment of revenue-generating talent, and executing a Kforce brand refresh. |
As a result of our overall financial and TSR performances, our Committee approved:
• | Above target annual incentive payouts, based on the performance against our financial metrics (payouts were slightly below target for revenue and above target for EPS) and on individual performance objectives (payouts were above target). |
• | LTI payouts for the CEO and the President at target based on median relative TSR performance versus our separately designated peer group, and LTI payouts for the other NEOs above target based on above median relative TSR performance versus our industry peer group. |
Overall, the Committee believes the compensation levels in 2018 are aligned with the Firm’s performance results.
OUR COMPENSATION PRINCIPLES, COMPONENTS AND PRACTICES
What We Do | What We Don’t Do | |||
l | Target Annual NEO Compensation at Market Median for Median Performance | l | Define Market Median by Comparison to Larger Companies | |
l | Provide Pay for Performance by Paying Higher Compensation for Above Median Performance and Lower Compensation for Below Median Performance | l | Set Easy Targets for Incentive Plans | |
l | Ensure Performance-Based Compensation is the Largest Part of Total Compensation | l | Provide Excessive Perquisites | |
l | Ensure Equity-Based LTI Compensation is a Significant Component of Performance-Based Compensation | l | Allow Repricing or Cash Buyouts of Previous Equity-Based LTI Grants | |
l | Require Share Ownership | l | Allow Hedging or Pledging of Company Stock or Other Related Activities | |
l | Maintain a Significant Clawback Policy | l | Create New Excise Tax Gross-ups | |
l | Create New or Materially Amend Executive Employment Agreements with Provisions for Severance Payouts Exceeding 1x Cash Compensation or Change in Control Severance Payouts Exceeding 2x Cash Compensation | |||
17 Kforce 2019 Proxy Statement
Our Executive Compensation Philosophy and Practices
Our executive compensation philosophy is to attract, motivate and retain highly qualified executives who are able to maximize shareholder value. To carry out this philosophy, we have embraced the following principles intended to guide compensation design and administrative decisions made by the Committee, the Board and management.
Attract and Retain Key Executives | Attracting and retaining key executive talent is critical to the success of a staffing firm in which people represent the true “assets” of such a company. The Committee believes an understanding of competitive market pay levels is essential to hiring and retaining qualified executives able to drive our long-term profitable growth and long-term shareholder value. The Committee further believes it is important to be knowledgeable concerning best practices and how comparable organizations compensate their executives. | |
Target Annual NEO Compensation at Market Median | The executive compensation plan is designed to target the total pay level for our NEOs at the median of comparable companies. To effectively accomplish this, the Committee annually reviews compensation data from several independent sources. Our competitive market for executive talent is primarily staffing organizations; however, the Committee also reviews pay data for other professional service and consulting organizations of comparable size and similar business models. | |
Provide Pay-for-Performance by Paying Higher Compensation for Above Median Performance and Lower Compensation for Below Median Performance | The Committee believes executive compensation should align with our revenue, profit and TSR performance and provide superior cash and equity compensation opportunities for superior performance. The Committee also believes the design of our compensation programs provides incentives for our NEOs to exceed targeted performance, which results in significant relative shareholder value creation and creates a positive perception of Kforce in the highly competitive market for executive talent. Accordingly, the opposite is true for below median performance resulting in lower compensation. | |
Ensure Performance-Based Compensation is the Largest Part of Total Compensation | The Committee designs the compensation framework with significant emphasis on performance-based compensation over fixed compensation to motivate our NEOs to drive operational performance without encouraging unreasonable risk. Performance-based compensation at target comprised 73% of target total direct compensation for our CEO and between 64% to 73% for our other NEOs in 2018. | |
Ensure Equity-Based LTI Compensation is a Significant Component of Performance-Based Compensation | The Committee believes equity-based LTI compensation should be a significant component of performance-based compensation to further focus executive efforts on long-term shareholder returns. Target equity LTI ranged from 60% to 67% of target total performance-based compensation for our NEOs in 2018. We believe the opportunity to earn the designated equity LTI performance objectives motivates the achievement of higher relative TSR; it also serves to retain our executives for the long-term, given the denomination of earned equity LTIs as time-based restricted stock. | |
Require Share Ownership | The Committee believes our executives should have a personal financial stake in Kforce’s ongoing future success, primarily driven by a desire to match their interests with those of our shareholders. In addition to equity-based LTIs playing a significant role in our executive compensation program, all employees, including the NEOs, are eligible to purchase stock through the Kforce Inc. 2009 Employee Stock Purchase Plan. To further align the interests of executives and long-term shareholders, our Board has adopted formal ownership guidelines, set forth below. | |
Consider Tax Deductibility in Compensation Plan Design | The Committee considers all possible tax consequences in the design of our executive compensation programs. Our NEO compensation framework was structured so that our performance-based annual incentive and LTI awards would be deductible under Section 162(m) of the Internal Revenue Code (the Code). The enactment of the 2017 Tax Cuts and Jobs Act (TCJA) resulted in the elimination of performance-based compensation exemptions, except with respect to certain grandfathered arrangements granted prior to November 2, 2017. As a result, this has limited the tax deductibility of NEO compensation beginning in 2018. Although the use of the Kforce Inc. Amended and Restated Performance Incentive Plan previously approved by our shareholders was not historically the exclusive method of making annual incentives, its use has been discontinued as a result of the elimination of the compensation exemptions. Despite the changes to Section 162(m), we expect the structure of our NEO compensation program will continue to include a significant portion of performance-based compensation, which is consistent with our compensation philosophy of linking pay to performance and aligning executive interests with those of our shareholders. | |
Set Challenging Performance Objectives | We work to set difficult but attainable financial growth performance objectives for our NEOs in the context of the annual incentive plan as evidenced by the fact that threshold and target goals and objectives have not been met in every plan year. | |
18 Kforce 2019 Proxy Statement
The Company’s compensation program has the following features for alignment with best practices:
Minimum Required Share Ownership Guidelines | Our Corporate Governance Guidelines include a stock ownership policy for our directors and executives. The minimum level of holdings for each position is as follows: | |||||
Target Holding Level (Lesser Of) | ||||||
Position | Annual Retainer / Salary | OR | Shares | |||
Director | 3x | 5,000 | ||||
Chief Executive Officer | 5x | 200,000 | ||||
President | 3x | 100,000 | ||||
Chief Financial Officer | 2x | 50,000 | ||||
Chief Operations Officer | 2x | 30,000 | ||||
Other members of Kforce’s Executive Leadership Team | 0.5x | 10,000 | ||||
As of the Record Date, all directors, NEOs and other members of our executive leadership were in compliance with the policy. In accordance with the policy, directors have three years from the effective date of joining the Board, and executives have two years from the effective date of a promotion or salary increase, to attain the ownership level. | ||||||
Clawback Policy | Our Corporate Governance Guidelines include a clawback policy applicable to all executive officers. Accordingly, in the event of a restatement of our financial statements because of a material noncompliance with any financial reporting requirements under the federal securities laws, the Board will, if determined appropriate, recover from current executives any incentive-based compensation paid for any applicable performance periods beginning after March 30, 2012. | |
Equity Plan Features | The Committee believes Kforce’s equity plans are structured to avoid problematic pay practices and features that could be detrimental to shareholder interests. None of our Stock Incentive Plans (as approved by shareholders in 2013, 2016 and 2017 and pending approval of Proposal 4 in 2019) permit repricing or cash buyouts of underwater options or stock appreciation rights without shareholder approval. The 2017 and 2019 Plans require a minimum vesting period of one year on all award types. In addition, the 2019 Plan requires a minimum holding period of one year after exercise of any options and stock appreciation rights for all NEOs; we will also apply this policy to any awards granted outside of this plan. | |
Insider Trading, Anti-Pledging and Anti-Hedging | Our Insider Trading Policy governs the trading in our securities by directors, officers and employees and other persons who have or may have access to material, nonpublic information. The policy has the following restrictions: | ||
s | No trading while in the possession of material, nonpublic information | ||
s | No trading during designated black-out periods | ||
s | No trading without pre-approval (certain insiders) | ||
s | No margin accounts | ||
s | No pledging | ||
s | No hedging (including, but not limited to, prepaid variable forwards, equity swaps, collars and exchange funds) | ||
s | No trading in any interest or position relating to future stock price, such as a puts, calls or short sales | ||
Elimination of Excise Tax Gross-Up | In 2009, the Committee resolved to not enter into any new employment agreements, or materially amend any existing employment agreements with its executives that contain excise tax gross-up provisions in the event of a change-in-control event going forward. Since the Committee’s resolution, all new or amended executive employment agreements have excluded excise tax gross-up provisions. As a result, the only remaining employment agreements which continue to include excise tax gross-up provisions are with Messrs. Dunkel and Liberatore; both of these agreements were most recently amended in 2008. | |
Roles and Responsibilities
Role of the Compensation Committee
The Committee, which consists entirely of independent directors, is responsible for development of the compensation principles that guide the design of the Firm’s executive compensation program. It is also responsible for reviewing and approving Kforce’s overall compensation, inclusive of employee benefit policies and practices. The Committee has concluded the compensation policies and practices of the Firm do not create risks that are reasonably likely to have a material adverse effect on Kforce.
19 Kforce 2019 Proxy Statement
The Committee makes every effort to maintain its independence and objectivity. The Committee meets in executive session on a quarterly basis for discussions or decisions regarding executive compensation. While the Committee receives input and discusses compensation with the CEO, President and CFO, the ultimate determination regarding the annual compensation of the CEO and other executive officers, including the NEOs, is in the Committee’s sole and absolute discretion.
The Committee is committed to:
• | staying informed of current issues and emerging trends; |
• | ensuring Kforce’s executive compensation program remains aligned with best practices and are in the best interest of the shareholders; and |
• | establishing and maintaining a pay-for-performance executive compensation program consistent with our shareholders’ interests while providing appropriate incentives to our executives. |
Role of the Compensation Consultant
Overall, the independent compensation consultant assists with various items, including evaluating and providing guidance with respect to: compliance with the approved compensation framework and alignment with performance; effectiveness of the compensation framework; and competitiveness of our executive compensation (including salary and annual and long-term incentives) as compared to the market.
The Committee has retained Pay Governance LLC, a national independent consulting firm, to serve as the Committee’s compensation consultant. The Committee assessed Pay Governance’s independence based on various factors and determined Pay Governance’s engagement, and the anticipated services to be provided to the Committee, did not raise any conflicts of interest. Except for the services provided to the Committee, Pay Governance did not provide any other services to the Firm.
Peer Groups and Benchmarking
Kforce historically used two distinct peer groups for the purposes of assessing and determining its executive compensation structure: (1) an industry peer group and (2) a separately designated peer group. The Committee has used both peer groups as a source for executive compensation benchmarking data and comparisons to Kforce’s executive compensation levels; for further insight into external compensation practices; and for determining specific financial growth objectives for our performance-based compensation.
While the use of multiple peer groups may appear atypical, we believe the two peer groups as described below have historically supported a strong executive compensation program. However, to simplify the program in the future, the Committee approved a prospective structural change, as described in the ”2019 NEO Compensation Plan Changes” section below.
Industry Peer Group
In determining the industry peer group, we focus on selecting publicly-traded professional staffing companies active in recruiting and placing similar skill sets at similar types of clients. The specialty staffing industry is made up of thousands of companies, most of which are small local firms providing limited service offerings to a relatively small local client base. A report published by Staffing Industry Analysts in 2018 indicated that Kforce is one of the 10 largest publicly-traded specialty staffing firms in the U.S. In addition to the specific staffing industry in which we operate, other primary criteria for this peer group selection includes customers, revenue footprint (i.e., revenue derived from different industries as a percentage of total revenue), geographical presence, talent, domestic presence, complexity of operating model and companies with which we compete for executive level talent. Most importantly, we consider the companies in the industry peer group as our direct business competitors on a day-to-day basis and, as a result, their size and scope vary considerably.
In addition to using this peer group for the reasons noted above, the industry peer group is specifically used in relative TSR performance-based objectives to determine LTI compensation. The industry peer group is also considered in more depth and has a greater impact on the annual incentive performance growth objective target settings than the separately designated peer group, due to the closer relationship to our industry and our desire to set such incentive performance growth objectives at or higher than industry expectations.
The 2018 Industry Peer Group (which was unchanged from 2017) consisted of the following companies:
ASGN Incorporated | Kelly Services, Inc. | Resources Connection, Inc. | TrueBlue, Inc. |
Computer Task Group, Inc. | ManpowerGroup, Inc. | Robert Half International Inc. | |
The 2018 Industry Peer Group had the following financial statistics for 2018 (in thousands, except percentile rank):
Revenue | Market Capitalization | |||||||
25th Percentile | $ | 1,244,655 | $ | 716,351 | ||||
Median | $ | 2,949,494 | $ | 856,225 | ||||
75th Percentile | $ | 5,585,493 | $ | 3,130,578 | ||||
Kforce Inc. | $ | 1,418,353 | $ | 804,971 | ||||
Percentile Rank | 28 | 28 | ||||||
20 Kforce 2019 Proxy Statement
Separately Designated Peer Group
The separately designated peer group is based on a broader set of peers, which are more similar in terms of size (revenue and market capitalization) but may not be in the staffing industry. The primary objective for peer selection in this group is to benchmark the composition of compensation and total compensation levels relative to performance. We believe this is consistent with how potential investors and institutional shareholder advisory firms consider appropriate peer groups, which consist of similar industry classification codes, revenue and market capitalizations.
In addition to using this peer group for the reasons noted above, the separately designated peer group is specifically used as a part of the relative TSR performance-based objectives to determine the ultimate payout for the LTI compensation for the CEO and the President.
The 2018 Separately Designated Peer Group consisted of the following companies:
ASGN Incorporated | Huron Consulting Group Inc. | Resources Connection, Inc. |
Barrett Business Services, Inc. | ICF International, Inc. | TriNet Group, Inc. |
CBIZ, Inc. | Insperity, Inc. | TrueBlue, Inc. |
FTI Consulting, Inc. | Korn/Ferry International | Volt Information Sciences, Inc. |
Heidrick & Struggles International, Inc. | Navigant Consulting, Inc. | |
TriNet Group, Inc. was added to our separately designated peer group in 2018 to more closely align and continue to be consistent with the peer group that we expect our potential investors and institutional shareholder advisory firms will use to perform pay-for-performance evaluations.
The 2018 Separately Designated Peer Group had the following financial statistics for 2018 (in thousands, except percentile rank):
Revenue | Market Capitalization | |||||||
25th Percentile | $ | 900,001 | $ | 520,833 | ||||
Median | $ | 1,418,353 | $ | 992,616 | ||||
75th Percentile | $ | 2,263,542 | $ | 2,391,524 | ||||
Kforce Inc. | $ | 1,418,353 | $ | 804,971 | ||||
Percentile Rank | 50 | 35 | ||||||
Consideration of Shareholder Feedback
We believe shareholder feedback helps to strengthen our governance practices and compensation framework. The feedback from both our annual shareholder outreach program, as well as the results of our advisory votes on executive compensation, enhances our understanding of our shareholders’ concerns and areas of focus. We remain committed to open and transparent communication and engagement with our shareholders and take feedback into consideration. Our shareholders are invited to communicate with our directors either individually or as a group by writing to the attention of our Corporate Secretary at Kforce Inc., 1001 East Palm Avenue, Tampa, Florida 33605. Such communications will be delivered directly to Kforce’s Board.
As an ongoing annual practice, we reach out to our top 25 institutional shareholders (representing more than half of our shares outstanding) to solicit feedback on various topics, including corporate governance practices, Board composition and refreshment and executive compensation, among others. During our 2019 Proxy season outreach, we offered a conversation with management and with the Compensation Committee Chair and/or other members of the Committee or Board. A few of our top shareholders did request a meeting with management, and management shared the results of those conversations with the Board for consideration. Based on this engagement, there were no negative comments or suggestions for changes to our NEO compensation programs.
Over the past several years, our “say on pay” proposal has received substantial support from our shareholders. The following shows the percentage of votes (excluding brokers non-votes) cast “for” the advisory vote to approve executive compensation:
The Compensation Committee believes the 2018 voting results reflect our shareholders’ support of our overall NEO compensation framework and indicates approval of executive compensation paid in the context of our performance results.
21 Kforce 2019 Proxy Statement
2018 NAMED EXECUTIVE OFFICER COMPENSATION
Financial and Operational Summary
In 2018, we continued to make progress on our strategic initiatives including:
• | Implementing new and upgrading existing technologies that we believe will allow us to more effectively and efficiently serve our clients, consultants and candidates and improve the scalability of our organization. We completed the deployment of a new time and expense application for our consultants and clients as well as a new expense application for our associates. In addition, we continue to make enhancements to our business and data intelligence capabilities as well as our customer relationship management system. We expect these initiatives to benefit us in 2019 and beyond. |
• | Improving our alignment of revenue-generating talent to the markets, products, industries and clients that present the greatest opportunity for profitable revenue growth. |
• | Executing a Kforce brand refresh to reinforce our core values with a consistent message and identity. |
The following presents our adjusted revenue and adjusted diluted EPS over the past three years.
*Represents non-GAAP Adjusted Revenue for 2017 and Adjusted Diluted EPS for 2017 and 2016. The calculation of these figures, and their reconciliation to the applicable GAAP figures, are set forth in Appendix B to this Proxy Statement. For 2018, there were no adjustments, so Adjusted Revenue and Adjusted Diluted EPS were equal to GAAP figures as reported.
Our 2018 revenue increased 4.4% year over year, driven by our largest business, Tech Flex. Our 2018 adjusted diluted EPS grew 46.5%, primarily because of the continued improvements in our SG&A expenses as well as a lower effective tax rate resulting from the TCJA. Our income before income taxes increased 20.4% year over year. Our 2018 financial performance resulted in a revenue incentive payout slightly below target and an EPS incentive payout above target for our NEOs.
The following presents our three-year TSR performance versus our peer groups over the past two measurement periods.
Kforce’s three-year TSR results in absolute terms and relative to our peer groups improved during 2018. These results generated higher LTI awards for our NEOs in 2018.
22 Kforce 2019 Proxy Statement
Additionally during 2018, we improved our operating cash flows to $87.7 million, from $29.3 million in 2017 and $39.8 million in 2016, which enabled us to return capital to our shareholders by completing four quarterly dividend payments ($0.12 per share during the first two quarters of the year and $0.18 during the last two quarters of the year for a total of $0.60 per share during 2018) and repurchasing 553 thousand shares under our Board-authorized common stock repurchase program. The dollar amounts of these activities are as follows:
We believe the financial and operational results as discussed above are reflected in the payouts made for 2018 to our NEOs, which are illustrated within the Earned Compensation Table and in the Summary Compensation Table below.
2018 NEO Compensation Components, Results and Determinations
The following section discusses the compensation components, results and determinations as it relates to the 2018 NEOs and reflects the 2016-2018 NEO compensation framework design. Our historical practice has been to develop a three-year NEO compensation framework. The framework for the 2016-2018 period, as approved by the Committee, targets total annual NEO compensation at the market median for market median performance. See the “2019 NEO Compensation Plan Changes” section below for proposed future changes to the development of a three-year framework.
The components of the 2016-2018 framework include salary, annual incentive compensation and LTI compensation.
• | Performance-based annual incentive compensation is primarily measured on revenue and EPS growth targets, which we believe serve to drive shareholder returns and, to a lesser extent, on individual performance objectives. |
• | LTI compensation is 100% performance-based, and is measured on Kforce’s TSR performance over a three-year measurement period relative to the specified peer groups. |
The Committee emphasizes the use of variable performance-based compensation over fixed compensation to effectively motivate our NEOs to drive operational performance. The charts below show fixed compensation (equal to salary), annual incentive and LTI compensation, each as a percentage of total direct compensation (TDC) for the CEO and for the other NEOs in the aggregate for 2018. We define TDC as the amount of total compensation derived from salary, annual incentives and LTI. The charts below show the amounts for annual incentives and LTIs at target:
2018 COMPENSATION AT TARGET |
23 Kforce 2019 Proxy Statement
The charts below summarize the actual outcomes for 2018, which represent:
• | The payment of above target annual incentive levels, driven by performance against our financial metrics and individual performance objectives for 2018. |
• | The payment of target LTI for the CEO and the President based on attaining median relative TSR performance versus the Separately Designated Peer Group for the 2016-2018 measurement period, and payment of above target LTI for the other NEOs due to attaining above median relative TSR performance versus the Industry Peer Group for the 2016-2018 measurement period. |
2018 ACTUAL COMPENSATION PAYOUTS |
We discuss each pay program separately below in more detail.
Salaries
It is generally the Committee’s desire to target salaries at the market median, but only provide periodic increases when warranted, rather than annual increases. The last salary increases for Messrs. Dunkel and Liberatore occurred during 2013 and, to align their salaries with the market median, the Committee approved the increases shown below for the 2018 fiscal year. Other NEOs did not receive increases during 2018 because their respective salaries were at competitive market median rates. The following table shows each NEO’s salary in the past two fiscal years:
Name | 2017 Salary | 2018 Salary | Percentage Increase | |||||
David L. Dunkel | $ | 800,000 | $ | 875,000 | 9 | % | ||
Joseph J. Liberatore | $ | 600,000 | $ | 660,000 | 10 | % | ||
David M. Kelly | $ | 480,000 | $ | 480,000 | — | % | ||
Kye L. Mitchell | $ | 480,000 | $ | 480,000 | — | % | ||
Andrew G. Thomas | $ | 350,000 | $ | 350,000 | — | % | ||
Annual Incentive Compensation
Annual incentive compensation for 2018 was targeted at the median of our peer groups. Actual payout levels of the annual incentive awards may be above or below target based on actual performance. In addition, our annual incentive awards require minimum performance thresholds for any payout to occur for specific performance measures and objectives. We believe the annual incentive effectively motivates our NEOs to drive operational performance without encouraging unreasonable risk. The Committee believes the attainment of year-over-year revenue and EPS growth goals will result in sustainable long-term shareholder value creation.
The annual incentive compensation for our NEOs consists of two performance-based components:
1. | A financial metric incentive (the Financial Performance Incentive). The 2018 Financial Performance Incentive represented 80% (50% for Mr. Thomas) of the total target incentive award and required attainment of annual year-over-year revenue growth and year-over-year diluted EPS growth performance goals. |
2. | An objectives-based incentive for individual accomplishments and management business objectives (the MBO Incentive). The MBO Incentive represented 20% (50% for Mr. Thomas) of the total target incentive award. |
24 Kforce 2019 Proxy Statement
Each component is calculated as follows: [(Salary) x (Target Annual Incentive Percentage) x (Target Annual Incentive Allocation Percentage) x (Payout Percentage of Target)].
The Target Annual Incentive Percentages used to calculate the 2018 annual incentive awards were selected to align target pay to market median compensation for market median performance. The Target Annual Incentive Percentage and Allocation across each component is shown below.
2018 Target Annual Incentive | 2018 Target Annual Incentive Allocations | |||||||||||||||||||
Name | 2018 Salary | % | $ | Revenue (40%; 25% for Mr. Thomas) | EPS (40%; 25% for Mr. Thomas) | MBO (20%; 50% for Mr. Thomas) | ||||||||||||||
David L. Dunkel | $ | 875,000 | 100 | % | $ | 875,000 | $ | 350,000 | $ | 350,000 | $ | 175,000 | ||||||||
Joseph J. Liberatore | $ | 660,000 | 90 | % | $ | 594,000 | $ | 237,600 | $ | 237,600 | $ | 118,800 | ||||||||
David M. Kelly | $ | 480,000 | 90 | % | $ | 432,000 | $ | 172,800 | $ | 172,800 | $ | 86,400 | ||||||||
Kye L. Mitchell | $ | 480,000 | 90 | % | $ | 432,000 | $ | 172,800 | $ | 172,800 | $ | 86,400 | ||||||||
Andrew G. Thomas (1) | ||||||||||||||||||||
Jan. to Aug. 2018 | $ | 233,450 | 50 | % | $ | 116,725 | $ | 29,181 | $ | 29,181 | $ | 58,362 | ||||||||
Sept. to Dec. 2018 | $ | 116,550 | 90 | % | $ | 104,895 | $ | 26,224 | $ | 26,224 | $ | 52,448 | ||||||||
Total | $ | 350,000 | $ | 221,620 | $ | 55,405 | $ | 55,405 | $ | 110,810 | ||||||||||
(1) | The Annual Incentive for Mr. Thomas was modified beginning in September 2018 due to his additional responsibilities of leading the human resources, compensation and benefits organizations. |
The following table provides the potential Financial Performance Incentive payout ranges as determined by the Committee, based on revenue growth and diluted EPS growth performance. The Committee determines revenue and diluted EPS growth performance ranges based on expected market conditions and expected growth rates in the staffing industry and among the companies in our peer groups. Total revenue and diluted EPS amounts and related year-over-year growth rates that fall between the noted Threshold and Maximum performance levels in the table below are interpolated.
Revenue (in millions) | Year-over-Year Growth | Payout % of Target (1) | Diluted EPS | Year-over-Year Growth | Payout % of Target (1) | |||
Threshold | $1,378 | 1% | 25% | $1.91 | 22% | 25% | ||
Target | $1,419 | 4% | 100% | $2.11 | 35% | 100% | ||
Maximum | $1,487 | 9% | 200% | $2.48 | 58% | 200% | ||
(1) | The incentive payout ranges for Mr. Thomas were modified beginning in September 2018 due to his additional responsibilities of leading the human resources, compensation and benefits organizations. For the first eight months of 2018, the interpolated payout percentages between Threshold and Target varied slightly from the last four months of 2018. |
For 2018, Kforce had revenue of $1,418 million and diluted EPS of $2.30, therefore attaining 99.9% of target revenue and 109% of target diluted EPS. As a result, overall payments for the Financial Performance Incentive were above target (payouts were slightly below target for the revenue metric and above target for the EPS metric).
For purposes of the MBO Incentive, the Committee considered each individual’s accomplishments based on management business objectives and overall operational performance. As with the Financial Performance Incentive goals, the Committee strives to set the individual goals at levels intended to effectively motivate superior operational performance without encouraging unreasonable risk. During 2018, our executive team’s MBO metrics were focused around our strategic objectives of achieving above-market revenue growth, making prudent investments to enhance efficiency and effectiveness within our operating model and significantly improving levels of operating profitability. We have made progress on various initiatives including implementing enhanced technologies, improving the productivity of our associates, re-balancing and further diversifying our client portfolio and executing a Kforce brand refresh, as well as improving our operating cash flows. The significant progress on these strategic initiatives, as discussed above, resulted in the MBO payout percentages.
25 Kforce 2019 Proxy Statement
The annual incentives earned in 2018 for each NEO is shown in the table below:
2018 Attainment as a % of Target | 2018 Incentive Payouts | ||||||||||||||||||||
Name | Target Annual Incentive | Revenue (40%; 25% for Mr. Thomas) | EPS (40%; 25% for Mr. Thomas) | MBO (20%; 50% for Mr. Thomas) | Revenue | EPS | MBO | Total | |||||||||||||
David L. Dunkel | $ | 875,000 | 81% | 150% | 200% | $ | 283,500 | $ | 525,000 | $ | 350,000 | $ | 1,158,500 | ||||||||
Joseph J. Liberatore | $ | 594,000 | 81% | 150% | 200% | $ | 192,456 | $ | 356,400 | $ | 237,600 | $ | 786,456 | ||||||||
David M. Kelly | $ | 432,000 | 81% | 150% | 160% | $ | 139,968 | $ | 259,200 | $ | 138,240 | $ | 537,408 | ||||||||
Kye L. Mitchell | $ | 432,000 | 81% | 150% | 160% | $ | 139,968 | $ | 259,200 | $ | 138,240 | $ | 537,408 | ||||||||
Andrew G. Thomas (1) | |||||||||||||||||||||
Jan. to Aug. 2018 | $ | 116,725 | 88% | 150% | 170% | $ | 25,680 | $ | 43,772 | $ | 99,216 | $ | 168,668 | ||||||||
Sept. to Dec. 2018 | $ | 104,895 | 81% | 150% | 160% | $ | 21,240 | $ | 39,336 | $ | 83,916 | $ | 144,492 | ||||||||
Total | $ | 221,620 | $ | 46,920 | $ | 83,108 | $ | 183,132 | $ | 313,160 | |||||||||||
(1) | For the first eight months of 2018, the interpolated payout percentages between Threshold and Target for Mr. Thomas varied slightly from the last four months of 2018; therefore, both attainment percentages are presented. |
Long-Term Incentives
Our LTI awards are 100% performance-based. LTI performance objectives are set to align executive and shareholder interests and are based on relative TSR performance against the two peer groups described above.
1. | For all NEOs, LTI performance objectives are based on Kforce’s TSR performance over a three-year measurement period relative to the Industry Peer Group; |
2. | For only the CEO and the President, LTI performance objectives are also based on Kforce’s TSR performance over a three-year measurement period relative to the Separately Designated Peer Group. |
LTI payouts for performance relative to the Industry Peer Group are awarded by the Committee in the form of a restricted stock grant that has a four-year time-based vesting period (changed from a five-year vesting period in prior years to better match competitive market practices). Mr. Dunkel’s award (and certain other non-NEO recipients) had a three-year time-based vesting period given his age, tenure and significant equity holdings that the Committee believes provides an appropriate long-term retention incentive. The CEO’s and the President’s LTI payouts are subject to a potential reduction in the value of the restricted stock awards, or a supplement to their restricted stock awards with a cash component, based on performance relative to the Separately Designated Peer Group. Actual payout levels for the LTI may be above or below target based on actual performance and require minimum performance thresholds for any payout to occur.
The LTI compensation was based on relative TSR performance over the corresponding measurement period versus the Industry Peer Group. The dollar amount of the payouts were calculated from a scaled LTI pool, which the Committee set at a dollar amount not to exceed the lesser of 2% market capitalization or $13 million in the aggregate. In essence, the Committee provides higher award grants for better relative TSR performance and lower award grants for lower TSR performance. The value of the LTI pool for the awards, as well as the percentage of the pool allocated to each of the NEOs was determined as described in the following chart:
Industry Peer Group Relative TSR Rank: | 1 | 2 | 3 | 4 | 5 | 6-7 | 8 |
Industry Peer Group Relative TSR Percentile Rank: | 100 | 85 | 71 | 57 | 42 | 28-14 | 0 |
Total Value of LTI Pool ($ in Millions): | $13 | $12 | $11 | $10 | $9 | $8 | None |
% of LTI Pool Based on TSR Rank/Percentile Ranking | |||||||
David L. Dunkel | 16.7% | 16.7% | 16.7% | 16.7% | 16.7% | 15.0% | —% |
Joseph J. Liberatore | 13.3% | 13.3% | 13.3% | 13.3% | 13.3% | 12.0% | —% |
David M. Kelly | 8.3% | 8.2% | 8.2% | 8.1% | 8.1% | 7.5% | —% |
Kye L. Mitchell | 8.1% | 7.9% | 7.7% | 7.5% | 7.2% | 6.6% | —% |
Andrew G. Thomas | 3.8% | 3.9% | 4.0% | 4.2% | 4.4% | 3.8% | —% |
These percentages were selected to align target pay to market median compensation. The remainder of the LTI pool is allocated to other employees below the NEO level, depending on their management level and overall responsibilities.
26 Kforce 2019 Proxy Statement
In 2018, the LTI compensation for our CEO and President was in part based on Kforce’s TSR performance relative to our 2018 Separately Designated Peer Group during the measurement period of January 1, 2016 through December 31, 2018. Based on this separate performance metric, there is a potential adjustment to our CEO’s and President’s respective LTI awards, either by a reduction in the award value or by a supplement to their restricted stock awards with a cash LTI component. The adjustment was based on a performance multiplier determined by our TSR performance percentile ranking within the 2018 Separately Designated Peer Group. This performance metric for LTI compensation was incorporated into the compensation framework for our CEO and President to align pay to the performance of a broader set of peers that are reasonably similar in terms of size but may not be in the staffing industry.
The performance multiplier is structured as follows:
Separately Designated Peer Group Relative TSR Percentile Ranking | Performance Multiplier | LTI Compensation Impact | ||
0-25 | 50% | Reduction in Restricted Stock Award | ||
26-50 | 75% | Reduction in Restricted Stock Award | ||
51-75 | 100% | Full Restricted Stock Award | ||
76-100 | 150% | Full Restricted Stock Award Plus Cash LTI Payout | ||
The table below illustrates the key performance results and resulting grant information for the awards.
Measurement Period | TSR Performance | Industry Peer Group Relative TSR Rank | Separately Designated Peer Group Relative TSR Percentile Ranking | Resulting LTI Pool | Grant Date of Restricted Stock Award | Grant Date Closing Stock Price |
2016-2018 | 31% | 2nd | 50th | $12 million | December 31, 2018 | $30.92 |
The tables below illustrate the LTI restricted stock payout amounts (including the number of shares and the grant date fair value), which are included in the 2018 Summary Compensation Table (SCT). The Committee believes the restricted stock awards’ time-based vesting requirements further aligns compensation with our long-term performance and our shareholders’ interests, and acts as a retention vehicle for these executives.
Name | # of Shares | Grant Date Fair Value | |||||
David L. Dunkel | 48,512 | $ | 1,499,991 | ||||
Joseph J. Liberatore | 38,810 | $ | 1,200,005 | ||||
David M. Kelly | 31,937 | $ | 987,492 | ||||
Kye L. Mitchell | 30,724 | $ | 949,986 | ||||
Andrew G. Thomas | 15,201 | $ | 470,015 | ||||
For 2018, Messrs. Dunkel and Liberatore did not receive a cash LTI payout. As reflected in the performance multipliers table above, the values of Messrs. Dunkel and Liberatore’s respective restricted stock awards were reduced by 25% because of the 50th percentile ranking of Kforce within the Separately Designated Peer Group.
Earned Compensation Table for Corresponding Year of Performance
We believe the presentation in the SCT does not accurately reflect the actual compensation earned by the NEOs in any given year based on that year’s performance. We believe the misalignment between the disclosures in the SCT and the actual earned compensation results from the following:
• | The values from pension and other compensation columns of the SCT are not performance-based and change based on factors unrelated to performance such as changes in long-term interest rates (a key factor in calculating pension values). |
• | For 2016, the LTI restricted stock grants historically occurred on the first business day of each fiscal year and were based on our relative TSR performance for a measurement period ending in the prior year. As a result, the value of the awards were reflected as compensation in the SCT in the year of grant rather than in the performance year the award was earned. In order to rectify the misalignment created by our historical grant date practices and to create a more clear and transparent picture of our NEO compensation, the Committee approved a change in the timing of the grant date for the LTI restricted stock awards during 2016, which resulted in two LTI award grants in 2016, one on the first business day of the year (old method) and one on the last business day of the year (new method designed to match the performance year with the grant year). 2016 is the only year for such an occurrence and this misalignment no longer exists in 2017 and 2018. |
27 Kforce 2019 Proxy Statement
The following Earned Compensation for Corresponding Year of Performance Table (ECT) corrects these misalignments and provides a more appropriate measure and comparison for our shareholders.
We believe the ECT currently provides a better illustration of the pay-for-performance measures built into our executive compensation programs. As such, we believe the following ECT should be used by our shareholders in their evaluation and vote on our executive compensation proposal (Proposal 3) within this Proxy Statement. However, due to the shift in the timing of the LTI grants as discussed above, it is our intention to remove this additional table in future years, as the SCT will eventually have the same values as the ECT below once the new method for reporting LTI grants is fully effective.
Earned Compensation for Corresponding Year of Performance | Financial and Shareholder Performance | |||||||||||||||||||||||
Name and Principal Position | Year | Salary | Annual Incentive | Long-term Incentive (1) | Total Direct Compensation (2) | Adjusted Revenue (3) | Adjusted EPS (3) | 3 Year TSR Performance | TSR Rank in Industry Peer Group | |||||||||||||||
David L. Dunkel, | 2018 | $ | 875,000 | $ | 1,158,500 | $ | 1,499,991 | $ | 3,533,491 | $ | 1,418,353 | $ | 2.30 | 31 | % | 2nd | ||||||||
Chief Executive Officer | 2017 | $ | 800,000 | $ | 435,200 | $ | 750,001 | $ | 1,985,201 | $ | 1,358,940 | $ | 1.57 | 12 | % | 5th | ||||||||
2016 | $ | 800,000 | $ | — | $ | 1,669,991 | $ | 2,469,991 | $ | 1,319,706 | $ | 1.45 | 20 | % | 4th | |||||||||
Joseph J. Liberatore, | 2018 | $ | 660,000 | $ | 786,456 | $ | 1,200,005 | $ | 2,646,461 | $ | 1,418,353 | $ | 2.30 | 31 | % | 2nd | ||||||||
President | 2017 | $ | 600,000 | $ | 293,760 | $ | 900,011 | $ | 1,793,771 | $ | 1,358,940 | $ | 1.57 | 12 | % | 5th | ||||||||
2016 | $ | 600,000 | $ | — | $ | 1,334,995 | $ | 1,934,995 | $ | 1,319,706 | $ | 1.45 | 20 | % | 4th | |||||||||
David M. Kelly, | 2018 | $ | 480,000 | $ | 537,408 | $ | 987,492 | $ | 2,004,900 | $ | 1,418,353 | $ | 2.30 | 31 | % | 2nd | ||||||||
Chief Financial Officer | 2017 | $ | 480,000 | $ | 235,008 | $ | 725,003 | $ | 1,440,011 | $ | 1,358,940 | $ | 1.57 | 12 | % | 5th | ||||||||
2016 | $ | 480,000 | $ | 172,800 | $ | 812,496 | $ | 1,465,296 | $ | 1,319,706 | $ | 1.45 | 20 | % | 4th | |||||||||
Kye L. Mitchell, | 2018 | $ | 480,000 | $ | 537,408 | $ | 949,986 | $ | 1,967,394 | $ | 1,418,353 | $ | 2.30 | 31 | % | 2nd | ||||||||
Chief Operations Officer | 2017 | $ | 480,000 | $ | 235,008 | $ | 650,011 | $ | 1,365,019 | $ | 1,358,940 | $ | 1.57 | 12 | % | 5th | ||||||||
2016 | $ | 480,000 | $ | 172,800 | $ | 750,011 | $ | 1,402,811 | $ | 1,319,706 | $ | 1.45 | 20 | % | 4th | |||||||||
Andrew G. Thomas, | 2018 | $ | 350,000 | $ | 313,160 | $ | 470,015 | $ | 1,133,175 | $ | 1,418,353 | $ | 2.30 | 31 | % | 2nd | ||||||||
Chief Marketing Officer | ||||||||||||||||||||||||
(1) | Reflects the realignment of equity LTI awards to the corresponding year of performance for 2016. The equity LTI awards made on the first business day of 2016 related to 2015, which corresponds to the performance period for those awards. No adjustment was made to the 2017 and 2018 amounts; thus, these amounts are consistent with the SCT. |
(2) | Total direct compensation is the sum of salary, annual incentive and LTI earned for the corresponding year of performance. |
(3) | Represents non-GAAP Adjusted Revenue for 2017 and Diluted EPS for 2017 and 2016. The calculation of Adjusted Revenue and Adjusted Diluted EPS, and the reconciliation to the applicable GAAP figures, for 2017 and 2016 are set forth in the Appendix B within this Proxy Statement. For 2018, there were no adjustments and balances noted above are reported in accordance with GAAP. |
CEO Pay Ratio
We calculated the ratio of our CEO’s total annual compensation to the median of the annual total compensation of our other employees under applicable SEC rules, using a reasonable estimate. As of December 31, 2018, Kforce employed approximately 2,400 associates and 11,400 consultants on assignment providing flexible staffing services and solutions to our clients. Approximately 92% of the consultants are employed directly by Kforce; the other 8% consists of qualified independent contractors. In order to determine our median employee, we compiled a list of all employees from our payroll records including all full-time, part-time, temporary and seasonal employees who were employed as of December 31, 2018, which included our consultants that were directly employed by Kforce as of that date but did not include the independent contractors. We examined all wages as reportable on Form W-2 for 2018 for these individuals, excluding our CEO. We annualized the compensation for any full-time and part-time employees that were not employed by us for all of 2018. However, it is important to note that our consultants work on temporary assignments of different types and durations, and since these employees are considered temporary, we did not annualize their compensation; therefore, our employee population included a majority of individuals that did not have a full year of compensation due to the short-term nature of their assignments.
Mr. Dunkel had $4,289,262 in total annual compensation for 2018, as reflected in the SCT included in this Proxy Statement. Our median employee, one of our consultants, had total annual compensation of $39,585 for 2018, which was calculated on the same basis as Mr. Dunkel’s compensation for the purposes of the SCT. As a result, we estimate Mr. Dunkel’s total compensation for 2018 was about 108 times that of our median employee. Given the different methodologies that various companies will use to determine an estimate of their pay ratio and given the uniqueness of our temporary employee population, we do not believe that this estimated ratio should be used as a basis for comparison with other companies.
28 Kforce 2019 Proxy Statement
Other Compensation Practices, Policies and Information
The following benefit plans discussed below are available to our NEOs. The Committee considers the benefits expected to be received under the plans described below when it calculates overall compensation for senior executives.
Kforce Nonqualified Deferred Compensation Plan | Kforce maintains a nonqualified deferred compensation plan in which eligible management and highly compensated key employees, as defined by IRS regulations, may elect to defer all or part of their compensation to later years. Amounts deferred are indexed to investment options selected by the eligible employees and the increase or decrease in value is based upon the performance of the selected investments. Eligible employees are permitted to change investment options and scheduled distributions annually. Kforce has insured the lives of certain participants in the deferred compensation plan to assist in the funding of the deferred compensation liability. Employer matching contributions to the nonqualified deferred compensation plan are discretionary and are funded annually as approved by the Board. |
Kforce Inc. Supplemental Executive Retirement Plan | During 2006, Kforce adopted a Supplemental Executive Retirement Plan (SERP) for all NEOs. Of the NEOs, only Messrs. Dunkel and Liberatore participate in the SERP. The Committee previously decided to not allow any additional participants into the SERP. The primary goals of the SERP are to create an additional wealth accumulation opportunity, restore lost qualified pension benefits due to government limitations and retain our covered executive officers. The SERP will be funded entirely by Kforce, and benefits are taxable to the executive officer upon receipt and deductible by Kforce when paid. Benefits payable under the SERP upon the occurrence of a qualifying distribution event, as defined, are targeted at 45% of the covered executive officers’ average salary and annual incentive, as defined, from the three years in which the covered executive officer earned the highest salary and annual incentive during the last 10 years of employment, which is subject to adjustment for retirement prior to the normal retirement age and the participant’s vesting percentage. Benefits under the SERP are based on the lump sum present value but may be paid over the life of the covered executive officer or 10-year annuity, as elected by the covered executive officer upon commencement of participation in the SERP. Normal retirement age under the SERP is defined as age 65. Vesting under the plan is defined as 100% upon a participant’s attainment of age 55 and 10 years of service and 0% prior to a participant’s attainment of age 55 and 10 years of service. Full vesting also occurs if a participant with five years or more of service is involuntarily terminated by Kforce without cause or upon death, disability or a change in control. Certain conditions allow for early retirement as early as age 55. The benefits under the SERP are reduced for a participant who has not either reached age 62 and 10 years of service or age 55 and 25 years of service with a percentage reduction up to the normal retirement age. On each anniversary of the effective date, each NEO is credited with a year of service. The NEOs were not credited with any years of service prior to December 31, 2006, the effective date of the plan. The Committee believes the SERP provides significant retention benefits for the participants. |
Employment, Severance and Change in Control Agreements | Kforce has employment agreements with each of its NEOs, which provide for severance payments under certain termination circumstances, including termination following a change in control, as defined in the employment agreements. The Committee has determined it is in Kforce’s and its shareholders’ best interests to recognize the contributions of the NEOs to Kforce’s business and to retain the NEOs’ services. The specific amounts the NEOs would receive under the employment agreements are described in the “Potential Payments Upon Termination or Change in Control” section below. The Committee believes the employment agreements are an essential component of the executive compensation program and are helpful in attracting and retaining executive talent in a competitive market. The Committee periodically reviews the benefits provided under the employment agreements to determine that they continue to serve Kforce’s interests in providing significant retention benefits to these key executives, are consistent with market practice and are reasonable. In 2009, the Committee resolved to not enter into any new employment agreements or materially amend any existing employment agreements with its executives that contain excise tax gross-up provisions going forward. At this time, only Messrs. Dunkel and Liberatore have excise tax gross-up provisions in their existing employment agreements. In 2017, the Committee resolved to not enter into any new employment agreements or materially amend any existing employment agreements with its executives that contain provisions for severance payments that exceed 1x cash compensation or change in control severance payments that exceed 2x cash compensation. The amended and restated employment agreement for Mr. Thomas was effective January 1, 2013, but was publicly filed as a result of his NEO designation in 2018. Refer to Exhibit 10.21 to the Company's report on Form 10-K filed on February 22, 2019. There have been no amendments or modifications to his employment agreement since January 1, 2013 and he did not become party to any pre-existing arrangement as a result of becoming an NEO. |
Perquisites and Other Personal Benefits | Kforce does not generally provide any perquisites or other personal benefits to its NEOs. During 2017, Kforce provided for Ms. Mitchell’s relocation to our corporate headquarters in Tampa, Florida from the Washington D.C. area; the value of this relocation is included within the “All Other Compensation” column of the SCT. |
29 Kforce 2019 Proxy Statement
2019 NAMED EXECUTIVE OFFICER COMPENSATION CHANGES
2019 NEO Compensation Plan Changes
Although our historical practice has been to develop a three-year NEO compensation framework, the Committee continually monitors and reviews the effectiveness of the NEO compensation framework relative to its stated compensation philosophies and the Firm's initiatives and makes any necessary adjustments. During 2018, the Committee reviewed the NEO compensation framework to develop the framework for the 2019-2021 period and determined the three-year structure did not provide for enough flexibility and timely restructuring of the framework based on changes in the Company’s business strategies. Therefore, the Committee decided to evaluate the NEO compensation framework on an annual basis going forward. This change also allows the Committee to respond more promptly to changes in the constantly evolving executive compensation landscape to ensure that our compensation practices align with both our Firm objectives and market compensation. The following describes the NEO compensation framework structure and changes for 2019.
The 2019 framework continues to target total annual NEO compensation at the market median and emphasizes the use of variable performance-based compensation over fixed compensation to effectively motivate our NEOs to drive operational performance. The primary components of the structure continue to include salary, annual incentive compensation and LTI compensation. In addition to the MBO Incentive related to progressing our operational and strategic objectives as a component of the annual incentive compensation for 2019, the Committee has also provided for an additional one-time cash MBO bonus potential for Messrs. Dunkel and Liberatore, which is based upon the successful completion of a transaction to sell our federal government solutions business.
The most notable changes in the NEO compensation plan structure for 2019 include: (1) creating a single peer group (2019 Peer Group) rather than relying on two distinct peer groups; and (2) eliminating the separate LTI compensation performance metric for the CEO and the President, which was formerly based on Kforce’s relative TSR performance versus the Separately Designated Peer Group.
2019 Peer Group
The peer group for 2019 will include the following companies:
AMN Healthcare Services, Inc. | Heidrick & Struggles International, Inc. | Resources Connection, Inc. |
ASGN Incorporated | Huron Consulting Group Inc. | Robert Half International Inc. |
Cross Country Healthcare, Inc. | Kelly Services, Inc. | TrueBlue, Inc. |
Computer Task Group, Incorporated | Korn/Ferry International | Volt Information Sciences, Inc. |
The Hackett Group, Inc. | Manpower Group Inc. | |
Most of the companies listed in the 2019 Peer Group above are from the prior Industry and Separately Designated Peer Groups, plus appropriate new companies. All companies were chosen based on similarity to Kforce in staffing industry business models, as well as their current revenue and market capitalization. The new peer group includes:
• | All seven companies from the prior Industry Peer Group, which reflect prominence in the staffing industry; |
• | Four companies from the prior Separately Designated Peer Group, which are all of comparable size to Kforce and with similar business models to Kforce, including Korn/Ferry International, Volt Information Sciences, Inc., Huron Consulting Group Inc., and Heidrick & Struggles International, Inc.; and |
• | Three new companies, which are also of comparable size and business model, including AMN Healthcare Services, Inc., Cross Country Healthcare, Inc., and The Hackett Group, Inc. |
The 2019 Peer Group had the following financial statistics for 2018 (in thousands, except percentile rank):
Revenue | Market Capitalization | |||||||
25th Percentile | $ | 776,070 | $ | 474,930 | ||||
Median | $ | 1,418,353 | $ | 821,248 | ||||
75th Percentile | $ | 2,949,494 | $ | 2,441,862 | ||||
Kforce Inc. | $ | 1,418,353 | $ | 804,971 | ||||
Percentile Rank | 50 | 42 | ||||||
Long-Term Incentives
The previous compensation framework included a component that could result in a potential reduction to our CEO’s and President’s respective LTI restricted stock awards, or a supplement to their restricted stock awards with a cash LTI component. This component was determined by a performance multiplier that was based on a three-year TSR performance metric versus a separately designated peer group. With the elimination of the separately designated peer group, this performance metric and potential for adjustments to LTI awards for our CEO and President have also been eliminated. The Committee has structured the new 2019 LTI payout chart based on the 2019 Peer Group shown above and provided for an appropriate leverage to provide higher compensation for above median performance and lower compensation for below median performance.
30 Kforce 2019 Proxy Statement
EXECUTIVE COMPENSATION TABLES
SUMMARY COMPENSATION TABLE
For Fiscal Years Ended December 31, 2018, 2017 and 2016
Name and Principal Position | Year | Salary | Stock Awards (1) | Non-Equity Incentive Plan Compensation (2) | Change in Pension Value and Nonqualified Deferred Compensation Earnings (3) | All Other Compensation (4) | Total | ||||||||||||
David L. Dunkel | 2018 | $ | 875,000 | $ | 1,499,991 | $ | 1,158,500 | $ | 653,336 | $ | 102,435 | $ | 4,289,262 | ||||||
Chief Executive Officer | 2017 | $ | 800,000 | $ | 750,001 | $ | 435,200 | $ | 1,005,233 | $ | 88,518 | $ | 3,078,952 | ||||||
2016 | $ | 800,000 | $ | 3,504,988 | $ | — | $ | 1,450,087 | $ | 67,289 | $ | 5,822,364 | |||||||
Joseph J. Liberatore | 2018 | $ | 660,000 | $ | 1,200,005 | $ | 786,456 | $ | 37,547 | $ | 98,012 | $ | 2,782,020 | ||||||
President | 2017 | $ | 600,000 | $ | 900,011 | $ | 293,760 | $ | 656,799 | $ | 92,056 | $ | 2,542,626 | ||||||
2016 | $ | 600,000 | $ | 2,798,335 | $ | — | $ | 197,109 | $ | 88,151 | $ | 3,683,595 | |||||||
David M. Kelly | 2018 | $ | 480,000 | $ | 987,492 | $ | 537,408 | $ | — | $ | 65,239 | $ | 2,070,139 | ||||||
Chief Financial Officer | 2017 | $ | 480,000 | $ | 725,003 | $ | 235,008 | $ | — | $ | 54,998 | $ | 1,495,009 | ||||||
2016 | $ | 480,000 | $ | 1,580,007 | $ | 172,800 | $ | — | $ | 50,220 | $ | 2,283,027 | |||||||
Kye L. Mitchell | 2018 | $ | 480,000 | $ | 949,986 | $ | 537,408 | $ | — | $ | 61,482 | $ | 2,028,876 | ||||||
Chief Operations Officer | 2017 | $ | 480,000 | $ | 650,011 | $ | 235,008 | $ | — | $ | 231,677 | $ | 1,596,696 | ||||||
2016 | $ | 480,000 | $ | 1,517,522 | $ | 172,800 | $ | — | $ | 50,220 | $ | 2,220,542 | |||||||
Andrew G. Thomas | 2018 | $ | 350,000 | $ | 470,015 | $ | 313,160 | $ | — | $ | 31,459 | $ | 1,164,634 | ||||||
Chief Marketing Officer | |||||||||||||||||||
(1) | As discussed in the CD&A above, the amounts reported for 2016 include two years’ worth of LTI restricted stock awards due to an administrative change in the timing of the annual grant date. |
(2) | Represents annual incentive compensation earned by the NEOs. |
(3) | For Messrs. Dunkel and Liberatore, the amounts in this column represent the aggregate change in the accumulated benefit obligation for the SERP using the same measurement dates used for reporting Kforce’s consolidated financial statements for fiscal years 2018, 2017 and 2016. There were no changes made to the plan during the year and no increases to the benefits provided to the NEOs. |
(4) | The “All Other Compensation” column includes: |
Name | Year | Dividends (a) | Defined Contribution Plans (b) | One-Time Payments (c) | Total | |||||||||||||
David L. Dunkel | 2018 | $ | 102,435 | $ | — | $ | — | $ | 102,435 | |||||||||
2017 | $ | 88,518 | $ | — | $ | — | $ | 88,518 | ||||||||||
2016 | $ | 67,289 | $ | — | $ | — | $ | 67,289 | ||||||||||
Joseph J. Liberatore | 2018 | $ | 98,012 | $ | — | $ | — | $ | 98,012 | |||||||||
2017 | $ | 92,056 | $ | — | $ | — | $ | 92,056 | ||||||||||
2016 | $ | 88,151 | $ | — | $ | — | $ | 88,151 | ||||||||||
David M. Kelly | 2018 | $ | 63,389 | $ | 1,850 | $ | — | $ | 65,239 | |||||||||
2017 | $ | 53,198 | $ | 1,800 | $ | — | $ | 54,998 | ||||||||||
2016 | $ | 48,420 | $ | 1,800 | $ | — | $ | 50,220 | ||||||||||
Kye L. Mitchell | 2018 | $ | 60,257 | $ | 1,225 | $ | — | $ | 61,482 | |||||||||
2017 | $ | 51,885 | $ | 1,800 | $ | 177,992 | $ | 231,677 | ||||||||||
2016 | $ | 48,420 | $ | 1,800 | $ | — | $ | 50,220 | ||||||||||
Andrew G. Thomas | 2018 | $ | 31,459 | $ | — | $ | — | $ | 31,459 | |||||||||
(a) | This column reflects the value of dividend equivalents issued on unvested restricted stock in the form of additional shares of restricted stock. |
(b) | This column reflects the value of employer matching contributions attributable to our defined contribution 401(k) plan. |
(c) | The amount included for Ms. Mitchell for 2017 represents reimbursements and payments in connection with her relocation to the Firm’s corporate headquarters in Tampa, Florida, including: $80,105 for real estate transaction costs and house-hunting, $59,156 for moving costs and $38,731 for a tax gross-up related to taxable relocation amounts. |
31 Kforce 2019 Proxy Statement
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
At Fiscal Year Ended December 31, 2018
Restricted Stock Awards | |||||||
Name | Unvested Shares | Market Value of Unvested Shares ($)(1) | |||||
David L. Dunkel | 48,512 | (2) | $ | 1,499,991 | |||
20,161 | (3) | $ | 623,378 | ||||
45,175 | (4) | $ | 1,396,811 | ||||
32,767 | (5) | $ | 1,013,156 | ||||
16,554 | (6) | $ | 511,850 | ||||
Joseph J. Liberatore | 38,810 | (2) | $ | 1,200,005 | |||
29,032 | (3) | $ | 897,669 | ||||
36,116 | (4) | $ | 1,116,707 | ||||
26,129 | (5) | $ | 807,909 | ||||
13,260 | (6) | $ | 409,999 | ||||
6,881 | (7) | $ | 212,761 | ||||
David M. Kelly | 31,937 | (2) | $ | 987,492 | |||
23,387 | (3) | $ | 723,126 | ||||
21,981 | (4) | $ | 679,653 | ||||
13,706 | (5) | $ | 423,790 | ||||
6,926 | (6) | $ | 214,152 | ||||
7,714 | (7) | $ | 238,517 | ||||
Kye L. Mitchell | 30,724 | (2) | $ | 949,986 | |||
20,968 | (3) | $ | 648,331 | ||||
20,288 | (4) | $ | 627,305 | ||||
13,706 | (5) | $ | 423,790 | ||||
6,926 | (6) | $ | 214,152 | ||||
7,714 | (7) | $ | 238,517 | ||||
Andrew G. Thomas | 15,201 | (2) | $ | 470,015 | |||
12,904 | (3) | $ | 398,992 | ||||
11,225 | (4) | $ | 347,077 | ||||
6,548 | (5) | $ | 202,464 | ||||
3,311 | (6) | $ | 102,376 | ||||
3,104 | (8) | $ | 95,976 | ||||
(1) | This column represents a market value of $30.92 per share, which is the closing stock price on December 31, 2018. |
(2) | With respect to the restricted stock granted to Mr. Dunkel on December 31, 2018, 33% of the total shares granted vest on: December 27, 2019, 2020 and 2021. With respect to the restricted stock granted to Messrs. Liberatore, Kelly and Thomas and Ms. Mitchell on December 31, 2018, 25% of the total shares granted vest on: December 27, 2019, 2020, 2021 and 2022. |
(3) | With respect to the restricted stock granted to Mr. Dunkel on December 31, 2017, and the additional shares granted due to Kforce’s quarterly dividends, 33% of the total shares granted vest(ed) on: December 27, 2018, 2019 and 2020. With respect to the restricted stock granted to Messrs. Liberatore, Kelly and Thomas and Ms. Mitchell on December 31, 2017, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest(ed) on: December 27, 2018, 2019, 2020, 2021 and 2022. |
(4) | With respect to the restricted stock granted to Messrs. Dunkel, Liberatore, Kelly and Thomas and Ms. Mitchell on December 31, 2016, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest(ed) on: December 31, 2017 and December 27, 2018, 2019, 2020 and 2021. |
(5) | With respect to the restricted stock granted to Messrs. Dunkel, Liberatore, Kelly and Thomas and Ms. Mitchell on January 4, 2016, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest(ed) on: January 4, 2017, December 31, 2017 and December 27, 2018, 2019 and 2020. |
(6) | With respect to the restricted stock granted to Messrs. Dunkel, Liberatore, Kelly and Thomas and Ms. Mitchell on January 2, 2015, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest(ed) on: January 2, 2016 and 2017, December 31, 2017 and December 27, 2018 and 2019. |
(7) | With respect to the restricted stock granted to Messrs. Liberatore and Kelly and Ms. Mitchell on August 25, 2014, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest(ed) on: August 25, 2015, 2016, 2017, 2018 and 2019. |
(8) | With respect to the restricted stock granted to Mr. Thomas on October 14, 2013, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest on: October 14, 2019, 2020, 2021, 2022 and 2023. |
32 Kforce 2019 Proxy Statement
GRANTS OF PLAN-BASED AWARDS
For Fiscal Year Ended December 31, 2018
Name | Type of Award | Approval Date | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | All Other Stock Awards No. of Shares of Stock | Grant Date Fair Value | |||||||||||||
Threshold ($) | Target ($) | Maximum ($) | |||||||||||||||||
David L. Dunkel | Annual Incentive (1) | 2/2/2018 | 12/31/2018 | $ | 218,750 | $ | 875,000 | $ | 1,750,000 | — | $ | — | |||||||
Equity LTI (2)(3) | — | 12/31/2018 | $ | — | $ | — | $ | — | 48,512 | $ | 1,499,991 | ||||||||
Cash LTI (3) | 2/2/2018 | — | $ | — | $ | — | $ | 3,255,000 | — | $ | — | ||||||||
Joseph J. Liberatore | Annual Incentive (1) | 2/2/2018 | 12/31/2018 | $ | 148,500 | $ | 594,000 | $ | 1,188,000 | — | $ | — | |||||||
Equity LTI (2)(3) | — | 12/31/2018 | $ | — | $ | — | $ | — | 38,810 | $ | 1,200,005 | ||||||||
Cash LTI (3) | 2/2/2018 | — | $ | — | $ | — | $ | 2,610,000 | — | $ | — | ||||||||
David M. Kelly | Annual Incentive (1) | 2/2/2018 | 12/31/2018 | $ | 108,000 | $ | 432,000 | $ | 864,000 | — | $ | — | |||||||
Equity LTI (2) | — | 12/31/2018 | $ | — | $ | — | $ | — | 31,937 | $ | 987,492 | ||||||||
Kye L. Mitchell | Annual Incentive (1) | 2/2/2018 | 12/31/2018 | $ | 108,000 | $ | 432,000 | $ | 864,000 | — | $ | — | |||||||
Equity LTI (2) | — | 12/31/2018 | $ | — | $ | — | $ | — | 30,724 | $ | 949,986 | ||||||||
Andrew G. Thomas | Annual Incentive (1) | 2/2/2018 | 12/31/2018 | $ | 84,586 | $ | 221,620 | $ | 443,240 | — | $ | — | |||||||
Equity LTI (2) | — | 12/31/2018 | $ | — | $ | — | $ | — | 15,201 | $ | 470,015 | ||||||||
(1) | These amounts represent the estimated payouts under the 2018 annual incentive compensation plan. The threshold, as defined in Item 402(d) of Regulation S-K, represents the minimum amount payable upon attaining minimum performance thresholds established by the Committee each year. If the minimum performance thresholds are not attained, there would be no payout. The maximum payout is 200% of the target multiplier for all components of the 2018 annual incentive compensation plan. Actual payments for annual incentive compensation earned during 2018 are listed in the “Non-Equity Incentive Plan Compensation” column of the SCT. |
(2) | The equity LTI awards granted in the form of restricted stock under the 2017 Stock Incentive Plan on December 31, 2018 have a four-year vesting period with 25% of the award vesting annually, except for Mr. Dunkel’s award which has a three-year vesting period with 33% of the award vesting annually. Restricted stock awards contain the right to forfeitable dividends in the form of additional shares of restricted stock at the same rate as the cash dividend on common stock and containing the same vesting provisions as the underlying award. The fair market value of restricted stock is determined based on the closing stock price of Kforce’s common stock at the date of grant. The stock price and grant date fair value for the December 31, 2018 awards was $30.92. The grant date fair value of the awards is included within the amounts presented in the “Stock Awards” column of the SCT. |
(3) | As a result of attaining the 50th percentile ranking for the relative TSR performance versus the 2018 Separately Designated Peer Group, Messrs. Dunkel and Liberatore did not receive LTI cash bonuses and had their equity LTI grant amounts reduced by 25%. |
OPTION EXERCISES AND STOCK VESTED
For Fiscal Year Ended December 31, 2018
Stock Awards | |||||||
Name | Number of Shares Acquired on Vesting | Value Realized on Vesting (1) | |||||
David L. Dunkel | 58,067 | $ | 1,730,977 | ||||
Joseph J. Liberatore | 57,719 | $ | 1,805,585 | ||||
David M. Kelly | 37,664 | $ | 1,218,038 | ||||
Kye L. Mitchell | 36,498 | $ | 1,183,279 | ||||
Andrew G. Thomas | 15,941 | $ | 476,372 | ||||
(1) | Value realized represents the market value of our common stock at the time of vesting multiplied by the number of shares vested. |
33 Kforce 2019 Proxy Statement
PENSION BENEFITS
For Fiscal Year Ended