def14a
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _ )
Filed by
the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement
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o Confidential, for Use of the Commission Only (as |
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permitted by Rule 14a-6(e)(2)) |
þ Definitive Proxy Statement |
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o Definitive Additional Materials |
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o Soliciting Material Pursuant to §240.14a-12 |
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PORTFOLIO
RECOVERY ASSOCIATES
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1) Title of each class of securities to which transaction applies: |
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(2) Aggregate number of securities to which transaction applies: |
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(3) Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it
was determined): |
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(4) Proposed maximum aggregate value of transaction: |
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(5) Total fee paid: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule and the date of its filing. |
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(1) Amount previously paid: |
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(2) Form, schedule or registration statement no.: |
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(3) Filing party: |
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(4) Date filed: |
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Proxy Statement
For The Annual Meeting of Shareholders
June 10, 2011
12:00 Noon
Norfolk, Virginia 23502
The Board of Directors (the Board) of Portfolio Recovery Associates, Inc. (the Company) is
soliciting your proxy to vote at its 2011 Annual Meeting of Shareholders (the Annual Meeting)
which is scheduled to begin at 12:00 Noon, local time, on Friday, June 10, 2011, at the Companys
corporate headquarters in Norfolk, Virginia. This Proxy Statement describes the proposals which
will be on the ballot at the Annual Meeting, and any adjournments or postponements thereof, as well
as other important information about the Company. The proposals for which your vote is being
solicited are:
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1. |
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Election of two Directors to serve three year terms;
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2. |
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Approval of an amendment of the Companys Amended and Restated Certificate of Incorporation to
increase the number of authorized shares of the Companys Common Stock; |
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3. |
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Approval, on a non-binding advisory basis, of executive compensation;
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4. |
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Recommendation, on a non-binding advisory basis, of the frequency of future shareholders votes
on executive compensation; |
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5. |
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Ratification of the appointment of KPMG LLP as the Companys Independent Registered Public
Accounting Firm for the year ending December 31, 2011, and |
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6. |
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Such other matters as may properly come before the Annual Meeting or any
adjournments thereof. |
Included with this Proxy Statement are the Companys 2010 Annual Report to Shareholders, which
includes the Companys audited consolidated financial statements for the fiscal year ended December
31, 2010, the Notice of the Companys 2011 Annual Meeting, this Proxy Statement and your Proxy
Card. These materials are all first being mailed to shareholders on or about April 27, 2011, and
are also available online at the Companys website. The information contained in these documents is
accurate as of the dates specified therein. Changes or updates in the data, information or facts
contained in such documents may occur after the mailing date.
VOTING AT THE ANNUAL MEETING
Date, Time and Place of the Annual Meeting
The Annual Meeting will begin promptly at 12:00 Noon, local time, on June 10, 2011 in the Board of
Directors conference room at our Norfolk headquarters, which is located at the following address:
Portfolio Recovery Associates, Inc.
Riverside Commerce Center
130 Corporate Boulevard
2nd Floor
Norfolk, Virginia 23502
Who May Vote
Each holder of shares of the Companys common stock at the close of business on April 12, 2011 (the
Record Date) will be entitled to receive a notice of the Annual Meeting, and to attend and vote
at the Annual Meeting. Such persons are considered holders of record.
As of the Record Date, 17,099,041 shares of common stock of the Company were outstanding and
entitled to vote, which were held by 23 holders of record maintaining shares on behalf of
approximately 24,586 beneficial owners. Entities holding shares on behalf of the owners of the
shares, such as banks, brokerage firms and any other nominees who are holders of the Companys
common stock as of the close of business on the Record Date are requested to forward these
materials to beneficial owners. The Company will pay the reasonable mailing expenses incurred for
this purpose. Any shareholder who does not receive a copy of the Notice of Annual Meeting or this
Proxy Statement, either by mail or on the Internet, or who wishes to obtain additional copies, may
obtain these materials by contacting the Companys Secretary in advance of the Annual Meeting, or
by emailing info@portfoliorecovery.com, by
1
fax at 757-321-2518, or by telephone at 757-961-3510.
Materials will also be available at the Annual Meeting. If you received more than one proxy card,
you may hold shares in more than one account. To ensure that all of your shares are voted, you must
sign and return each card. Alternatively, if you vote online via the Internet, you will need to
vote once for each proxy card you receive.
Quorum for the Annual Meeting
A majority of holders of the issued and outstanding shares of common stock of the Company entitled
to vote, who are represented in person or by proxy, will constitute a quorum. Continental Stock
Transfer and Trust Company has been appointed by the Companys Board of Directors to act as the
inspector of election. The inspector of election will tabulate the votes cast by proxy or in person
at the Annual Meeting, and will determine whether or not a quorum is present. In the event that a
quorum is not present, the Annual Meeting will likely be adjourned or postponed in order to solicit
additional proxies.
Votes
Required to Elect Directors and Adopt Proposals
Proposal 1. To be elected as a Director, a nominee must receive the affirmative vote of a
plurality of the votes cast. Under the plurality voting standard, the nominees receiving the most
for votes will be elected. In an uncontested election, any nominee for Director who receives a
greater number of withheld votes than for votes is required to tender his or her resignation
for consideration by the Nominating and Corporate Governance Committee of the Board of Directors.
A broker non-vote occurs when a broker or other nominee does not receive voting instructions from
the beneficial owner and does not have the discretion to direct the voting of the shares. Broker
non-votes with respect to the election of one or more Directors will not be counted as a vote cast;
therefore, if your shares are held in
street name it is critical that you cast your vote or provide specific instructions to your broker
if you want your vote to count. Your broker will not be allowed to vote your uninstructed shares
on the election of directors on a discretionary basis.
Proposal 2. The Company is presenting a proposal to amend the Companys Amended and Restated
Certificate of Incorporation (the Certificate of Incorporation) in order to increase the
authorized shares of Common Stock. The approval of the proposed amendment to the Certificate of
Incorporation requires the affirmative vote of a majority of the shares of common stock outstanding
and entitled to vote.
Proposal 3. The Company is presenting a proposal which gives shareholders the opportunity to
endorse or not endorse the compensation paid to its Named Executive Officers as described in this
Proxy Statement, by voting for or against a Say-on-Pay resolution. The affirmative vote of a
majority of the votes cast by holders of the shares of Common Stock present in person or by proxy
at a meeting at which a quorum is present is required (on a non-binding advisory basis) to endorse
the compensation of the Companys Named Executive Officers. While the vote on the resolution is
advisory in nature and therefore will not bind the Company to take any particular action, the Board
of Directors of the Company intends to carefully consider the shareholder vote resulting from the
proposal in making future decisions regarding executive compensation.
Proposal 4. The Company is seeking the input of its shareholders on the frequency with which it
will hold a non-binding advisory vote on the compensation of its Named Executive Officers. In
voting on this Proposal, shareholders may indicate their preference as to whether the advisory vote
on the compensation of the Companys named executive officers should occur (a) once every three
years, (b) once every two years or (c) once every year. The option that receives the highest number
of votes cast by shareholders will be the frequency that is considered to have been approved by
shareholders. Although the results of this vote may impact how frequently the Company holds an
advisory vote on executive compensation, this vote is not binding on the Company. The Board of
Directors may decide, after considering the results of this vote that it is in the best interests
of the Companys shareholders to hold the advisory vote on executive compensation on a different
schedule than the option approved by the Companys shareholders.
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Proposal 5. Ratification of the appointment of KPMG LLP as the Companys independent registered
public accounting firm for the year ending December 31, 2011 requires the affirmative vote of a
majority of the votes cast. A proxy card marked as abstaining with respect to this proposal will
not be counted as a vote cast and, therefore, will have no effect on the vote.
Other Matters. Any other matters and other business as may properly come before the Annual Meeting
will require the affirmative vote of a majority of the votes cast, except as may otherwise be
required by statute.
Shares represented by proxy will be voted as directed on the proxy form and, if no direction is
given, will be voted as follows:
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FOR all the persons nominated by the Board for election as Directors; |
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2. |
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FOR the approval of an amendment to the Companys Certificate of Incorporation; |
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3. |
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FOR the approval of the compensation of the Companys Named Executive Officers; |
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4. |
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FOR an annual frequency for the shareholders advisory vote on executive compensation; |
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5. |
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FOR the ratification of the appointment of KPMG LLP as the Companys independent registered
public accounting firm for the year ending December 31, 2011; and |
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6. |
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In the best judgment of the persons named in the proxies, with respect to any
other matters that may properly come before the meeting. |
Preliminary voting results will be announced at the conclusion of the Annual Meeting, and final
voting results will be published in a Form 8-K which will be filed within four days after the
Annual Meeting.
How to Vote
As a holder of common stock of the Company, you are invited to attend the Annual Meeting and vote
your shares in person. You are entitled to cast one vote per share owned as of the Record Date for
each proposal to be considered at the Annual Meeting. You may also vote online or by mail.
Voting Before the Annual Meeting
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Voting By Mail. If you do not expect to attend the Annual Meeting in person, and choose to vote on
the proposals on the agenda by mail, simply complete the Proxy Card, sign and date it, and return
it in the postage-paid envelope provided. If you are a shareholder whose shares are held in
street name (i.e., in the name of a broker, bank or other record holder), you may obtain a proxy,
executed in your favor, from the record holder. You may sign the proxy card and return it to the
Company, or you may direct the record holder of your shares to vote your proxy in the manner you
specify. Further, if your shares are held in street name, you must communicate your instructions
respecting the voting of your shares to the record holder, or your broker will be prohibited from
voting your shares. Voting by mail will not affect your right to vote in person if you decide to
attend the Annual Meeting; however, if you wish to revoke your proxy, you must first notify the
Corporate Secretary of your intent to vote in person, and must actually vote your shares at the
Annual Meeting. |
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Voting and Viewing Proxy Materials via the Internet. Under rules approved by the Securities
Exchange Commission (SEC), the Company is furnishing proxy materials on the Internet in addition
to mailing paper copies of the materials to each shareholder of record. Instructions on how to
access and review the proxy materials on the Internet can be found on the proxy card sent to
shareholders of record and on the Notice of Internet Availability of Proxy Materials (the Notice)
sent to shareholders who hold their shares in street name (i.e. in the name of a broker, bank or
other record holder). The Notice will also include instructions for shareholders who hold their
shares in street name on how to vote over the internet. Voting over the internet will not affect
your right to vote in person if you decide to attend the Annual Meeting; however, if you wish to
revoke your proxy, you must first notify the Corporate
Secretary of your intent to vote in person, and vote your shares at the Annual Meeting. In
addition, shareholders may request proxy materials in printed form by mail or electronically by
email on an ongoing basis. This process provides shareholders with needed information in a timely
manner, while conserving natural resources and lowering the costs of printing and distributing
proxy materials. |
3
Changing or Revoking Your Proxy
You may change or revoke your proxy at any time before it is voted at the Annual Meeting by the
following methods:
Send a written notice of revocation of your proxy so that it is received before the taking
of the vote at the Annual Meeting to the Corporate Secretary at the following address:
Judith Scott
Executive Vice President, General Counsel and Secretary
Portfolio Recovery Associates, Inc.
Riverside Commerce Center
120 Corporate Blvd.
Norfolk, VA 23502
jsscott@portfoliorecovery.com; Fax: 757-321-2518
Attend the Annual Meeting and vote in person. Your attendance at the Annual Meeting will
not in and of itself revoke your proxy. In order to revoke your proxy, you must also notify the
Corporate Secretary of your intent to vote in person, and then vote your shares at the Annual
Meeting. If you require assistance in changing or revoking your proxy, please contact the
Corporate Secretary at the address above.
Effect of Not Casting Your Vote
If you hold your shares in street name it is critical that you cast your vote if you want it to
count. In the past, if you held your shares in street name and you did not indicate how you wanted
your shares voted, your bank or broker was allowed to vote those shares as they
felt appropriate. Brokers have the discretion to vote your shares on routine matters. These
include increases in the number of authorized common shares for general corporate purposes and
ratification of the Companys independent registered public accounting firm; however, brokers are
prohibited from casting your uninstructed votes in any election of directors and with respect to
the compensation of the Companys named executives. Thus, if you hold your shares in street name
and you do not instruct your bank or broker how to vote in the election of directors and executive
compensation, no votes will be cast on your behalf on Proposals 1 and 3. Your bank or broker will,
however, continue to have discretion to vote any uninstructed shares on Proposals 2, 4 and 5.
Voting in Person at the Annual Meeting
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If you are planning to attend the Annual Meeting and wish to vote your shares in person, you will
be given a ballot for that purpose at the Annual Meeting. If you require special assistance due to
a disability or other reasons, please notify the Corporate Secretary at the address above.
Shareholders who do not hold their shares in their own name (referred to in this Proxy
Statement as beneficial shareholders) should note that only proxies deposited by shareholders
whose names appear on the records of our Corporation as the registered holders of shares of common
stock can be recognized and acted upon at the Annual Meeting. If your
shares are listed in an account statement provided to you by a broker, then in almost all cases
those shares will not be registered in your name on the Companys records. Such shares will more
likely be registered under the name of your broker or an agent of that broker. If you are a
shareholder whose shares are held in street name, you must obtain a proxy from your broker, banker,
trustee or nominee, giving you the right to vote your shares at the Annual Meeting. |
Solicitation of Proxies
All costs in connection with the solicitation of the enclosed proxy will be borne by the Company,
and its Directors, officers, and other employees, without additional compensation, may also solicit
proxies personally or in writing, by telephone, e-mail, or otherwise.
4
Security Ownership of Certain Beneficial Owners
The following table sets forth the persons or entities known by the Company to be the beneficial
owners of more than five percent (5%) of the common stock of the Company as of the Record Date,
based on available information.
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Shares Beneficially |
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Shares Beneficially |
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Names
and Address of Beneficial Owners |
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Owned(1)(#) |
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Owned(2) (%) |
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BlackRock, Inc.(3)
40 East 52nd Street
New York, NY 10022 |
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1,468,621 |
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8.6 |
% |
Waddell & Reed Financial, Inc.(4)
6300 Lamar Avenue
Overland Park, KS 66202 |
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1,319,005 |
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7.7 |
% |
The Bank of New York Mellon
Corporation(5)
One Wall Street, 31st Floor
New York, NY 10286 |
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1,070,590 |
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6.3 |
% |
Alydar Partners, LLC(6)
222 Berkeley Street, 17th Floor
Boston, MA 02116 |
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945,787 |
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5.5 |
% |
Capital Research Global Investors(7)
333 South Hope Street
Los Angeles, CA 90071 |
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940,000 |
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5.5 |
% |
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(1) |
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Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission (SEC) and includes voting and investment power with respect to shares. |
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Ownership percentage is based on 17,099,041 shares of common shares outstanding as of the
Record Date. |
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(3) |
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Based on information filed in a Schedule 13G/A with the SEC on February 8, 2011 in which
BlackRock, Inc. is reported as the beneficial owner of 1,468,621 shares of the Companys common
stock with sole power to dispose or to direct the disposition of 1,468,621 shares. |
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Based on information filed in a Schedule 13G/A with the SEC on February 8, 2011 in which
Waddell & Reed Investment Management Company is reported as the beneficial owner of 1,061,589
shares of the Companys common stock with sole power to dispose or to direct the disposition of
1,061,589 shares and Ivy Investment Management Company, a subsidiary of Waddell & Reed Financial,
Inc., is reported as the beneficial owner of 257,416 shares of the Companys common stock with sole
power to dispose or to direct the disposition of 257,616 shares. |
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Based on information filed in a Schedule 13G with the SEC on February 4, 2011 in which The Bank
of New York Mellon Corporation is reported as the beneficial owner of 1,070,590 shares of the
Companys common stock with sole voting power with respect to 1,007,773
shares, sole power to dispose or direct the disposition of 1,052,062 shares, and shared power to
dispose or direct the disposition of 6,625 shares. |
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Based on information filed in a Schedule 13G/A with the SEC on February 14, 2011 in which John
A. Murphy, an individual, is reported as the managing member of Alydar Capital, LLC and Alydar
Partners, LLC. Alydar Capital, LLC is reported as the general partner of Alydar Fund, L.P., Alydar
QP Fund, L.P., Alysheba Fund, L.P., and Alysheba QP Fund, L.P. Alydar Partners, LLC is reported as
the investment manager of Alydar Fund, L.P., Alydar QP Fund, L.P., Alydar Fund Limited and Alysheba
Fund Limited. John A. Murphy and Alydar Partners, LLC are reported as the beneficial owners of
945,787 shares of the Companys common stock with shared voting power with respect 945,787 shares
and shared power to dispose or direct the disposition of 945,787 shares. John A. Murphy disclaims
beneficial ownership of the securities. Alydar Capital, LLC is reported as the beneficial owner of
261,617 shares of the Companys common stock with shared voting power with respect to 261,617
shares and shared power to dispose or direct the disposition of 261,617 shares. Alydar Fund, L.P.
is reported as the beneficial owner of 13,257 shares of the companys common stock with sole voting
power with respect to 13,257 shares and sole power to dispose or direct the disposition of 13,257
shares. Alydar QP Fund, L.P. is reported as the beneficial owner of 160,709 shares of the
Companys common stock with sole voting power with respect to 160,709 shares and sole power to
dispose or direct the disposition of 160,709 shares. Alysheba Fund, L.P. is reported as the
beneficial owner of 3,019 shares of
the Companys common stock with sole voting power with respect to 3,019 shares and sole power to
dispose or direct the disposition of 3,019 shares. Alysheba QP Fund, L.P. is reported as the
beneficial owner of 84,632 shares of the Companys common stock with sole voting power with respect
to 84,632 shares and sole power to dispose or direct the disposition of 84,632 shares. Alydar Fund
Limited is reported as the beneficial owner of 376,821 shares of the Companys common stock with
sole voting power with respect to 376,821 shares and sole power to dispose or direct the
disposition of 376,821 shares. Alysheba Fund Limited is reported as the beneficial owner of
307,349 shares of the Companys common stock with sole voting power with respect to 307,349 shares
and sole power to dispose or direct the disposition of 307,349 shares. |
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(7) |
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Based on information filed in a Schedule 13G/A with the SEC on January 10, 2011 in which Capital
Research Global Investors, a division of Capital Research and Management Company (CRMC), is
reported as the beneficial owner of 940,000 shares of the Companys common stock with sole power to
dispose or direct the disposition of 940,000 shares. |
5
Security Ownership of Management and Directors
The following table contains information about the shares of the Companys common stock
beneficially owned as of the Record Date by the executives named therein, including the Companys
CEO, Chief Financial and Administrative Officer (CFO), each of the Companys non-employee
Directors, and all Directors and executive officers as a group. Except as indicated by footnote
and subject to community property laws where applicable, to the knowledge of the Company, the
persons named in the table below have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them. In computing the number of shares
beneficially owned by a person or entity and the percentage ownership of that person or entity, all
outstanding stock options currently exercisable or exercisable within 60 days of the Record Date
and all nonvested shares vesting within 60 days of the Record Date, are deemed outstanding.
Security Ownership of Management and Directors
Amount and Nature of Beneficial Ownership
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Shares Vesting |
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Shares (Options) |
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Within 60 Days of |
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Total Shares |
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Percentage of |
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Shares Owned |
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Vested |
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Shares Not Vested |
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4/12/2011 |
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Beneficially Owned |
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Shares Owned |
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(%) |
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Management |
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Steve Fredrickson,
CEO |
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130,832 |
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0 |
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67,338 |
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1,000 |
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131,832 |
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0.8 |
% |
Kevin Stevenson, CFO |
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87,545 |
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0 |
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31,902 |
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1,000 |
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88,545 |
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0.5 |
% |
Craig Grube, EVP |
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24,347 |
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0 |
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13,978 |
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1,000 |
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25,347 |
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0.1 |
% |
Neal Stern, EVP |
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8,802 |
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0 |
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31,171 |
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1,000 |
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9,802 |
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0.1 |
% |
Michael Petit, SVP |
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19,059 |
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0 |
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34,234 |
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1,000 |
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9,802 |
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0.1 |
% |
Kent McCammon, SVP |
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5,907 |
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0 |
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23,467 |
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0 |
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5,907 |
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0.0 |
% |
Judith Scott, EVP |
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10,378 |
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0 |
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9,539 |
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300 |
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10,678 |
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0.1 |
% |
Non- Employee
Directors |
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*William Brophey |
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3,282 |
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0 |
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0 |
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0 |
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3,282 |
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0.0 |
% |
Penelope Kyle |
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5,003 |
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0 |
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1,600 |
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1,000 |
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6,003 |
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0.0 |
% |
David Roberts |
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40,471 |
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0 |
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1,600 |
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1,000 |
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41,471 |
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0.2 |
% |
Scott Tabakin |
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5,633 |
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0 |
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2,200 |
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1,000 |
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|
|
6,633 |
|
|
|
0.0 |
% |
James Voss |
|
|
6,400 |
|
|
|
0 |
|
|
|
1,600 |
|
|
|
1,000 |
|
|
|
7,400 |
|
|
|
0.0 |
% |
John Fain |
|
|
400 |
|
|
|
0 |
|
|
|
2,600 |
|
|
|
1,000 |
|
|
|
1,400 |
|
|
|
0.0 |
% |
John Fuller |
|
|
400 |
|
|
|
0 |
|
|
|
2,600 |
|
|
|
1,000 |
|
|
|
1,400 |
|
|
|
0.0 |
% |
All Executives &
Directors |
|
|
352,209 |
|
|
|
0 |
|
|
|
223,829 |
|
|
|
11,300 |
|
|
|
363,509 |
|
|
|
2.1 |
% |
|
|
|
* |
|
Mr. Brophey did not seek re-election at the 2010 annual meeting. His service as a Director ceased
on June 4, 2010. |
Corporate Governance
The Companys corporate governance principles and the charters of the committees of its Board of
Directors (the Board) are posted on the Investor Relations page of the Companys website,
www.portfoliorecovery.com. Please note that the web site does not constitute a part of this Proxy
Statement. These materials are also available in print to any shareholder upon request. The Board
regularly reviews committee charters and major corporate governance developments and modifies its
governance principles, committee charters and key practices as warranted. Additionally, the Board
conducts assessments of each of its committees and of itself. This process enhances
director, committee and Board effectiveness. At the conclusion of the Board and committee
assessments, the Board uses the information obtained to evaluate and refine its processes and
committee charters, as necessary.
Code of Business Conduct and Ethics. The Company has adopted a Code of Business Conduct and Ethics
which applies to all executive officers, employees and Directors, including the CEO and CFO. The
Code of Business Conduct and Ethics addresses, among other items, conflicts of interest,
confidentiality, fair dealing, protection and use of corporate assets, compliance with laws and the
reporting of illegal or unethical behavior. A copy of the Code of Business Conduct and Ethics, and
the Companys corporate governance principles, are posted on the Investor Relations page of the
Companys web site at www.portfoliorecovery.com. Please note that the web site does not constitute
a part of this Proxy Statement. Shareholders may also obtain a copy of the Code
6
of Business Conduct
and Ethics by sending a written request to the Corporate Secretary. The Company will disclose all
amendments to the Code of Business Conduct and Ethics, as well as any waivers thereof, on its
website to the extent permissible by the rules and regulations of the SEC and the NASDAQ Global
Stock Market (NASDAQ). There were no waivers of the Code of Business Ethics granted in 2010.
The Company also has established and published a confidential telephone hot line for the reporting
of suspected policy violations, fraud, embezzlement, and other criminal and/or unethical activities
concerning the Companys accounting practices, auditing and reporting of financial results. This
number is operational 24 hours a day, seven days a week. Any employee who has a concern about the
Companys, or of any Directors or employees ethical conduct, or of any accounting, internal
controls or auditing matters may anonymously communicate those concerns directly to the Chairman of
the Audit Committee via the telephone hot line. All such communications are confidential, and are
reported to an independently maintained toll-free phone number which is posted in prominent places
at all Company work sites and also on the Companys intranet. All such communications are promptly
reviewed by the Chairman of the Audit Committee and addressed by the Companys General Counsel or
other corporate executives, as appropriate. Moreover, each quarter the Companys Office of General
Counsel asks its Directors, as well as more than fifty of the Companys senior employees, from all
aspects of its businesses, to certify that they are not aware of any fraudulent, unethical or
illegal activities committed by or on behalf of the Company. Additionally, on an annual basis,
each Director and each executive officer is obligated to complete a Directors and Officers
Questionnaire which requires, among other things, the disclosure of any transactions with the
Company in which the Director or executive officer, or any member of his or her immediate family,
may have a direct or indirect material interest.
Board of Directors
The Board is the ultimate decision-making body of the Company, except with respect to those matters
reserved to the shareholders. The Board advises senior management and monitors their performance.
In addition to its regular meetings, the Board has informal discussions by telephone or
electronically, and holds special meetings during the year, as needed. The Board held four regular
meetings and twelve special meetings in 2010, and the non-employee Directors held five executive
sessions. Non-employee Directors meet at least quarterly in executive session without management
present. There is no formal policy regarding Directors attendance at Board meetings or at annual
meetings; however, all Directors are expected to attend Board meetings, either in person or
telephonically. It is the Boards practice to schedule its meetings and the Companys Annual
Meeting of Shareholders at times and dates which will permit maximum attendance by Directors,
taking into account the Directors schedules and the timing requirements of applicable laws. Six
of our Directors attended the Companys 2010 Annual Meeting in person. The majority of the Board
of Directors attended 100% of the regular meetings of the Board in 2010, and no director attended
less than 75% of all meetings of the Board. Each of the Directors serving
on the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance
Committee attended at least 75% of the meetings of each committees on which they serve.
Director Orientation, Education and Preparation
The Company conducts a formal orientation program for all new directors, which includes one-on-one
meetings with each of our executive officers and senior management, as well as extensive written
materials about the Company, its individual business units, and the industry in which the Company
operates. Senior management meetings with Directors involve business unit overviews, strategic
plans and significant financial, accounting and risk management issues. Directors also are provided
opportunities to visit the Companys business units and subsidiaries across the country in order to
gain additional knowledge about their operations. Further, all Directors
participate as a group in ongoing continuing education through director education sessions that are
held on a regular Board meeting date at least once per year. The Company also affords Directors the
opportunity and funds to attend external director education programs.
Management ensures that the Board is fully informed of the Companys business by providing regular
written financial reports, reports of operations and other relevant reports at Board meetings at
least monthly, between meetings and at committee meetings. Board materials related to agenda items
are provided sufficiently in advance of Board meetings to allow the Directors to prepare for
discussion of agenda items. All
7
Board members also receive comprehensive monthly financial reports
from the CFO. Members of senior management attend regular Board meetings, or portions thereof, for
the purpose of participating in discussions and providing management reports on business unit
operations and operational risks. Directors also have access to members of management and
employees of the Company between meetings and, as necessary and appropriate, may consult with and
engage, at the Companys expense, independent legal, compensation, financial and accounting
advisors to assist them in their duties to the Company and the shareholders.
The following table sets forth information concerning the Companys Directors as of the Record
Date:
|
|
|
|
|
|
|
|
|
|
|
Director |
|
Age |
|
Title |
|
Appointed |
|
Class |
Steve Fredrickson
|
|
|
51 |
|
|
President, CEO and Chairman of the Board
|
|
March 1996 (1)(3)
|
|
1st |
Penelope Kyle
|
|
|
62 |
|
|
Director
|
|
October 2005 (3)
|
|
1st |
David Roberts
|
|
|
49 |
|
|
Lead Director
|
|
March 1996 (1)(4)
|
|
2nd |
Scott Tabakin
|
|
|
52 |
|
|
Director
|
|
October 2004 (2)
|
|
3rd |
James Voss
|
|
|
68 |
|
|
Director
|
|
November 2002 (2)
|
|
3rd |
John Fuller
|
|
|
67 |
|
|
Director
|
|
March 2010 (4)
|
|
2nd |
John Fain
|
|
|
62 |
|
|
Director
|
|
March 2010 (4)
|
|
2nd |
|
|
|
(1) |
|
In March 1996, Mr. Fredrickson and Mr. Roberts were named as managers of Portfolio
Recovery Associates, L.L.C., the Companys predecessor. Mr. Fredrickson and Mr. Roberts were
appointed as directors of the Company upon its creation in August 2002. |
|
(2) |
|
The terms of Mr. Voss and Mr. Tabakin will expire at the 2011 Annual Meeting. |
|
(3) |
|
The terms of Mr. Fredrickson and Ms. Kyle will expire at the 2012 Annual Meeting. |
|
(4) |
|
The terms of Mr. Roberts, Mr. Fuller and Mr. Fain will expire at the 2013 Annual Meeting. |
William Brophey, formerly a member of the Board, did not seek reelection at the 2010 annual
meeting, and his service as a member of the Board ceased as of June 4, 2010. The Board currently
consists of seven Directors, six of whom are non-employee Directors. The Board is divided into
three classes. The terms of each class expire at successive annual meetings. Shareholders elect
Directors from one class at each annual meeting to serve three year terms.
Combination of Chairman and Chief Executive Officer Positions
The positions of Chairman of the Board and CEO are combined; however, the Board has designated a
non-employee independent Director to serve as its Lead Director. The independent directors meet in
an executive session after each regular board meeting and the Lead Director acts as chairman of
these sessions, at which the independent directors have the opportunity to frankly discuss
managements performance. The Lead Director coordinates the activities of the other non-employee
Directors, consults with the CEO regarding agendas, schedules, and the communication and
information needs for Board and committee meetings. He also facilitates information flow and
communication by acting as a liaison between the non-employee Directors and management. The Board
believes this arrangement provides the most efficient and effective leadership model for the
Company. Further, combining the Chairman and CEO
roles is appropriate because the structure fosters a closer alignment between the Board and
management. Due to the size of the Company, in most cases one person, the President and CEO,
should speak for and lead both the Company and the Board. The Board currently believes that the CEO
is the individual with the necessary experience, commitment and support of the other Directors to
effectively carry out the role of Chairman. The Board regularly reviews and considers whether it is
in the best interests of shareholders to separate or combine the roles of Chairman of the Board and
Chief Executive Officer.
8
The Boards Role in Risk Oversight
The Board, as a whole and through its committees, is responsible for overseeing risk management.
The Board recognizes that the Company faces a broad range of risks, including financial,
operational, political, reputational, governance, and legal risks that may affect the Companys
ability to execute corporate strategies and fulfill business objectives. The Board operates within
a climate of transparency and uninhibited dialog with senior management. In this connection,
senior management attends the regular meetings of the Board and routinely reports on their
activities. These reports include risk considerations and discussions concerning actions and
proposals to
mitigate the risks identified, if any. The Board meets regularly to discuss the strategic
direction of the Company; a consideration of key risks is essential to the Companys strategic
planning process.
Management is responsible for the day-to-day management of the Companys risks. A Risk Management
Group was recently formed to formally document known risks, assess the sufficiency of risk
identification, and to recommend the appropriate manner in which to control or mitigate those
risks.
The Audit Committee is responsible for direct oversight of the Companys risk management program.
The Risk Management Group provides the Audit Committee with risk management updates during each of
that committees regularly scheduled meetings. Additionally, the Audit Committee receives reports
during each of its regularly scheduled meetings from the Companys Chief Financial Officer and the
Companys external auditors on financial risks, compliance with reporting requirements, and
internal controls. The Audit Committee also receives reports at each quarterly meeting from the
Companys Director of Internal Audit on the results of internal audit testing.
As described in the Compensation Committee report, the Compensation Committee takes measures to
prevent the Companys compensation programs and incentives from leading to decisions that encourage
or promote excessive risk-taking. The Boards ultimate goal is to ensure that the Company
continues as a successful business; therefore, the Board analyzes risks so as to appropriately
optimize financial returns and increase shareholder value.
Director Independence
The Board consists of a majority of independent Directors who do not have any direct or
indirect material relationship with the Company. The Board has established guidelines which conform
to the independence requirements of the NASDAQ listing standards to assist it in determining
director independence. In March 2011, the Directors provided updated responses to Directors and
Officers questionnaires in accordance with current proxy disclosure requirements. These included
updated information concerning their qualifications and experience, as well as any conflicts of
interest, job changes, and any material transactions, relationships, and other arrangements between
the Company and the Directors or immediate family members of the Directors. A Directors immediate
family members include the Directors spouse, parents, children, siblings, in-laws, and anyone
(other than domestic employees) who shares the
Directors home. Based on the responses received and other available information, it was determined
that all of the non-employee Directors of the Company lack material relationships with the Company,
and are independent Directors under applicable securities law requirements and NASDAQ rules. The
Board has also concluded that each of the members of the Audit Committee, the Compensation
Committee, and the Nominating and Corporate Governance Committee meet the NASDAQ independence
tests. These determinations were made based upon a number of facts, including, but not limited to,
the following:
Except for Steve Fredrickson, the Chairman of the Board and CEO, no Director is, or has ever
been, an executive officer of the Company or employed by the Company or its subsidiaries, or has an
immediate family member who is an employee or officer of the Company or its subsidiaries, has
accepted any compensation or payments from the Company or has any current or past material
relationships with the Company;
No Director, other than the CEO has ever received any compensation from, worked for, been
retained by, or received anything of substantial value from the Company, other than Director
compensation;
No Director or any member of any Directors immediate family is, or ever was, employed by the
Companys independent registered public accounting firm, or ever worked on the Companys audit at
any time;
9
No executive officer serves on the board of directors of any company that employs a Director or
any member of the immediate family of a Director, none sits on a board of directors of any company
at which a Director is the chief executive officer or chief operating officer, and no Director or
any member of the immediate family of a Director has been an executive officer of any entity having
a compensation committee on which one or more of the Companys executive officers has concurrently
served; and
None of the independent directors, their respective affiliates or members of their immediate
family, directly or indirectly, have engaged in any transaction with the Company or its affiliates
or have any relationship with the Company or its affiliates which, in the judgment of the Board, is
inconsistent with a determination that the director is independent.
No Director and no immediate family member of any Director is a partner or controlling
shareholder, director or executive officer of any entity from which the Company purchases goods or
services, or to which the Company makes charitable contributions in excess of 2% of the entitys
consolidated gross revenues for that year, or $200,000, whichever is lower.
There is no family relationship among any of the directors or executive officers of the Company.
Director Diversity
The Board strives to have a meaningful cross-section of business and industry experience
represented by a group of diverse individuals who add quality to the Companys corporate governance
framework. The Board does not have a formal policy with respect to diversity. However, the Board,
through the Nominating and Corporate Governance Committee, reviews, at least annually, the size,
structure and membership of the Board of Directors and its committees to assure that the proper
skills and experience are represented on the Board and its committees. In conducting its review,
the Committee considers the contributions of existing directors, whether the membership of the
Board appropriately reflects diversity and the overall needs of the Company. The review assesses
committee balance and the
overall composition of the Board and identifies the contribution each Director makes to the
diversity of backgrounds, experience and competencies represented on the Board and its committees.
Also considered are existing and potential gaps in skill sets. Among other criteria, the
experience and skill sets deemed necessary for the Board of Directors as a whole includes financial
expertise, an understanding of the industries in which the Company operates and experience as a
director or officer of other public companies.
Qualifications and Skills of Directors
Generally, certain minimum qualifications must be met by a nominee for a position on the Board.
Specifically, nominees should possess the highest level of professional and personal ethics,
integrity and values, be free of any material conflicts of interest with respect to
Board service, have competence at the policy-making level and have the ability to exercise sound
judgment. Nominees (other than the CEO) should also be independent, as defined in NASDAQ Rule
5605(a)(2), be able to understand and relate to the culture of the Company, have sufficient time to
properly discharge the duties associated with serving as a Director, and have sufficient experience
and knowledge to enhance or maintain the diversity of the Board. Directors must possess the ability
to apply good business judgment and must be in a position to properly exercise his or her duties of
loyalty and care. Directors should also exhibit proven leadership capabilities, integrity and
experience with a high level of responsibility and accomplishment within their chosen fields, and
must have the ability to quickly understand complex principles of business and finance in the
context of a publicly traded company. Overall continuity and chemistry of the Board are also
considerations.
10
Information Regarding Director Nominees for Election to Three-year Terms Expiring in 2014
James M. Voss and Scott M. Tabakin have been nominated by the Board of Directors, on the
recommendation of its Nominating and Corporate Governance Committee, for election to three-year
terms expiring at the 2014 Annual Meeting.
In making their nominations, the Board reviewed the backgrounds of the nominees (summaries of each
nominees biography are provided below), their independence, character, judgment and business
experience, and determined to nominate each of them. The important professional characteristics
that each particular person brings to the Board, and the attributes and skills that led to the
conclusion that they should serve as a Director of the Company, are listed below. The Board
believes that each Director and each nominee for election has valuable individual skills and
experiences that, taken together, provide the Company with the requisite mix of skills and depth of
knowledge, judgment and vision necessary to provide effective oversight of the Companys varied
businesses, and will enable the Board and each committee to continue to provide sound judgment and
leadership and function effectively as a group. As indicated in the following biographies, the
nominees have extensive experience in a variety of fields, including oversight of public companies
and experience in the financial services industry and related industries.
Each person nominated for election has consented to being named in this Proxy Statement and has
agreed to serve if elected. If one or more of the nominees should at the time of the meeting be
unavailable or unable to serve as a Director, the shares represented by the proxies will be voted
to elect the remaining nominees and any substitute nominee or nominees designated by the Board.
The Board
knows of no reason why any of the nominees would be unavailable, unwilling or unable to serve.
Summaries of each nominees biography are provided below.
|
|
James M. Voss. Mr. Voss was appointed as a Director of Portfolio Recovery Associates in 2002 and
subsequently elected at the Companys next Annual Meeting of Shareholders. Mr. Voss has served as
chair of the Audit Committee of our Board of Directors since his initial appointment. He has more
than thirty-five years of experience as a senior finance executive. Mr. Voss currently serves as
an independent consultant to community banks regarding policy, organization, credit risk management
and strategic planning. From 1992 through 1998, he was with First Midwest Bank as Executive Vice
President and Chief Credit Officer. Prior to that, he served in a variety of senior executive
roles during a twenty-four year career (1965-1989) with Continental Bank of Chicago, and was Chief
Financial Officer at Allied Products Corporation (1990-1991), a publicly traded (NYSE) diversified
manufacturer. Currently, he serves on the board of Elgin State Bank, through which he has gained
additional corporate governance experience. Mr. Voss combination of expertise in the areas of
business and finance enables him to provide unique insight and perspective to our Board and to
address complex financial issues which may be presented to our Board. These experiences were all
factors in our conclusion that Mr.
Voss should continue to serve on our Board of Directors. Mr. Voss has both an MBA and Bachelors
Degree from Northwestern University. |
|
|
Scott M. Tabakin. Mr. Tabakin was appointed as a director of Portfolio Recovery Associates in 2004
and subsequently elected at the Companys next Annual Meeting of Shareholders. Mr. Tabakin serves
on the Audit and Compensation Committees of our Board. He was a certified public accountant and
has more than twenty years of public-company experience. Currently an independent financial
consultant, Mr. Tabakin served as Executive Vice President and Chief Financial Officer of Bravo
Health, Inc., a privately owned managed healthcare company from July 2006 until the sale of the
company in November 2010. From October 2003 until July 2006, Mr. Tabakin was an independent
financial consultant. He served as Executive Vice President and Chief Financial Officer of
AMERIGROUP Corporation, a publicly traded (NYSE) managed health care company, from May 2001 until
October 2003. From October 1992 until May 2001, Mr. Tabakin was Executive Vice President and Chief
Financial Officer of Beverly Enterprises, Inc., then the nations largest publicly traded (NYSE)
provider of long-term health care. From June 1980 until October 1992, Mr. Tabakin was an executive
with the accounting firm of Ernst & Young. These experiences, including his experience as a senior
financial officer of large publicly traded companies, provide Mr. Tabakin with a comprehensive
understanding of the complex financial and legal issues facing public companies
and were all factors in our conclusion that Mr. Tabakin should continue to serve on our Board of
Directors. Mr. Tabakin received a B.S. degree in accounting from the University of Illinois. |
11
Experience of Directors Continuing in Office Terms Expiring in 2012
|
|
Steven D. Fredrickson. Mr. Fredrickson has been the Chief Executive Officer of Portfolio
Recovery Associates since its inception. Prior to co-founding Portfolio Recovery Associates in
1996, Mr. Fredrickson was Vice President, Director of Household Recovery Services (HRSC)
Portfolio Services Group from late 1993 until February 1996. At HRSC Mr. Fredrickson was ultimately
responsible for HRSCs portfolio sale and purchase programs, finance, accounting, and other
functional areas. Prior to joining HRSC, he spent five years with Household Commercial Financial
Services managing a national commercial real estate workout team and five years with Continental
Bank of Chicago as a member of the FDIC workout department, specializing in corporate and real
estate workouts. Mr. Fredrickson is a past board member of the American Asset Buyers Association.
In his role as our Chief Executive Officer for approximately fifteen years, Mr. Fredrickson has
gained critical insights into managing a complex financial services business in a dynamic
environment, which, along with his extensive prior experience in the financial services industry
and his tenure with the
Company, make him a valuable asset. These were all factors in our conclusion that Mr. Fredrickson
should continue to serve on our Board of Directors at this time. He received a B.S. degree from
the University of Denver and a M.B.A. degree from the University of Illinois. |
|
|
Penelope W. Kyle. Penelope W. Kyle, Director. Ms. Kyle was appointed as a Director of Portfolio
Recovery Associates in 2005 and subsequently elected at the Companys next annual meeting of
shareholders. Ms. Kyle is a highly respected educational leader with a proven record of
accomplishment. Ms. Kyle presently serves as President of Radford University. Prior to her
appointment as President of Radford University in June 2005, she had served since 1994 as Director
of the Virginia Lottery, where she served for ten years under three Virginia Governors. Earlier
in her career, Ms. Kyle worked as an attorney at the law firm McGuire, Woods, Battle and Boothe, in
Richmond, Virginia. She was later employed at CSX Corporation, where during a 13-year career she
became the companys first female officer and a vice president in the finance department. Ms. Kyle
also has prior service as a director and chairman of the audit committee of a publicly traded
company. She currently serves on the Board of Directors of the Foundation for Educational
Exchange, a joint bi-national organization which administers the Canada-U.S. Fulbright program. Ms.
Kyle brings a unique and valuable perspective to our Board based on her distinctive background in
business, academia and government, particularly with respect to matters relating to
law and corporate governance. These were all factors in our conclusion that Ms. Kyle should
continue to serve on our Board of Directors at this time. She earned an MBA at the College of
William and Mary and a law degree from the University of Virginia. |
Experience of Directors Continuing in Office Terms Expiring in 2013
|
|
David N. Roberts. Mr. Roberts has been a Director of Portfolio Recovery Associates since its
formation in 1996. Mr. Roberts joined Angelo, Gordon & Company, L.P. in 1993, where he founded the
firms opportunistic real estate area and manages the firms private equity and special situations
area. Mr. Roberts helped to guide the Company through its transition from a small private company
to a major publicly traded company. He currently serves as Lead Director of the Board of Directors
and as Chair of the Compensation Committee. Mr. Roberts has invested in a wide variety of real
estate, corporate and special situations transactions. Prior to joining Angelo, Gordon Mr. Roberts
was a principal at Gordon Investment Corporation, a Canadian merchant bank from 1989 to 1993, where
he participated in a wide variety of principal transactions including investments in the real
estate, mortgage banking and food industries. Prior to joining Gordon Investment Corporation, he
worked in the Corporate Finance Department of L.F. Rothschild, where he specialized in mergers and
acquisitions. Mr. Roberts qualifications to serve on the Board of Directors include his extensive
knowledge of the Company and his financial expertise in business development, operations and
strategic planning. Mr. Roberts is also intimately
familiar with, and has a deep understanding of the industry in which the Company does business.
These were all factors in concluding that Mr. Roberts should continue to serve on the Board of
Directors at this time. Mr. Roberts has a B.S. degree in economics from the Wharton School of the
University of Pennsylvania.
|
12
|
|
John H. Fain. Mr. Fain was appointed as a Director on March 1, 2010, and was elected to the
Board by the Companys shareholders at the 2010 annual meeting. Mr. Fain has more than 25 years of
business management experience, including service as the founder, President and Chief Executive
Officer of Metro Information Services. Metro Information Services was an information technology
consulting services firm which went public in 1997, and subsequently merged with Keane, Inc. in
2001. Mr. Fain served as a member of the Board of Directors of Keane, Inc. until September 2006.
Prior to co-founding Metro Information Services, Mr. Fain developed and ran his own independent
data processing consulting practice, servicing clients in multiple states. Mr. Fain is currently
retired, and serves on the Investment Committee of the Hampton Roads Community Foundation. Mr.
Fain was appointed to the Board of Directors because of his insight with respect to the use of
information technology strategies in large multi-state companies, his operational and financial
expertise and his experience as a Chief Executive Officer and Director of a sizeable business.
These were all
factors in our conclusion that Mr. Fain should continue to serve on our Board of Directors at this
time. Mr. Fain holds a B.S. Degree in Computer Science from the University of South Carolina. |
|
|
John E. Fuller. Mr. Fuller was appointed as a Director on March 1, 2010, and was elected to the
Board of Directors by the shareholders at the 2010 annual meeting. Mr. Fuller has more than twenty
years of executive experience, including being the co-founder of Automotive Finance Company
(AFC), an independent automobile floor plan financing company, and his seven years as AFCs Chief
Executive Officer. Following the sale of AFC to Auto Dealers Exchange Services of America in 1994,
Fuller stayed on as Chief Executive Officer for another twelve years, after which he left to start
Dealer Services Corporation (DSC). DSC also provides financing to auto dealers throughout the
country. Mr. Fuller acted as Chairman, President and Chief Executive Officer of DSC until January,
2010, and currently serves as Chairman of its Board of Directors. Mr. Fuller was appointed to the
Board because of his business development experience and expertise, his experience as a Chief
Executive Officer, Chairman and Director of companies in the financial services industry and his
significant corporate leadership and knowledge of the auto financing business. These were all
factors in our conclusion that Mr. Fuller should continue to serve on our Board of Directors at
this time. |
|
|
|
|
|
Summary:
Board of Directors Information |
|
2010 |
|
Size of Board |
|
|
7 |
|
Average Age of Directors |
|
|
59 |
|
Number of Independent Directors |
|
|
6 |
|
Lead Independent Director |
|
Yes |
|
Independent Audit Committee |
|
Yes |
|
Independent Compensation Committee |
|
Yes |
|
Independent Corporate Governance Committee |
|
Yes |
|
Number of Board Meetings Held |
|
|
16 |
|
Outside Directors Hold Meetings Without Management Present |
|
Yes |
|
Board Self-Evaluation |
|
Yes |
|
Annual Review of Independence of Board |
|
Yes |
|
Annual Committee Self Evaluations |
|
Yes |
|
Charters for Audit, Compensation and Corporate Governance Committee |
|
Yes |
|
Annual Equity Grants to Non-Employee Directors |
|
Yes |
|
Corporate Compliance Program |
|
Yes |
|
Code of Ethics |
|
Yes |
|
13
Review and Approval of Related Party Transactions
The Company requires disclosure of any relationships and transactions in which the Company, its
Directors, its executives or their immediate family members are participants, and conducts a review
of transactions of the Company with any shareholders owning five percent or greater of the
Companys outstanding common stock, to determine whether there are any such transactions in amounts
at or exceeding the minimum threshold for disclosure in this Proxy Statement under the relevant SEC
rules (generally, transactions involving amounts exceeding $120,000) in which a related person has
a direct or indirect material interest. The Companys General Counsel is primarily responsible
for developing and implementing the policy and procedures relative to the review and approval of
related party transactions.
Procedure for the Approval of Related Party Transactions
|
1. |
|
The complete details of any proposed transaction must be presented to the
Companys General Counsel by the party intending to enter into the transaction. |
|
|
2. |
|
The Companys General Counsel will make an initial materiality determination,
and when appropriate, will prepare a written analysis and recommendation to the
Nominating and Corporate Governance Committee based on: (a) the nature of the proposed
transaction; (b) the related persons interest in the transaction; (c) the dollar value
of the transaction; (d) the
importance of the transaction to the business of the Company; (e) the material terms of
the transaction; and (f) the overall fairness of the transaction to the Company. |
|
|
3. |
|
Based on the foregoing factors, the Nominating and Corporate Governance
Committee will decide whether or not to recommend that the proposed transaction be
brought before the full Board for consideration. |
|
|
4. |
|
If the matter is presented to the Board for a vote, and a related party is
involved in the transaction, he or she will not be allowed to participate in any
discussions and decisions concerning the transaction. |
|
|
5. |
|
If the Board approves the transaction, the Companys General Counsel will
ensure that a written arms length contract between the parties is appropriately
executed by all parties. |
There were no reportable related party transactions with the Company in 2010.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Companys executive officers and Directors and
persons who beneficially own more than five percent (5%) of the Companys common stock to file
initial reports of ownership and changes in ownership of such common stock with the SEC and NASDAQ.
As a practical matter, the Company typically assists its Directors and executive officers with
these transactions by completing and filing Section 16 reports on their behalf. The Company also reviews directors and officers
questionnaires and written representations from the executive officers and Directors. Based on a
review of the Section 16(a) reports filed by the Company on behalf of its Directors and executive
officers or furnished to the Company by 5% beneficial owners and a review of written
representations from certain reporting persons, the Company believes that all such filing
requirements were complied with on a timely basis during 2010, with the exception of Kent
McCammons Form 3 which was not timely filed with respect to his initial reporting of 4,707 shares
of the Companys stock.
Communication with Directors
Shareholders may communicate with members of the Board by transmitting their correspondence by mail
or facsimile addressed to one or more Directors. All such communications should be sent to the
attention of the Corporate Secretary, at the address specified herein, or to fax number
757-321-2518. Communications from shareholders to one or more directors will be collected and
organized by the Corporate Secretary and forwarded to the Chairman of the Board, or if addressed to
an identified Independent Director, to that Director, as soon as practicable. Communications that
are abusive, in bad taste or that present safety or security concerns may be handled differently.
If multiple communications are received on a similar topic, the
14
Corporate Secretary may forward
only representative correspondence. The Corporate Secretary will determine whether any
communication addressed to the entire Board as a whole should be properly addressed by the entire
Board, or by a committee of the Board. If a response to the communication is warranted, the content
and method of the response will be coordinated with the Companys General Counsel.
The Companys confidential hot line may be used by any shareholder who prefers to raise a concern
to the Board in a confidential or anonymous manner, by dialing 1-800-290-1650. All telephone calls
to the Companys confidential hot line are referred to the Chairman of the Audit Committee, who is
responsible for ensuring that such matters are appropriately investigated. The Companys Director
of Corporate Communications will address communications from the investment community regarding the
Companys financial and business matters, and will refer appropriate matters to the Companys CEO
or its CFO.
Director Compensation
The Board, upon the recommendation of the Compensation Committee, sets the compensation for
non-employee Directors so as to fairly compensate them for the work required of them, based on the
Companys
size and scope. The Board also makes annual equity awards to Directors in order to align each
Directors interests with the long-term interests of the Companys shareholders. In 2009 the
Compensation Committee engaged the Committees independent compensation consultant, Frederic W.
Cook & Co., Inc. (FW Cook) to evaluate the competitiveness of the Companys Director compensation
program. The Companys Directors compensation is compared to those of the directors of companies
in the Compensation Peer Group listed on page 36. As a result of the election of two new Directors
in 2010 and the loss of one Director, there was a realignment of committee assignments and
Directors roles; consequently, Director compensation was reviewed and adjusted, with the
assistance of FW Cook. In this connection, the Compensation Committee recommended an adjustment in
the Directors compensation, effective as of January 1, 2011. The chart below provides a summary
and comparison of total non-employee Director compensation in 2010, and the compensation adjustment
projected as of January 1, 2011.
Non-Employee Director Annual Compensation
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2011 |
|
BOARD SERVICE |
|
|
|
|
|
|
|
|
Annual Retainer (Cash Portion) |
|
$ |
30,000 |
|
|
$ |
40,000 |
|
Annual Retainer (Stock Portion) 1,000 Nonvested Shares(1) |
|
$ |
44,850 |
(2) |
|
$ |
65,000 |
(3) |
TOTAL (excluding Committee Retainers, and Lead Director Retainer) |
|
$ |
74,850 |
|
|
$ |
115,200 |
|
|
COMMITTEE AND LEAD DIRECTOR SERVICE |
|
|
|
|
|
|
|
|
Annual Committee Chair Retainers: |
|
|
|
|
|
|
|
|
Audit Committee Chair |
|
$ |
25,000 |
|
|
$ |
25,000 |
|
Compensation Committee Chair |
|
$ |
10,000 |
|
|
$ |
12,500 |
|
Nominating and Corporate Governance Committee Chair |
|
$ |
5,000 |
|
|
$ |
10,000 |
|
Annual Committee Retainers: |
|
|
|
|
|
|
|
|
Audit Committee |
|
$ |
12,500 |
|
|
$ |
12,500 |
|
Compensation Committee |
|
$ |
5,000 |
|
|
$ |
6,250 |
|
Nominating and Corporate Governance Committee |
|
$ |
2,500 |
|
|
$ |
5,000 |
|
Lead Director Retainer |
|
$ |
15,000 |
|
|
$ |
15,000 |
|
|
|
|
(1) |
|
The Company awarded Directors 1,000 nonvested shares on the date of the 2010
annual shareholders meeting. |
|
(2) |
|
Based on the closing price of the Companys common stock on December 31, 2009, as
reported by NASDAQ |
|
(3) |
|
Beginning in 2011, the Directors annual stock grant will be a number of shares equal
in value to $65,000, regardless of share price. |
Newly appointed Directors are granted 2,000 nonvested shares of the Companys stock upon their
initial appointment to the Board. These shares vest at the rate of 20% per year for five years.
In 2010, Directors were also awarded 1,000 nonvested shares on the date of the 2010 annual meeting
of shareholders. Annual Director stock awards become fully vested one year after the grant date.
This vesting schedule, combined
with the targeted Director stock ownership policy described below, advances the alignment of
Directors economic interests with those of shareholders.
Recognizing that each Director should have a substantial personal investment in the Company, the
Board has adopted a target stock ownership policy which applies to each Director, requiring a
personal holding by each Director of a number of shares valued at not less than two times the
Directors annual Board retainer, exclusive of Committee retainers. Directors are expected to
acquire and maintain this share ownership threshold within two years after joining the Board. In
2010, the Company offered no compensation to its Directors other than their annual retainers and
stock awards; however, each Director is reimbursed for travel
15
expenses in connection with
attendance at Board meetings and for all reasonable expenses associated with continuing education
programs. The Company offers no retirement benefits or other perquisites to Directors.
The Company maintains policies of directors and officers liability insurance covering all
Directors. The Companys CEO received no additional compensation for his service as a Director and
Chairman of the Board of Directors.
The table below summarizes the compensation paid by the Company to non-employee Directors for the
year ended December 31, 2010.
2010 NON-EMPLOYEE DIRECTOR COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
or |
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in Cash |
|
|
Stock Awards (2) |
|
|
Option Awards(3) |
|
|
Total Compensation |
|
Non-Employee Director |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
William Brophey(1 ) |
|
$ |
26,250 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
26,250 |
|
John Fain |
|
$ |
36,250 |
|
|
$ |
174,090 |
|
|
$ |
0 |
|
|
$ |
210,340 |
|
John Fuller |
|
$ |
28,750 |
|
|
$ |
174,090 |
|
|
$ |
0 |
|
|
$ |
202,840 |
|
Penelope Kyle |
|
$ |
36,250 |
|
|
$ |
66,510 |
|
|
$ |
0 |
|
|
$ |
102,760 |
|
David Roberts |
|
$ |
57,500 |
|
|
$ |
66,510 |
|
|
$ |
0 |
|
|
$ |
124,010 |
|
Scott Tabakin |
|
$ |
51,250 |
|
|
$ |
66,510 |
|
|
$ |
0 |
|
|
$ |
117,760 |
|
James Voss |
|
$ |
58,750 |
|
|
$ |
66,510 |
|
|
$ |
0 |
|
|
$ |
125,260 |
|
|
|
|
(1) |
|
Mr. Brophey did not seek re-election at the 2010 annual meeting; consequently,
his service as a Director ceased on June 4, 2010. |
|
(2) |
|
The amounts reported in the Stock Awards column represent the aggregate grant date
fair value of the stock awards calculated by multiplying the number of nonvested shares granted by
the closing stock price of the Companys common stock on the grant date. The actual amount of
compensation that will be realized by a Director at the time an award vests will depend upon the
market price of the Companys common stock at the vesting date. Mr. Fain and Mr. Fuller were
granted 2,000 nonvested shares of the Companys stock upon their appointment to the Board. |
|
(3) |
|
No stock options were granted in 2010. |
The aggregate number of outstanding stock options held by each of the Companys non-employee
Directors as of the Record Date is provided in the table below:
|
|
|
|
|
|
|
Outstanding |
|
Directors |
|
Options (#)* |
|
William Brophey |
|
|
0 |
|
John Fain |
|
|
0 |
|
John Fuller |
|
|
0 |
|
Penelope Kyle |
|
|
0 |
|
David Roberts |
|
|
0 |
|
Scott Tabakin |
|
|
0 |
|
James Voss |
|
|
0 |
|
|
|
|
* |
|
The Company discontinued its practice of granting stock options to Directors in 2004.
Directors appointed to the Board after 2004 received no stock options. |
16
Committees of the Board
Each non-employee Director serves on at least one committee. The Committees of the Board regularly
report on their activities and results of meetings to the full Board. Only independent
non-employee Directors may serve on Board committees. The table below shows the current membership
for each of the standing committees of the Board as of the Record Date.
|
|
|
|
|
|
|
|
|
|
|
Nominating and Corporate |
|
|
Audit Committee |
|
Governance Committee |
|
Compensation Committee |
James Voss*
|
|
Penelope Kyle*
|
|
David Roberts*
|
John Fain
|
|
John Fuller
|
|
Scott Tabakin
|
Scott Tabakin
|
|
David Roberts
|
|
John Fain
|
|
|
|
|
|
|
James Voss
|
|
|
|
|
|
|
John Fuller
|
|
|
|
|
|
|
|
|
|
|
|
Number of Committee Meetings in 2010
|
|
|
|
|
10
|
|
|
2 |
|
|
|
6 |
|
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee held two meetings in 2010. Each member of the
Nominating and Corporate Governance Committee is independent, as such term is defined by NASDAQ
Rule 5605(a)(2). The Nominating and Corporate Governance Committee annually reviews the
composition of all committees, makes recommendations concerning Board dynamics and oversees
Director development and the annual self evaluations of the Board and its committees. In addition,
the Nominating and Corporate Governance Committee reviews the Companys corporate governance
practices and related public issues important to the Company, and makes recommendations to the
Board on such issues.
The Nominating and Corporate Governance Committee is responsible for reviewing and recommending
nominees for election to the Board. In addition to considering the qualifications of candidates
suggested by current Directors and by officers and employees of the Company, the Committee
considers any candidates
who may be recommended by shareholders in accordance with the provisions of the Companys by-laws.
The Committee screens all candidates in the same manner, regardless of the source of the
recommendation, and determines whether a candidate meets the Companys general Board membership
qualifications, possesses the skills required of a Director and will contribute to the diversity
of talent represented on the Board. The Committee arranges and conducts personal interviews of
candidates, as appropriate.
The Nominating and Corporate Governance Committee has determined that each of the Companys
Directors possesses the requisite prior experience as a director or an officer of a publicly held
company.
Any shareholder may make nominations with respect to the election of Directors in accordance with
the provisions of the Companys by-laws, which establish the information and notice requirements
for such
nominations. Prior to 120 days in advance of the anniversary date of the Proxy Statement for the
2011 annual meeting, the Company did not receive any recommendations of potential director
candidates from shareholders.
The Nominating and Corporate Governance Committee recommended to the Board the candidates for
re-election which are included on the ballot for this Annual Meeting. Any nominee for Director who
receives a greater number of votes withheld from or against his or her election than votes for his
election shall tender his or her resignation for consideration by the Nominating and Corporate
Governance Committee. The Committee will then consider the best interests of the Company and its
shareholders and shall recommend to the full Board the action to be taken with respect to the
tendered resignation.
17
The duties and responsibilities of the Nominating and Corporate Governance Committee are specified
in its charter. The charter of the Nominating and Corporate Governance Committee, as amended in
February 2009, is available at the Investor Relations page of the Companys website, at
www.portfoliorecovery.com, and will be mailed to any shareholder who sends a request to the
Corporate Secretary at the Companys mailing address.
Audit Committee
The Audit Committee held ten meetings during 2010 and met informally between meetings. Audit
Committee meetings are typically held in conjunction with scheduled Board meetings; however, the
Audit Committee also holds meetings between Board meetings as needed. The Audit Committee holds
executive sessions,
which may include the KPMG LLP audit team. Each member of the Audit Committee is independent, as
that term is defined by the applicable standards promulgated by NASDAQ, and meets the heightened
criteria for independence applicable to members audit committees under NASDAQ listing rules. The
Board has determined that each member of the Audit Committee is financially literate, and qualified
as audit committee financial experts pursuant to Section 407(d)(5) of Regulation S-K. The Audit
Committee is primarily concerned with the integrity of the Companys consolidated financial
statements, the effectiveness of the Companys internal control over financial reporting, the
Companys compliance with legal and regulatory requirements, the independence, qualifications and
performance of the independent auditors, and the objectivity and performance of the Companys
internal audit function. The Audit Committee is not responsible for the planning or conduct of the
audits, or the determination that the Companys consolidated financial statements are complete and
accurate and in accordance with U. S. generally accepted accounting principles.
The Audit Committee reviews and takes appropriate action with respect to the Companys annual and
quarterly consolidated financial statements, the internal audit program, the confidential hot line
and related ethics program and disclosures made with respect to the Companys internal controls. To
facilitate its risk oversight responsibilities, the Committee receives regular briefings from the
Companys Office of General Counsel with respect to significant litigation and from the Companys
Director of Internal Audit regarding Sarbanes-Oxley 404 compliance matters. Each member of the
Audit Committee completes a quarterly risk assessment questionnaire.
The Audit Committee reviewed and amended its charter in February 2011. At the time of its charter
review, the Audit Committee also reviewed practices and procedures to assure continued compliance
with the
internal control reporting provisions of the Sarbanes-Oxley Act of 2002, as amended, and related
regulatory requirements. As described in its charter, the Audit Committees primary duties and
responsibilities are to:
|
|
|
Monitor and review the accuracy and fairness of the Companys financial reports
and monitor and ensure the adequacy of the Companys systems of internal controls
regarding
finance, accounting and legal compliance. |
|
|
|
|
Engage and monitor the independence and performance of the Companys independent
auditors and pre-approve all audit and permitted non-audit services. |
|
|
|
|
Monitor the independence and performance of the Companys internal auditors. |
|
|
|
|
Provide an avenue of communication between the independent auditors, management
and the Board of Directors. |
|
|
|
|
Prepare an Audit Committee report for the Companys annual proxy statements. |
|
|
|
|
Perform such other duties as set forth in its charter. |
A copy of the charter of the Audit Committee will be mailed to any shareholder who makes a request
to the Corporate Secretary at the Companys mailing address, and is also available online at the
Corporate
Governance section of the Investor Relations page on the Companys corporate website,
www.portfoliorecovery.com.
18
Audit Committee Report
The Audit Committee has furnished the following report to shareholders of the Company in accordance
with rules adopted by the SEC:
The Audit Committee held 10 meetings during 2010 and also met informally between meetings. Each
member of the Audit Committee is an independent director, as defined in accordance with NASDAQ
listing standards.
In addition, the Board has determined that James Voss, Scott Tabakin and John Fain are each audit
committee financial experts as defined by paragraph (d)(5)(ii) of Item 407 of Regulation S-K.
The Audit Committees policy is to pre-approve all audit and permissible non-audit services
provided by the Companys independent auditors. These services may include audit services,
audit-related services, tax services, services related to internal controls and other services. The
independent auditors and the Companys CFO periodically report to the Audit Committee regarding the
services provided by the independent auditor in accordance with this pre-approval.
The Companys management has primary responsibility for establishing and maintaining effective
internal controls over financial reporting, preparing the Companys consolidated financial
statements in accordance
with U. S. generally accepted accounting principles, and managing the public reporting process. The
Companys independent auditors are responsible for forming and expressing opinions on the
conformity of the Companys audited consolidated financial statements in accordance with U. S.
generally accepted accounting principles, in all material respects, and on the effectiveness of the
Companys internal control over financial reporting.
The Audit Committee reviewed and discussed with management, the Companys audited consolidated
financial statements for the year ended December 31, 2010, including a discussion of the
acceptability and appropriateness of significant accounting policies and managements assessment of
the effectiveness of the Companys internal control over financial reporting. The Audit Committee
discussed with the Companys independent auditors matters related to the conduct of the audits of
the Companys consolidated financial
statements and internal control over financial reporting. The Audit Committee also reviewed with
management and the independent auditors the reasonableness of significant estimates and judgments
made in preparing the consolidated financial statements, as well as the clarity of the disclosures
in the consolidated financial statements and related notes.
The Audit Committee has discussed with the Companys independent auditors the matters required to
be discussed by the Statement on Auditing Standards No. 61, as amended.
The Audit Committee has received written communications from KPMG LLP as required by PCAOB Rule
3526, Communication with Audit Committees Concerning Independence, and has discussed with KPMG
LLP their independence. The Audit Committee has concluded that the audit and permitted non-audit
services which
were provided by KPMG LLP in 2010 were compatible with, and did not negatively impact, their
independence.
In 2010 the Audit Committee met with the Companys Director of Internal Audit and with its
independent auditors, with and without management present, to discuss the overall quality of the
Companys financial reporting. The Audit Committee also reviewed with management the Companys
audited consolidated financial statements and related notes and the acceptability and
appropriateness of significant accounting policies. Based on the reviews and discussions described
in this report, and subject to the limitations on the role and responsibilities of the Audit
Committee referred to in this report and in the charter, the Audit Committee recommended to the
Board that the audited consolidated financial statements and related notes be included in the
Annual Report on Form 10-K for the year ended December 31, 2010.
KPMG LLP has been recommended by the Audit Committee of the Board for reappointment as the
Independent Registered Public Accounting Firm for the Company and subject to shareholder
ratification, the Board has appointed KPMG LLP as the Companys Independent Registered Public
Accounting Firm for the year ending December 31, 2011.
19
Representatives of KPMG LLP are expected to attend the 2011 Annual Meeting. They will have an
opportunity to make a statement if they desire to do so and will be available to respond to
appropriate shareholder questions.
The Company is requesting that the shareholders ratify the appointment of KPMG LLP as the Companys
Independent Registered Public Accounting Firm for the year ending December 31, 2011. In the event
the
shareholders fail to ratify the appointment, the Audit Committee will consider it a direction to
consider other accounting firms for the subsequent year.
This report is submitted on behalf of the following independent Directors, who constitute the Audit
Committee:
James Voss, Chairman
Scott Tabakin
John Fain
Principal Accountant Fees and Services
KPMG LLP served as the Companys Independent Registered Public Accounting Firm with respect to the
audits of the Companys consolidated financial statements as of and for the year ended December 31,
2010, and the effectiveness of the Companys internal control over financial reporting as of
December 31, 2010. In connection with its 2010 corporate income tax returns, which are anticipated
to be completed in 2011, the Company has retained KPMG LLP for those permitted non-audit services.
The following table sets forth the fees billed or expected to be billed by KPMG LLP for the audit
of the Companys consolidated financial statements for the years ended December 31, 2010 and 2009,
respectively, and for fees billed for other services rendered during those periods. All the
services performed by and fees paid to KPMG LLP were pre-approved by the Audit Committee.
Audit Fees
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Audit Fees(1)
|
|
$ |
749,425 |
|
|
$ |
568,500 |
|
Audit-related Fees
(2) |
|
$ |
34,000 |
|
|
$ |
15,000 |
|
Tax Fees(3) |
|
$ |
94,780 |
|
|
$ |
30,000 |
|
All Other Fees (4) |
|
$ |
2,250 |
|
|
$ |
2,100 |
|
|
|
|
|
|
|
|
Total |
|
$ |
880,455 |
|
|
$ |
615,600 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit Fees primarily relate to the audits of the Companys annual consolidated
financial statements and effectiveness of the Companys internal control over financial reporting,
reviews of the quarterly consolidated financial statements included in the Companys Quarterly
Reports on Form 10-Q, and services performed in connection with the review of the Companys stock
registration statement and offerings. |
|
(2) |
|
Audit-related Fees primarily relate to engagements to report on internal controls for
selected information systems (SAS 70 reports). |
|
(3) |
|
Tax Fees primarily relate to the preparation of tax returns and for tax consultation
services. |
|
(4) |
|
All Other Fees relate to annual subscription to KPMG LLPs proprietary research tool. |
Compensation Committee
The Compensation Committee held six meetings in 2010 and met informally between meetings. Each
member of the Compensation Committee has been determined to be independent, as that term is
defined by the applicable standards promulgated by NASDAQ. As described in its charter, the
Compensation Committees primary responsibilities are to:
|
|
|
Develop and oversee the implementation of the Companys
compensation philosophy with respect to the Directors, the CEO and
other executives who report directly to the CEO. |
|
|
|
|
Ensure that the Companys executives are compensated
effectively in a non-discriminatory manner consistent with such
compensation philosophy, internal equity considerations, market
practice and the requirements of the appropriate employment laws and
regulatory bodies. |
20
|
|
|
Review and recommend to the full Board the Companys
compensation discussion and analysis disclosure containing the
Companys compensation policies and the reasoning behind such policies,
as required by the SEC. |
|
|
|
|
Prepare a Compensation Committee report for the
Companys annual reports and/or proxy statements. |
Pursuant to its charter, the Committee has sole authority to retain and terminate an independent
consulting firm to assist in its evaluation of executive compensation. In accordance with this
authority, the Compensation Committee has directly engaged FW Cook as its independent compensation
consultant, with instructions to conduct a comprehensive analysis of the Companys executive
compensation program.
Accordingly, FW Cook reviewed the Companys executive compensation programs, including cash and
equity compensation and long-term incentives, as more fully described in the Compensation
Discussion and Analysis beginning on page 24 herein. All amounts incurred in 2010 for services
provided by FW Cook were attributable to services provided by them to the Compensation Committee in
connection with its executive pay and Director compensation decisions. The Compensation Committee
determined that, based on the information presented to it, no known conflict of interest exists
between the Company and FW Cook.
The Compensation Committee ensures that the Company has established succession plans with respect
to each of its named executives. To assist the Compensation Committee in this role, the Human
Resources Department provides the Committee with progress reports of individual development and
succession planning strategies and activities with respect to the Companys named executives, and
assessments of the
persons who are considered to be the potential successors to the incumbents in certain senior
management positions.
The Compensation Committee is responsible for setting annual and long-term performance goals and
compensation for the CEO, and establishing criteria for determining the compensation of each of the
executives who report directly to him. Its decisions are approved or ratified, as appropriate, by
action of the non-employee Directors of the Board. The Compensation Committee also approves the
terms of executive employment agreements, equity plans and equity awards in accordance with the
Companys 2010 Stock Plan. The Committee may delegate to the Chief Executive Officer such of its
duties and responsibilities as the Committee deems to be in the best interests of the Company,
provided such delegation is not prohibited by applicable law, rule or regulation. The Compensation
Committee delegated, in limited circumstances,
authority to the CEO to grant a specified number of nonvested shares of the Companys stock to
newly hired, recently promoted or other key employees in accordance with specified parameters. The
authority so delegated is currently limited to a total of ten thousand shares in any fiscal year,
and awards of no more than 1,000 shares per employee.
The Compensation Committee reviews compensation programs and policies for features that may
encourage excessive risk taking, and ascertains the extent to which there may be a connection
between compensation and risk, if at all. This includes the implementation of controls that
require executives to focus on risks, with the aim of minimizing and reporting any risks and errors
of which they be aware. The LTI awards incentivize employees to take a longer term view of the
Companys performance, and assume reasonable risks to enter
new markets and expand existing businesses. The Company may terminate the employment of any
executive whose actions place the Company at unreasonable risk.
The Charter of the Compensation Committee is available on the Investor Relations page of the
Companys web site, and will be provided to any shareholder who sends a request therefor to the
Corporate Secretary at the Companys mailing address. The Compensation Committees report appears
in this Proxy Statement on page 40.
Compensation Committee Interlocks and Insider Participation. All of the members of the
Compensation Committee are independent, non-employee Directors, and none is a former officer of the
Company or any of its subsidiaries, or has ever been an officer or employee of the Company or any
of its subsidiaries. No officer
of the Company has ever served on any compensation committee or board of directors of any other
company with respect to which a Director is an executive officer. None of the Directors has any
relationship with the Company which is required to be disclosed under this caption pursuant to the
rules of the SEC.
21
Executive Officers
The Companys executive officers as of December 31, 2010 were as follows:
|
|
|
|
|
|
|
Name |
|
Position Held as of December 31, 2010 |
|
Year Hired |
Steven Fredrickson1
|
|
President and Chief Executive Officer
|
|
|
1996 |
|
Kevin Stevenson 2
|
|
Executive Vice President and Chief Financial and Administrative Officer
|
|
|
1996 |
|
Michael Petit3
|
|
Senior Vice President, Bankruptcy Dept.
|
|
|
2003 |
|
Neal Stern4
|
|
Senior Vice President, Chief Operating Officer, Owned Portfolios
|
|
|
2008 |
|
Craig Grube5
|
|
Executive Vice President, Chief Acquisitions Officer
|
|
|
1998 |
|
Kent McCammon6
|
|
Senior Vice President, Revenue Enhancement Services and Business Development
|
|
|
2007 |
|
Judith Scott7
|
|
Executive Vice President, General Counsel and Secretary
|
|
|
1998 |
|
|
|
|
1 |
|
Steve
Fredrickson, 51, President and Chief Executive and Chairman of the Board of Directors. A
complete description of Mr. Fredricksons qualifications is on page 12. |
|
2 |
|
Kevin Stevenson, 47, Executive Vice President, Chief Financial and Administrative Officer, Treasurer
and Assistant Secretary. Prior to co-founding Portfolio Recovery Associates in 1996, Mr. Stevenson served as
Controller and Department Manager of Financial Control and Operations Support at HRSC from June 1994 to March
1996, supervising a department of approximately 30 employees. Prior to joining HRSC, he served as Controller of
Household Banks Regional Processing Center in Worthington, Ohio where he also managed the collections,
technology, research and ATM departments. While at Household Bank, Mr. Stevenson participated in eight bank
acquisitions and numerous branch acquisitions or divestitures. He is a certified public accountant and received
his B.S.B.A., with a major in accounting from Ohio State University. |
|
3 |
|
Michael Petit, 51, Senior Vice President and President, Bankruptcy Services. Mr. Petit joined
Portfolio Recovery Associates in 2003 to lead the Companys efforts in purchasing bankrupt consumer accounts.
Mr. Petit brings diverse operational, financial and transactional experience to PRA. Prior to joining PRA, Mr.
Petit was Managing Director and Head of the Core and Communications Technologies Group in the Investment Banking
Division of Pacific Crest Securities. Mr. Petit has also held senior investment banking positions with
Jefferies & Company and Banc One Capital Markets where he focused on M&A, private placement and restructuring
transactions. Mr. Petit received a B.S. in Mechanical Engineering from the University of Illinois and an M.B.A.
from The University of Texas at Austin, both with honors. |
|
4 |
|
Neal Stern, 42, Senior Vice President, Chief Operating Officer, Owned Portfolios. Mr. Stern joined
Portfolio Recovery Associates in January 2008 and is responsible for all owned portfolio collection activity,
including call centers, legal outsourcing, collection agency outsourcing, probate, customer service, and
portfolio collection strategy and analytics. He has extensive experience running multiple call centers of
substantial scale. Mr. Stern was most recently a senior executive with the Target Corporation, running
collection and customer service vendor management operations. Mr. Stern attended the University of Minnesota. |
|
5 |
|
Craig
Grube, 50, Executive Vice President, Chief Acquisitions Officer. Mr. Grube joined Portfolio
Recovery Associates in 1998. Since that time, he has been responsible for the Companys purchase of portfolios
of core defaulted consumer receivables. Prior to joining the Company, Mr. Grube worked on distressed commercial
loans at Continental Illinois National Bank for five years in Chicago and was the Senior Officer and director of
Anchor Fence, Inc., a commercial manufacturer and distributor, for 10 years. Mr. Grube received a B.A. Degree
in Psychology from Boston College and an M.B.A. in Finance from the University of Illinois. |
|
6 |
|
Kent McCammon, 44, Senior Vice President and President, Revenue Enhancement Services and Business
Development. Mr. McCammon joined the Company in 2007. All of the Companys fee-for-service businesses,
including PRA Government Services, LLC, MuniServices, LLC, PRA Location Services, LLC, and Claims Compensation
Bureau, LLC, report to Mr. McCammon. He also maintains responsibility for Portfolio Recovery |
22
|
|
|
|
|
Associates
business development and merger-acquisition activity. Mr. McCammon has extensive background in the finance
industry, including serving as Managing Director of Shamrock Holdings, the investment arm of the Disney family,
for three years before joining PRA. He also served in leadership roles at Trader Publishing, LLC, Atlantic
Capital Management, Scott & Stringfellow, Lehman Brothers, and Smith Barney. Mr. McCammon earned a B.S. degree
from the McIntire School of Commerce and an M.B.A. from the Darden Graduate School of Business, both at the
University of Virginia. |
|
7 |
|
Judith Scott, 65, Executive Vice President, General Counsel and Secretary. As the Companys chief
legal officer, Ms. Scott manages the Companys legal affairs. Ms. Scott joined the Company in March 1998. Her
prior experience includes service for the Commonwealth of Virginia, first as Assistant Attorney General, next as
Senior Counsel for the Virginia Housing Development Authority and subsequently as Senior Counsel to the Governor
of Virginia. She later served as General Counsel for a computer manufacturing company in Norfolk, Virginia.
Prior to joining the Company, she was Director of Old Dominion Universitys Virginia Peninsula campus. Ms. Scott
received her B.S. in business administration from Virginia State University, a post baccalaureate degree in
economics from Swarthmore College, and a J.D. from the Catholic University Columbus School of Law.
|
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of Compensation Program
This compensation discussion and analysis describes the material elements of compensation awarded
to, earned by, and paid in 2010 to each of the executives identified in the Summary Compensation
Table on page 40. For a complete understanding of our executive compensation program, this
Compensation Discussion and Analysis should be read in conjunction with the Summary Compensation
Table and other compensation disclosures included elsewhere in this Proxy Statement.
2010 Performance
Since its Initial Public Offering in November 2002, through 2010, a period including the global
financial crisis, the Company has enjoyed a compound annual growth rate in net income of 26%.
During that same time period, the enterprise value of the Company has increased from just over $200
million to $1.6 billion. The
Company stayed solidly profitable throughout the economic downturn, even as many competitors
reported losses, a function of conservative accounting policies and accurate underwriting, even in
the face of a weak consumer market. This achievement was a result of a number of actions taken by
the CEO and the executive management team including (1) prudently but aggressively investing in
portfolios of bankrupt and defaulted consumer loans, (2) adding talent to the management team
through strategic hiring and (3) improving operating efficiency and productivity through
investments in scoring, underwriting technology and predictive dialer capacity. In 2010, the
Company emerged from the downturn with record results in a number of key metrics.
Performance highlights include the following achievements in 2010:
|
|
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Increased revenue 33% to $372.7 million. |
|
|
|
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Achieved a 44% growth in cash collections and 37% growth in cash receipts. |
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Achieved net income attributable to the Company, of $73.5 million, or $4.35 per
diluted share. |
|
|
|
|
Increased collector productivity across all call centers, averaging approximately
33% over the prior year. |
|
|
|
|
Stock price increased approximately 68% in 2010, compared to a 17% increase for the
NASDAQ and 13% for the S&P 500. |
|
|
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Raised $72 million in a public stock offering. |
|
|
|
|
Purchased $6.8 billion of debt for a $367.4 million investment. |
|
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Entered into a new $407.5 million credit facility. |
|
|
|
|
Ended the year with shareholders equity of $490.5 million. |
|
|
|
|
Was recognized by Forbes as one of Americas 100 Best Small Companies (#43). |
|
|
|
|
Acquired a majority interest in Claims Compensation Bureau, LLC. |
23
In 2010, 76% of total executive compensation was outcome-based, and contingent on performance. The
Compensation Committee believes that the compensation programs and performance incentives in place
in 2010, as more fully described below, contributed to the achievement of the Companys
extraordinary financial and operational outcomes. The total compensation paid to the Companys
executives in 2010 reflects the Compensation Committees recognition of the executives
contributions to the Companys financial performance.
2010 Compensation Highlights
The Companys executive compensation program consists of three key components aimed at rewarding
and retaining the Companys named executives: base salary, annual bonus compensation and long-term
equity-based incentive compensation in the form of nonvested shares and LTI stock awards. Except
for base pay, executive compensation is principally at risk and varies based on the performance
of the Company and on individual, departmental and Company performance. In 2010, at-risk pay
represented 76% of total compensation for the executives named herein. Company performance is
evaluated from a variety of perspectives, including absolute performance, performance relative to
the Companys peers; return measures including total shareholder return relative to its peers and
return on equity, and earnings per share.
|
|
|
Cash bonuses paid to the executives named herein for 2010 performance averaged 162% of
target, reflecting strong financial and individual performance during 2010. As a percent of
target, bonus payouts for 2010 performance were higher than bonus payouts for 2009
performance, which averaged 89% of target. |
|
|
|
|
Base pay for named executives rose 4%, on average in 2010. |
|
|
|
|
In 2010 the Company modified its Executive Shareholding Policy based on the
recommendations and analysis of FW Cook, requiring that executives retain 100% of after-tax
net profits on their equity compensation until a pre-determined multiple of salary
ownership is met. The revised executive shareholding targets are on page 35 of this Proxy
Statement. |
|
|
|
|
A 2010 LTI Plan was adopted by the Board in January 2010. The 2010 LTI Plan focuses on
four key elements: 1) share price appreciation, 2) performance against peer companies, 3)
internal financial objectives, and 4) retention. The 2010 plan includes an additional
retention incentive that was not in the 2009 LTI Plan of time vested shares equal to
one-third of each executives target equity award. |
CEO Compensation
As a result of the Companys strong 2010 performance, the CEO received a cash bonus valued at
$1,185,000, a stock bonus valued at $91,884 and a long term equity grant of approximately
$1,250,000, based on the fair value of the shares of stock awarded, using the closing price of the
Companys stock as of the grant date. The
award will be fully realized only if the Company achieves specific performance metrics over a three
year period (2011-2013). The CEO receives no perquisites or pension benefits, other than the
benefits discussed on page 39.
In an executive compensation review completed for the Compensation Committee by FW Cook in December
2010, the CEOs 2010 base pay of $520,000 was determined to be below the 25th percentile
of a group of 14 peers with a median revenue of $420 million, net income of $57 million, market
capitalization of $878 million, total assets of $894 million and 2,026 employees. This compares to
the Companys $373 million in revenue, net income attributable to the Company of $73.5 million,
market capitalization of $1.3 billion, total assets of $996 million and 2,473 employees as of
December 31, 2010. The Companys CEOs total cash compensation (salary plus cash bonus) for 2010
of $1.7 million exclusive of equity compensation, compares with the total
compensation of like positions for this peer group of $1.2 million at the 50th
percentile and $2.0 million at the 75th percentile.
In January 2011 it was determined that none of the performance shares issued under the 2008 LTI
plan described on page 33 in this Proxy Statement, would vest pursuant to terms of that plan. The
CEO had been awarded 13,000 shares under the 2008 LTI plan, all of which were cancelled.
24
Compensation of Other Named Executives
Kevin Stevenson. Mr. Stevenson is a co-founder of the Company, and has been its Chief
Financial Officer since 1996. As the leader of the Companys financial organization, Mr. Stevenson
has been responsible, among
other things, for ensuring that the Company has had adequate capital to achieve its growth
objectives. Throughout the life of the Company, including the global financial crisis, Mr.
Stevenson has been responsible for anticipating the Companys capital needs and has raised both
debt and equity in sufficient amounts to permit the Company to aggressively buy well priced
distressed financial assets while many of the Companys competitors were capital constrained.
During 2010, Mr. Stevenson led both a $72 million equity offering and the renewal and expansion of
a $407 million revolving credit facility. Mr. Stevensons leadership extends to the Information
Technology Department and the Facilities Department, both of which report to him. Mr. Stevensons
financial goals generally mirror those of Mr. Fredrickson. In recognition of Mr. Stevensons
performance, he was awarded a cash bonus of $800,000, a stock bonus valued at $62,061 and a long
term equity grant of approximately $600,000 that will be fully realized only if specific
performance metrics are achieved over a three year period (2011-2013).
Michael Petit. Mr. Petit, Senior Vice President and President of Bankruptcy Services, has
led his department since its inception in 2003. Mr. Petit built the department, including
oversight of the models, underwriting, operations, and seller relationship development, working
collaboratively with the other areas of the Company and utilizing the available corporate
infrastructure. Mr. Petit has also been responsible for the highly accurate bankruptcy underwriting
results the Company has achieved since starting this unit. Mr. Petits goals and objectives include
maximizing bankruptcy debt purchases within approved levels of return, as well as the short and
long term performance of acquired portfolios relative to original underwriting forecasts. Mr.
Petits performance was judged as exceptionally strong in 2010 as bankruptcy portfolios purchased
during 2010 exceeded forecast by 116%, while portfolios bought in 2009 exceeded forecast by 51%
during 2010 and by 60% life to date. The 2008 portfolios were 12% under their 2010 forecast in
2010 and finished the year at
4% above forecast life to date. The 2007 bankruptcy portfolios performed 20% lower than forecast
in 2010 and are performing 2% below forecast life to date. The 2006 and earlier portfolios were
performing 19% under forecast in 2010 and were exceeding their life to date forecast by 11% at the
end of 2010. Portfolio performance data is based on cash collections.
Portfolio performance data based on internal rate of return may be different, depending on the
timing of cash collections. Despite an aggressive cash collection goal of year over year growth of
76%, Mr. Petits business unit exceeded its goal, producing cash collections of $187 million for
growth of 116%. Mr. Petit also managed operating expenses well, creating operating margins in
excess of his budget. For his performance in 2010, Mr. Petit was awarded a bonus of approximately
$1.2 million consisting of a cash bonus of $973,500 and a stock bonus valued at 319,516. Mr. Petit
also was awarded 3,332 shares of the Companys stock in February 2010, and an LTI grant of $600,000
that will be fully realized only if specific performance metrics are achieved over a three year
period (2011-2013).
Neal Stern. As Senior Vice President Chief Operating Officer, Owned Portfolios, Mr.
Stern leads all call center activities and personnel nationwide. In his first three years after
joining the Company in January 2008, and throughout the global financial crisis, Mr. Stern has
developed and implemented strategies that have driven operating efficiency up 33% (as measured by
dollars recovered per collector hour paid excluding legal and purchased bankruptcy trustee
recoveries), from $87.13 to $100.26. Mr. Sterns innovative methods drove strong results in 2010,
with non-bankrupt cash collections growing 22% to $342.8 million. Mr. Stern is also largely
responsible for the dramatic build-out of the Companys internal legal process, which experienced
growth of 118% in cash collections in 2010 over 2009. Mr. Stern has driven compound annual growth
of 103% in the internal legal channel since 2008. For his performance in 2010, Mr. Stern was
awarded a cash bonus of $600,000 and a stock bonus valued at $46,508. Mr. Stern also received a
long term equity grant of
approximately $400,000 that will be fully realized upon the Companys achievement of specific
performance metrics over a three year period (2011-2013).
Craig Grube. Mr. Grube has led the Core Debt acquisitions group, including underwriting,
analysis and marketing from 1998 through 2010. Mr. Grube has been instrumental in building the
Companys strong reputation and relationships with sellers of consumer debt, eventually buying
accounts from virtually every large consumer lender in the United States. Mr. Grube has also
overseen the evolution of the Companys increasingly sophisticated underwriting and account
analysis process and is largely responsible for the accurate underwriting decisions the Company has
made over time.
25
Mr. Grubes goals and objectives include maximizing core debt purchases within specified levels of
return as well as the short and long term performance of acquired portfolios relative to original
underwriting forecasts.
Mr. Grubes performance was judged as very strong in 2010 as core portfolios purchased during 2010
exceeded forecast by 29%, while portfolios purchased in 2009 exceeded forecast by 41% during 2010
and by 42% life to date. The 2008 portfolios performed 17% under their 2010 forecast in 2010, and
finished the year 11% under forecast life to date. The 2007 portfolios performed 7% under their
forecast in 2010 and are 7% under forecast life to date. The 2006 and earlier portfolios performed
25% over forecast for 2010 and were exceeding life to date forecast by 41% at the end of
2010. Portfolio performance data is based on cash collections. Portfolio
performance data based on internal rate of return may be different, depending on the timing of cash
collections.
For his performance in 2010, Mr. Grube was awarded a cash bonus of $505,000 and a stock bonus
valued at $39,185.
Kent McCammon. In 2010 Mr. McCammon was promoted to the position of President, Revenue
Enhancement Services and Business Development and Strategy. In his new role, Mr. McCammon became
responsible for all fee for service businesses, in addition to his former business development
responsibilities. However, the promotion occurred late in the year and so his performance was not
judged under the expanded role. Since joining the company in 2007, Mr. McCammon has built the
Companys Business Development Department, leading the Company to a number of strategically and
financially successful business acquisitions. During 2010, under Mr. McCammons initiative, the
Company acquired a controlling interest in Claims Compensation
Bureau, a processor of securities class action and anti-trust legal claims. During 2010 that
acquisition performed in line with forecasts. Following his promotion, Mr. McCammon also moved
quickly to drive positive change in the fee subsidiaries, making a number of effective management
and restructuring changes. Mr. McCammon also successfully built additional expertise in the
Business Development Department.
Prior to his promotion, in addition to the specific performance of acquired companies, Mr.
McCammons financial goals tend to mirror those of Mr. Fredrickson and the corporation as a whole.
In light of Mr. McCammons 2010 performance, he was awarded a cash bonus of $500,000 and a stock
bonus valued at $38,807. Mr. McCammon also received an LTI grant of approximately $400,000 that
will be fully realized only if the Company achieves specific performance metrics over a three year
period (2011-2013).
Judith Scott. Ms. Scott has been General Counsel of the Company since 1998. Ms. Scott has
been responsible for building the Companys highly efficient and effective Office of General
Counsel, which handles all corporate transactional and employment matters, compliance issues,
attorney general and regulatory communications, government relations, SEC filings, insurance, and
other corporate legal matters. Under Ms. Scotts leadership, the Company has become a compliance
leader in the debt purchase industry. Since Ms. Scott does not have an operating unit that
produces revenue, her financial goals tend to mirror those of Mr. Fredrickson and the corporation
as a whole. In light of Ms. Scotts 2010 performance, she was awarded a cash bonus of $300,000 and
a stock bonus valued at 23,254. Ms. Scott also received an LTI grant of approximately $250,000
that will be fully realized only if the Company achieves specific performance metrics over a three
year period (2011-2013).
Except for the benefits listed on page 39, the Companys executives receive no other perquisites or
pension benefits.
Compensation Framework
The Companys total executive compensation package is based on a motivational pay for performance
standard, consisting of a combination of base pay and incentives that are competitive in the
relevant marketplace and are reflective of the individuals performance and the Companys financial
performance. The goal of the Companys executive compensation program is to provide a total
compensation package for the Companys executives that is fair, reasonable, and competitive. The
executive compensation package consists
of base salary, annual cash incentive compensation in the form of bonuses, long-term equity-based
incentive compensation and benefits.
26
Given the absence of supplemental perquisites, benefits and plans, cash incentives
and equity compensation programs are critical to maintaining the competitiveness
of the Companys compensation arrangements. Executive compensation should be linked,
directly and materially, to the Companys overall performance and each executives individual
performance, and should reward past performance and motivate future performance.
Through its practice of granting equity awards, the compensation program promotes
and rewards an executives tenure and longevity with the Company, as well as the executives
role in the Companys overall financial performance. The Companys historical philosophy has been to
establish a base salary structure that is relatively low, when compared to its peer group, and to provide
additional compensation through bonus and equity performance incentives, that taken together produce competitive total compensation.
Compensation Elements
The total executive compensation package consists of base pay, annual bonus and equity incentive
compensation. In 2010, at-risk pay averaged 76% of total compensation for the executives named
herein.
|
|
|
Principal Objectives |
|
Features |
Base Pay |
|
|
To attract executive talent in the markets in which the Company
competes
Recognizes and rewards the experience and skills that
employees bring to the Company
Provides motivation for career development and enhancement
Ensures that all employees receive a basic level of compensation
|
|
Initially
established based
on employees
prior experience
and anticipated
contribution, the
scope of their
responsibilities
and the applicable
market compensation
paid by other
companies for
similar positions
Fixed annual cash
payments,
benchmarked against
market data and
reviewed annually
after employment
Not dependent upon
the Companys
achievement of its
performance goals |
|
|
|
Bonus |
|
|
Provides pay differentiation based on performance
Rewards superior performance
Provides incentives to executives to meet or
exceed profitability targets
Rewards those most accountable for long-term
financial performance
|
|
Financial and non-financial goals are set by the Board
Minimum financial achievement bonus targets and individual
achievement bonus targets are stated in employment agreements*
Bonuses are typically paid in cash in the first quarter for the prior
years performance. Bonuses paid for 2010 performance was paid in
both cash and fully vested shares of the Companys common stock. |
|
Long-term Equity Incentives |
|
|
Attracts and retains talented employees
Aligns executives interests with those of
the Companys shareholders
Promotes long-term accountability
Motivates outstanding performance
Rewards employment longevity
Provides significant equity to those most
accountable for long-term financial
performance
|
|
Consists of nonvested
time-based shares of the
Companys stock, and
performance-based shares
Performance-based shares
vest only upon the
Companys achievement of
specified targets
Time-based nonvested
shares generally vest 20%
per year over a five year
period
Grants reflect
consideration of each
executives performance
and expected contributions
to overall financial
results |
1. Base Pay
Base Pay provides a baseline level of executive compensation, which is in most instances, set on
an individual basis at the time the employee enters into an employment agreement with the Company,
or upon
promotion or other change in job responsibilities. The objectives of base pay are to provide
salaries at levels that allow the Company to attract and retain highly qualified executives, and
to recognize and reward individual performance and experience. Historically, base pay has been low
as compared to the Companys peer group, and has been augmented through bonus and equity
performance incentives. When determining base salaries the Company considers, among other factors,
peer group market data, as well as the Companys interest in retaining the executive, the
executives previous experience, scope of responsibility and future potential. Pursuant to their
employment agreements, executives who continue employment with the Company receive a minimum
annual base pay increase of 4% over their previous years base pay.
2. Annual Cash Bonus
Three-year employment agreements with executives named herein, entered into on January 1, 2009,
provide for an annual bifurcated cash bonus based on individual and financial performance. The
amount of the individual portion of the annual cash bonus is determined based upon the
executives performance during the prior operating year, compared to goals for that year as
approved by the Board. The individual
27
portion of the cash bonus is paid if the executives
personal performance is in conformance with Company policy and with the executives past levels
of performance, and if the executive has met the performance expectations of the Compensation
Committee. The financial achievement bonus will be paid if, and to the extent that the results
of operations achieve the goals set for the year. If (i) the results of operations for the year
exceed the net profitability goals and (ii) the executives performance is determined to have
exceeded expectations, the amount of the Annual Cash Bonus may be increased in recognition of
the
degree to which results exceeded such goals, and the degree to which the executive contributed
to the Companys superior performance results as determined by the Compensation Committee.
On the recommendation of the Compensation Committee, in March 2010, the Companys Board of
Directors adopted the Companys Annual Bonus Plan, which was approved by the Companys
shareholders at the 2010 annual meeting. The Annual Bonus Plan provides the performance metrics
which are used in the determination of the Annual Cash Bonus awards to executive officers. The
Compensation Committee may exercise negative discretion to adjust the bonus that may otherwise
be payable under these performance metrics. The factors considered in applying negative
discretion for 2010 included net income and revenue growth, earnings per share, appreciation in
share price, strategic acquisitions, financing and other capital raising transactions. The
Compensation Committee sets bonus targets so that
the executives total cash compensation (base salary plus Annual Cash Bonus) will be within a
competitive range (generally at the 50th to 75th percentile of comparable executives)
if individual and financial performance targets are met. Bonus targets are expressed as a
percentage of the executives total compensation. The annual cash bonus is paid to the
Companys executives in the first quarter of each year, based on the prior years performance.
Bonuses are calculated using a target bonus framework under which each executive has a bonus
opportunity expressed as a percentage of base salary, based on annual bifurcated cash bonus
targets for individual and financial performance. The Compensation Committee has long been of
the opinion that a strict formulaic approach to bonus determination could potentially encourage
greater risk taking and skew the focus of executives toward shorter-term financial performance
at the expense of prudently building the business and the organization for the long term, and
that a more flexible approach helps to ensure that executives are not provided incentives to
take
inappropriate risks in order to meet short-term financial objectives. Additionally, the
Compensation Committee believes that a strict formulaic approach might provide a disincentive
for executives to change course or reallocate resources where necessary to respond to unforeseen
opportunities, because they may be reluctant to either pursue or to stop pursuing any
initiatives if the financial portion of their performance would be impacted.
Establishment of Bonus Pool
Each year, the Compensation Committee establishes a cash bonus pool, the initial size of which
is established based upon budgeted net income. The Compensation Committee may adjust the bonus
pool and the individual bonus amounts awarded, based on corporate and individual performance,
both financial and non-financial. When corporate performance is strong, the Compensation
Committee
generally approves higher bonuses in the aggregate than it does when corporate performance is
weaker. The Compensation Committee also takes into consideration mitigating factors affecting
financial performance, and does not apply a strictly formulaic approach in determining either
the individual or financial performance portions of the bonus award. In 2010, the initial size
of the cash bonus pool for all executives was set at 6.95% of the Companys budgeted pre-tax net
income before bonus expense. In recognition of the Companys exemplary financial performance in
2010 the Compensation Committee voted to increase the bonus pool to include an additional amount
to be paid in the form of immediately vested restricted stock.
The annual cash bonus plan is split between individual and financial components.
Individual Performance Factors.
|
|
|
The individual portion of the annual cash bonus is paid if the executives performance
is in conformance with Company policy, the individuals past levels of performance and
the performance expectations of the Compensation Committee. |
|
|
|
|
Following are individual objectives for each executive communicated at the beginning
of the fiscal year. |
28
|
|
|
Name |
|
Individual Performance Objectives |
Steve Fredrickson
|
|
Objectives relating to financial results, overall
leadership, success in implementing specific
organizational changes, effectiveness in investor
communications and other individual objectives. |
|
|
|
Kevin Stevenson
|
|
Objectives relating to capital adequacy, investment and
management, budgeting, balance sheet management,
financial reporting and accounting, effectiveness in
investor communications and other individual objectives. |
|
|
|
Michael Petit
|
|
Objectives relating to departmental financial results,
investments in bankrupt accounts, the executives
planning and execution, departmental leadership and
other individual objectives.
|
|
|
|
Neal Stern
|
|
Objectives relating to leadership, the financial
performance of purchased portfolios, administration,
planning and execution of portfolio strategies and other
individual objectives. |
|
|
|
Craig Grube
|
|
Objectives relating to the executives leadership,
investments in consumer accounts, core debt buying, the
impact of purchased accounts on financial results,
results vs. budget and other individual objectives. |
|
|
|
Kent McCammon
|
|
Objectives related to effectiveness of strategic
investments, subsidiary performance and profitability,
results vs. budget and other individual objectives. |
|
|
|
Judith Scott
|
|
Objectives relating to executive leadership, management
of the Companys legal affairs, departmental
organization, risk management, budgetary control and
other individual objectives. |
|
|
|
The actual individual bonus plan payout is based on a subjective assessment of
performance against such goals with no weighting assigned to any of the specific
objectives |
|
|
|
|
The CEO provides individual bonus payout recommendations to the Compensation
Committee for its consideration and the Compensation Committee independently determines
the CEOs bonus payout. |
Financial Performance Factors
The Compensation Committee evaluates the Companys performance against specific financial and
strategic performance targets set at the beginning of the year. In 2010 the CEO and the Board set
the financial targets shown on the table below. The 2010 financial targets were aggressively set,
with growth in revenue of 22%, net income of 31%, and EPS of 32%. The Companys actual financial results were substantially above
the aggressive 2010 targets, as indicated in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Goal |
|
2010 Target |
|
2010 Actual |
|
2009 Actual |
Revenue
|
|
$343.7 million
|
|
$372.7 million
|
|
$281.1 million
|
Net Income
|
|
$58.2 million
|
|
$73.5 million
|
|
$44.3 million
|
Operating Expenses to Cash Receipts Ratio
|
|
|
43.7 |
% |
|
41.0 |
% |
|
46.3 |
% |
Cash Collections
|
|
$463.8 million
|
|
$529.3 million
|
|
$368.0 million
|
Earnings Per Share
|
|
|
$3.78 |
|
|
$4.35 |
|
|
$2.87 |
The primary financial performance objective in 2010 was the achievement of budgeted corporate net
income of $58.2 million. The Company achieved total net income attributable to the Company of
$73.5 million, which was
26% in excess of the Companys budgeted financial target and 66% higher than the Companys 2009 net
income. The Companys executives were paid financial achievement bonuses ranging from 123% to 289%
of targeted bonus, based on the Compensation Committees assessment of their impact on the net
income of the Company in 2010, a subjective determination of each executives contribution to risk
and loss mitigation, and other related factors. The financial portion of the annual cash bonus is
determined based upon the extent to
29
which the executive or the executives department contributes
to the Companys overall financial performance. If the Company fails to achieve stated goals or the
executives performance is determined not to have met expectations, then the amount, if any, of the
bonus will be determined by the Compensation Committee, giving reasonable consideration to any
intervening or extraordinary events or circumstances that might have given rise to such shortfall.
Although total net income was a factor in determining the financial performance component of
executives bonuses, the Committee also considered other factors. In addition to overall Company
net income, the Compensation Committee reviewed departmental financial performance results, as
applicable, taking into consideration the role that each department was expected to play in
contributing to overall Company performance in 2010. The Compensation Committee employed both
objective and subjective factors in determining executive bonuses, in order to consider and weigh
all issues that it may deem relevant to an executives contribution to the Companys overall
performance. These may differ from period to period, and from person to person. The Company does
not publicly disclose the specific business plans or goals of its departments because that
information is considered confidential business information and is not material in this context due
to the subjective nature of the overall bonus determination. Due to the subjective factors which
constitute a significant portion of the actual bonuses awarded, the disclosure of specific
departmental
performance goals would not enable the investing public to calculate with certainty any of the
Companys executives bonuses by applying a specific formula. Further, departmental performance
goals are not disclosed because they are based on business plans that, if publicly disclosed, would
provide competitors and other third parties with insights into the Companys planning process and
strategies, and because the disclosure of this information would significantly impair the Companys
ability to compete effectively in the marketplace.
Although the Committee did not apply any specific numerical formula in determining the bonuses
awarded, the bonuses recognized each executive, as appropriate, based on the financial performance
of the business units for which they were responsible, taking into consideration the economic
conditions in which they were operating.
2010 Bonus Targets and Bonuses Earned
The bonus targets for the executives named herein, and the bonuses earned by them in 2010
(including additional bonuses paid in immediately vested restricted stock) are included in the
chart below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus Targets as % of |
|
|
2010 Target Bonus |
|
|
|
|
|
|
|
|
|
of Base Pay |
|
|
Earned as % of Target |
|
|
Bonuses Awarded |
|
|
|
|
Name |
|
Individual |
|
|
Financial |
|
|
Individual |
|
|
Financial |
|
|
Cash Bonus |
|
|
Stock Bonus |
|
|
Total |
|
Steve Fredrickson |
|
|
50 |
% |
|
|
110 |
% |
|
|
100 |
% |
|
|
170 |
% |
|
$ |
1,185,000 |
|
|
$ |
91,884 |
|
|
$ |
1,276,884 |
|
Kevin Stevenson |
|
|
50 |
% |
|
|
117 |
% |
|
|
137 |
% |
|
|
170 |
% |
|
$ |
800,000 |
|
|
$ |
62,061 |
|
|
$ |
862,061 |
|
Michael Petit |
|
|
64 |
% |
|
|
113 |
% |
|
|
150 |
% |
|
|
235 |
% |
|
$ |
973,500 |
|
|
$ |
319,516 |
|
|
$ |
1,293,016 |
|
Neal Stern |
|
|
100 |
% |
|
|
100 |
% |
|
|
125 |
% |
|
|
150 |
% |
|
$ |
600,000 |
|
|
$ |
46,508 |
|
|
$ |
646,508 |
|
Craig Grube |
|
|
48 |
% |
|
|
93 |
% |
|
|
100 |
% |
|
|
150 |
% |
|
$ |
505,000 |
|
|
$ |
39,185 |
|
|
$ |
544,185 |
|
Kent McCammon |
|
|
57 |
% |
|
|
127 |
% |
|
|
120 |
% |
|
|
146 |
% |
|
$ |
500,000 |
|
|
$ |
38,807 |
|
|
$ |
538,807 |
|
Judith Scott |
|
|
37 |
% |
|
|
57 |
% |
|
|
106 |
% |
|
|
125 |
% |
|
$ |
300,000 |
|
|
$ |
23,254 |
|
|
$ |
323,254 |
|
3. Long Term Equity Incentives
Equity incentive grants are designed to provide equity compensation that is primarily linked to
longer-term corporate performance. In assessing executive performance, the Compensation Committee
considered performance against these and other objectives and noted that the Companys executive
officers performed well against their business objectives, and made strategic investments in 2010
to position the Company for the long-term. The Company utilizes a combination of nonvested share
awards and LTI incentive awards based on multi-year cumulative corporate performance goals to focus
executives on sustained performance over a multi-year period. If the performance targets specified
for achievement of the LTI Shares are not met or exceeded, the
awarded shares do not vest. The performance targets, by design, promote the achievement of strong
and sustained financial performance, and require such achievement for a payout. The Company
believes that equity awards serve to motivate outstanding performance, provide executives with the
potential to earn additional shares of the Companys stock, provide specific financial goals that
are tied to shareholder value and encourage and reward employment tenure. Participation in LTI
programs is limited to key employees who are in a position to have a significant impact on the
achievement of the Companys financial goals and those who provide the long-term strategic
leadership necessary to accomplish financial goals. Consistent with the
30
companys compensation
objectives, individuals at higher executive levels and those with greater influence over the
Companys financial performance generally receive a significant proportion of their total
compensation in the form of equity. The Compensation Committee may approve the award of equity
grants to new hires at the time of their hire in order to align them as quickly as possible to
shareholder interests, if
circumstances warrant. The LTI programs contain performance targets designed to provide executives
with the potential to earn additional shares of the Companys stock and provide them with specific
financial goals. In order to receive an equity award, the executive must be a full-time employee as
of the award date. Any shares so earned (LTI Shares) will be awarded in fully paid shares of the
Common Stock of the Company.
Linking Executive Compensation to Shareholder Returns. The Companys LTI awards of nonvested
shares of the Companys common stock are designed to motivate the Companys executives to remain
employed by the Company, and to properly focus on long-term shareholder value. The LTI
performance targets are designed to provide executives with the potential to earn additional
shares of the Companys stock and provide them with specific financial goals that are tied to
shareholder value. The number of shares that may be earned is based on a variety of financial
performance measures, which have included earnings per share (EPS), return on
shareholders equity (ROE), return on invested capital (ROIC), and total shareholder return
(TSR) relative to the Compensation Peer Group data. The Compensation Committee chose these
metrics as the objective performance measures for the Companys LTI awards in order to provide a
direct link between the Companys performance and shareholder value. These metrics also provide
easily understood numbers that allow for definitive determination of the achievement of
performance metrics.
|
(a) |
|
2008 LTI Program. Key executives of the Company were granted LTI Shares during 2008 pursuant
to the 2008 LTI Program, the vesting of which is dependent upon the Companys achievement of
both a targeted percentage Return on Invested Capital (Target ROIC) and a cumulative three
year ROE and EPS target for performance periods ending December 31, 2010 (Target EPS). Any
shares earned would be awarded in the first quarter of 2011. The 2008 LTI Program provides
that 100% of the LTI Shares
will be awarded if the Company achieves both the Target ROIC and Target EPS, and that no LTI
Shares will vest or be awarded if the Companys ROIC is less than 13.5% during the performance
period. If the Target ROIC is met, the number of shares awarded could range from 0% to 200% of
the targeted LTI Shares, depending on the actual EPS performance. The minimum Target EPS for
the 2008 LTI Program is $11.34, for the performance period ending December 31, 2010. Based on
the Companys financial results for the performance period, the 2008 LTI Program did not result
in an award of LTI Shares. |
|
|
(b) |
|
2009 LTI Program. The 2009 LTI programs performance criteria (Performance Criteria) are
(1) the extent to which the Company achieves its EPS, as stated in the Companys annual
reports filed with the SEC, with respect to fiscal year 2009 (the EPS Performance Period);
(2) the extent to which the Company achieves its target ROE over a three year performance
period beginning on January 1, 2009
and ending on December 31, 2011 (the ROE/TSR Performance Period) and (3) TSR relative to the
Compensation Peer Group during the ROE/TSR Performance Period. The extent to which any 2009 LTI
Program Shares may be awarded is based upon the extent to which either or all of the
Performance Criteria are met. A number of Performance Shares, ranging from zero to 200% of the
target shares, may be awarded based upon the Companys achievement of the Performance Criteria.
Pursuant to the 2009 LTI Program, one-third of the shares earned for the EPS goal during the
EPS Performance Period would have been awarded, if earned. The ability of the 2009 LTI
grantees to earn one third of the 2009 LTI Shares was determined on December 31, 2009, based
upon the EPS performance targets stated below. The Companys EPS performance finished at $2.87,
which was below the minimum threshold of $3.20 required to earn the first one-third of the
shares granted under the 2009 LTI plan; therefore, no EPS target shares were eligible for
award. However, if the ROE and TSR performance metrics for the
remainder of the 2009 LTI performance period are met, the remaining two-thirds of the shares
granted may be awarded. All of the ROE and Relative TSR Performance Shares earned, if any, will
be awarded on or before March 31, 2012. In every case, the three Performance Criteria are
computed after taking into consideration the costs of the LTI Program. |
|
|
(c) |
|
2010 LTI Program. The 2010 LTI program focuses on four key performance elements: 1) share
price appreciation, 2) internal financial objectives, 3) performance against peer companies,
and 4) retention.
The retention element provides time vested share awards equal to one-third of each executives
target equity award. The performance targets may be achieved over a one to three year time
period and vest over a two to three year time period. All awards are paid in shares of fully
paid stock. Shares may be earned by achievement of EPS targets in 2010, and ROE and TSR
performance relative to a peer group,
over a 2010-2012 performance period (the ROE/TSR Performance Period). One third of each
executives target performance based LTI award may be earned in each category. |
31
|
(i) |
|
2010 EPS. One third of the 2010 LTI performance shares to be awarded was
determined at the end of 2010 based on the achievement of the 2010 EPS targets. Based
upon the Companys performance during 2010, it was determined
that the 2010 EPS target shares were earned. The shares earned will
vest over the next two years, with 1/2 of the shares being paid on 12/31/2011 and the remainder on 12/31/2012. The amount of shares
that were earned was determined based on the following tables, and those earned in
between thresholds was determined using linear extrapolation. |
|
|
|
EPS Value |
|
Target Shares Earned (%) |
Less than $3.20 |
|
Zero |
$3.47 |
|
50 |
$3.78 |
|
100 |
$4.12 |
|
150 |
$4.49 |
|
200 |
|
(ii) |
|
2010-2012 ROE. One third of the 2010 LTI Performance Shares will be determined as
of December 31, 2012, based upon the Companys achievement of a three year annualized
ROE goal which
will be calculated quarterly over the ROE/TSR Performance Period. To the extent that
actual ROE falls between any of the threshold amounts indicated in the table below,
the number of Performance Shares awarded will be determined by the Compensation
Committee based on an interpolation between the ROE ranges in the table below. |
|
|
|
Value |
|
Target Shares Earned (%) |
Less than 15.0% |
|
Zero |
15.0% |
|
50 |
16.5% |
|
100 |
19.5% |
|
150 |
21.0% or more |
|
200 |
|
(iii) |
|
2010-2012 Relative TSR. One third of the 2010 LTI Performance Shares will be
determined as of December 31, 2012 based upon a three year calculation of the Companys
achievement of relative shareholder value over the ROE/TSR Performance Period, which
will be calculated by comparing one-third of the TSR of companies in the NASDAQ stock
market and two thirds of the TSR of the Compensation Peer Group. To the extent that the
relative TSR falls between any of the threshold amounts indicated in the table below,
the number of Performance Shares awarded will be determined by the Compensation
Committee based on an interpolation between the TSR ranges in the table below. |
|
|
|
Value |
|
Target Shares Earned (%) |
Below 35th percentile |
|
Zero |
35th percentile |
|
50 |
50th percentile |
|
100 |
90th percentile or more |
|
200 |
The award of any shares earned under the 2010 LTI program will be contingent upon the executive
being employed as of December 31, 2012, with the exception of the EPS target shares. Executives
entitled to receive EPS target shares must be employed on December 31, 2011, when 50% of those
stock awards will be paid.
The Company has never back-dated or re-negotiated any equity awards. The Company has no specified
policy concerning the timing of equity awards; however, the Company does not grant equity
compensation awards in anticipation of the release of material nonpublic information. Similarly,
the Company does not time the release of material nonpublic information based on equity award grant
dates. The Company did not grant any stock option awards in 2010.
32
Establishing Executive Stockholding Targets. In order to further align
executives interests with those of the Companys shareholders and assure that
management focuses on the appropriate long-term initiatives designed to
increase shareholder value, the Compensation Committee has established stock
ownership guidelines for its key executives. Ownership by executive officers
of equity in the Company serves to align their interests with those of the
Companys shareholders and demonstrates to the investing public and all of the
Companys other employees, senior managements commitment to the Company. The
Companys targeted executive stockholdings policy establishes for each
executive officer, as well as other executives and managers in key leadership
roles, individual equity ownership goals.
In the first quarter of each year, the Compensation Committee is provided the
results of a report which shows the extent to which the executive has met the
applicable ownership guidelines. This report also includes the executives
base pay, total compensation, anticipated bonus, targeted stockholdings,
actual stockholdings, increase or decrease in actual stockholdings during the
year, and the amount of both awarded and vested options and nonvested shares.
Each executives employment agreement provides that in the event that the
targeted equity goals are not achieved within the required time frame, the
annual bonus may be paid in nonvested stock, rather than in cash, until
ownership targets are met. In accordance with the executives employment
agreements, the Compensation Committee may determine whether, based on the
executives success in achieving their shareholding targets, the executives
annual bonus is paid in stock, rather than in cash.
In 2010 the Companys executive shareholding policy was amended, with the
assistance of FW Cook, to reflect best practices in the industry. The
specific share requirements for each executive are based on a multiple of
annual base pay, and only include shares that are beneficially owned, directly
or indirectly by the executive, but do not include any shares that have been
granted to the executive that have not yet vested. In accordance with the
revised policy, executives must retain 100% of after-tax net profits on equity
compensation until a pre-determined multiple of salary ownership guidelines is
met. Ownership targets are set as a multiple of salary, as indicated on the
chart below. In order to permit consistent long term planning by an executive,
once established, these targets are not reset, except upon the approval of the
Compensation Committee, in the event of a significant promotion of an
executive, exceptional equity grants, or other considerations. The matrix
below details the equity ownership targets established for the executives
listed in the Summary Compensation Table.
Targeted Levels of Executive Shareholdings
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Salary |
|
|
Multiple |
|
|
Share Targets(1)(2) |
|
Steve Fredrickson |
|
$ |
520,000 |
|
|
|
5 |
|
|
|
39,394 |
|
Kevin Stevenson |
|
$ |
312,000 |
|
|
|
3 |
|
|
|
14,182 |
|
Michael Petit |
|
$ |
244,400 |
|
|
|
3 |
|
|
|
11,109 |
|
Neal Stern |
|
$ |
228,800 |
|
|
|
3 |
|
|
|
10,400 |
|
Craig Grube |
|
$ |
280,800 |
|
|
|
3 |
|
|
|
12,764 |
|
Kent McCammon |
|
$ |
228,800 |
|
|
|
3 |
|
|
|
10,400 |
|
Judith Scott |
|
$ |
254,800 |
|
|
|
3 |
|
|
|
11,582 |
|
|
|
|
(1) |
|
Based on a stock price of $66 per share. In the first quarter of each year
the average closing stock price for the prior three months will be computed. If the stock value
falls below $33.00 or over $99.00 (50% movement up or down) the share requirement for each
executive will be re-computed using the new three month average. |
|
(2) |
|
The actual number of shares beneficially owned by the named executives on
the Record Date is set forth in the table entitled, Security Ownership of Management and
Directors on page 5. |
Compensation Benchmarking. Executive Compensation should assist the Company in attracting and
retaining high quality talent, and should be reasonable in comparison to like positions in like
companies.
In order to appropriately incentivize and retain the management team, compensation packages for the
Companys executives should be responsive to the current environment and attractive and competitive
in comparison to peer companies. Consequently, the Compensation Committee strives to provide
executive compensation packages that include a combination of base pay and incentives that are
appropriate in the relevant marketplace.
In accordance with its charter, the Compensation Committee retained FW Cook as its independent
compensation consulting firm, to assist it in the performance of its duties, including the
evaluation of executive compensation levels and programs. FW Cook has served as the Compensation
Committees
33
independent compensation consultant since 2007, and has provided assistance to the
Committee with respect
to the Companys executive compensation programs, executive pay levels and the design of the
Companys incentive compensation plans. FW Cooks assessments have included the following:
|
|
|
a review and analysis of the components of compensation (including a comparison of
each element of executive compensation to external market rates), in order to
determine the competitiveness of the Companys executive compensation relative to
that of its peer group (the Compensation Peer Group), |
|
|
|
|
recommendations for changes in the Companys compensation structure, to assist the
Company in attracting, motivating and retaining key senior level executives, |
|
|
|
|
advice concerning the design and implementation of the Companys Long-Term
Incentive Compensation Programs (LTI Programs), its Annual Bonus Plan and Stock
Plan, |
|
|
|
|
a review of the executive compensation disclosures in the Companys proxy
statement, and |
|
|
|
|
a review of the Companys director compensation program. |
While the Compensation Committee does not believe that it is appropriate to establish compensation
levels based solely on benchmarking, the Compensation Committee believes that information regarding
pay practices at other companies is nevertheless useful as it recognizes that compensation
practices must be competitive in the marketplace. Accordingly, the Compensation Committee engaged
FW Cook to assist with
the selection of the Compensation Peer Group, to review, analyze and make recommendations with
respect to the Compensation Peer Groups compensation data and the Companys policies and
procedures with respect to executive compensation. The Compensation Committee used peer data to
determine whether the Companys compensation levels are competitive, and to make any necessary
adjustments to reflect executive performance and Company performance. The Compensation Peer Group
consists of business services companies with a primary focus on financial services, whose inclusion
was based on certain metrics, principally revenue, net income, market capitalization and
complexity, comparable to those of the Company. The Compensation Committee reviews the compensation
data for each executive in the Companys senior management team in comparison with the compensation
of executives in similar positions with similar responsibility levels in the Compensation Peer
Group by pay type (including base salary, annual incentive and long-term incentives). The Company
uses benchmarks of its executive compensation against the
Compensation Peer Group to enhance its ability to remain competitive in attracting and retaining
executives. In its review of the compensation of its executives the Committee primarily reviews
the compensation practices of the following Compensation Peer Group:
Compensation Peer Group*
|
|
|
Asset Acceptance Capital Corp
|
|
Equifax |
Cash America International
|
|
EZCORP |
Credit Acceptance
|
|
Fair Isaac |
Dealer Track Holdings
|
|
First Cash Financial Services |
Dollar Financial
|
|
Ocwen Financial |
Encore Capital Group, Inc.
|
|
World Acceptance Corp. |
EPIQ Systems
|
|
Wright Express Corp |
|
|
|
* |
|
The Compensation Peer Group differs from the peer group in the stock performance graph which is
included in the Companys 2010 Annual Report, as it includes additional peer companies for the
purpose of compensation comparisons. |
FW Cooks 2010 compensation analysis included a review of the Companys top executives total
compensation as compared to the same or similar positions in the market from which the Company
would be likely to recruit job candidates. The peer group analysis revealed that, in aggregate, the
Companys executives base pay was lower than the median of pay for comparable positions in the
Compensation Peer Group, and was approximately 70% of the median of pay for comparable positions in
the Compensation Peer Group. Total target cash compensation for the Companys executives, which
includes base salary plus cash bonus, was approximately 15% above that of the median of the
Compensation Peer Group. In order to attract and maintain the highest level of talent, FW Cook
recommended that the Compensation Committee consider appropriate
compensation actions, taking into account a variety of factors. Accordingly, the Companys
executives total cash compensation was increased, in some cases, to an amount that was closer to
the median level of the Compensation Peer Group, by adjusting the allocation of the salary and
bonus components.
34
Roles of the Compensation Committee and Management
The Compensation Committee administers the compensation program for the Companys key executives,
applying the principles stated above. The Committee is supported in this role by FW Cook, its
compensation consultant, the CEO and the Human Resources Department of the Company. The Committee
considers executive pay survey data provided by its compensation consultant (including peer group
comparables) and considers the recommendations of the CEO with respect to the compensation of each
executive officer other
than himself. The CEOs recommendations to the Compensation Committee detail, with respect to each
executive, a proposed total compensation package for the year, including any recommended
adjustments in base salary, annual cash bonus as a percentage of targets, and proposed equity
awards, if any. The CEO also provides recommendations for annual incentives and business goals, as
well as executives financial targets and individual performance targets. The Committee uses this
information in making its decisions and conducting its annual reviews of the Companys executives
compensation.
In connection with its work for the Compensation Committee, FW Cook attended a number of the 2010
Compensation Committee meetings and participated in related meetings with management. FW Cook
contrasted the Companys executive compensation to that of the Compensation Peer Group, and to
compensation data from industry surveys, and provided a detailed report of its findings to the
Compensation
Committee. Using the data and analysis presented in the FW Cook report, the Compensation Committee
set guidelines for total compensation and the mix of compensation elements for the Companys
executives. Base salaries were generally targeted at below the 50th percentile of like
positions in the Companys Compensation Peer Group, with adjustments made based on factors
including the executives likely future contributions, market competition, individual productivity
and retention goals. The CEO provides input to the Compensation Committee with respect to these
factors, along with his views on the responsibilities and relative contribution of each executive,
other than himself, their likely future contribution and the extent to which the Company would have
to be more or less competitive with its compensation to retain and motivate the executive. The CEO
also provides to the Committee his assessment of each executives performance during the prior
year, the extent to which individual and departmental goals established for the executive were met,
and the CEOs recommendations with respect to each executives proposed total compensation package
for the year,
including any recommended adjustments in base salary, annual cash bonus as a percentage of target
and equity awards, if any. Although the Committee considers the CEOs recommendations, the
Compensation Committee independently evaluates the recommendations and makes all final compensation
decisions in executive session, within the parameters of its compensation philosophy.
The Compensation Committee considered the recommendations of FW Cook in the process of allocating
the mix of total compensation among each element of compensation, to provide the right balance of
short-term and long-term compensation. The compensation of executives who have the greatest ability
to influence the Companys financial performance is predominately performance-based and at risk,
which is consistent with the Companys overall compensation philosophy. Base salaries are typically
set below the 50th percentile of the Compensation Peer Group, with the opportunity to
earn total cash compensation (base salary, plus cash
bonus) at the 50th to 75th percentile of the Compensation Peer Group, with
the addition of fully earned target bonus compensation. However, the total target direct executive
compensation approximates the median of the Compensation Peer Group with the addition of fully
earned bonus compensation and performance based equity incentives. Actual cash compensation may be
above or below this range based on actual performance. In making its year-end compensation
decisions, the Committee noted that the Company performed comparatively well in difficult economic
conditions, and on a relative basis in comparison to the industry as a whole, while exceeding its
2010 financial performance targets.
Allocation among Elements of Compensation
The Compensation Committee uses its judgment in making compensation decisions, using the framework
described above, with the goal of structuring its executive compensation mix to be market
competitive for each compensation element, in order to effectively respond to the evolving business
environment and to attract, develop and retain exceptional talent. The CEO recommends to the
Committee the mix of salary, annual incentive and long-term incentive awards that the Companys key
executives should receive as total direct compensation based on job responsibilities and
performance and talent assessments, while being informed by available market data. As a result, the
weighting of each component can vary each year. The Companys stock awards and cash bonus awards
allocate total incentive compensation between the short-
35
term and long-term awards. A key element
in mitigating risk in the compensation package is ensuring that a significant portion of incentive
compensation is based on the long-term performance of the Company. This
mix serves to reduce the risk that employees will focus on short-
term achievements to the detriment
of the long-term sustainability of the Company, and both elements work together for the benefit of
the Company and its shareholders. The total compensation paid to the executive officers of the
Company in 2010 is shown in the Summary Compensation Table on page 40.
The following charts show the weighting of each element of total compensation for the CEO and
collectively for the other executive officers. These charts depict our pay for performance
philosophy, as predominately performance-based and at risk compensation comprises the majority of
total compensation. Total actual compensation, including cash and stock bonuses paid to the
executives named in the Summary Compensation Table was allocated in 2010 as follows:
2010 Total Compensation Mix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Pay |
|
|
1/14/2010 Cash Bonus |
|
|
|
|
|
|
|
Name |
|
(%) |
|
|
(%) |
|
|
Equity Awards (%) * |
|
|
Total at Risk (%) |
|
Steve Fredrickson |
|
|
21 |
% |
|
|
51 |
% |
|
|
28 |
% |
|
|
79 |
% |
Kevin Stevenson |
|
|
21 |
% |
|
|
58 |
% |
|
|
21 |
% |
|
|
79 |
% |
Michael Petit |
|
|
13 |
% |
|
|
65 |
% |
|
|
22 |
% |
|
|
87 |
% |
Neal Stern |
|
|
19 |
% |
|
|
55 |
% |
|
|
26 |
% |
|
|
81 |
% |
Craig Grube |
|
|
29 |
% |
|
|
56 |
% |
|
|
13 |
% |
|
|
69 |
% |
Kent McCammon |
|
|
21 |
% |
|
|
50 |
% |
|
|
28 |
% |
|
|
78 |
% |
Judith Scott |
|
|
39 |
% |
|
|
49 |
% |
|
|
11 |
% |
|
|
60 |
% |
|
|
|
* |
|
Equity awards include the 2010 bonus paid in shares of the Companys stock. Equity
awards are valued based on the grant-date fair value, using the closing price of the Companys
stock on the date of grant. The actual amount of compensation that will be realized by the named
executives at the time an award vests will depend upon the market price of the Companys common
stock on the vesting date. |
Benefits and Perquisites
The Companys compensation programs are designed to fairly compensate its executive officers.
As part of that program, the Company offers a uniform set of benefits and perquisites, all of which
apply to all employees equally. Accordingly, it is the philosophy of the Company that each
executive, including the Companys CEO and CFO, should determine, within the limits of his or her
own compensation, whether or not to personally purchase luxury goods and services, including those
which are sometimes provided as executive
perquisites by other companies, but not offered by the Company. This is consistent with the
Companys general operating principles.
Other than the standard employee benefits, such as health, dental, life, hospitalization, surgical,
major medical and disability insurance, participation in the Companys 401(k) plan, paid time off,
and other similar Company-wide benefits which may be in effect from time to time for all other
employees, the Company does not provide additional perquisites, personal direct or indirect
benefits, or use any separate set of standards in determining the benefits for its executives.
However, the Companys executive officers are required by policy to submit to comprehensive
physical examinations at the Companys expense at stated intervals, at a cost of
36
up to
approximately $5,000 each. The Company believes that its base pay and total compensation package
are reasonable in the industry, and the Company has demonstrated that it is able to hire and retain
talented executives without offering additional perquisites.
Pension Plans, Retirement Benefits and Nonqualified Deferred Compensation. The Company does not
offer any pension or retirement plans to any of its employees, including its executive officers.
The Company does not offer its employees a non-qualified defined contribution plan; however, the
Company sponsors a 401(k) plan for its employees who are at least twenty-one years of age or over.
This plan is a long-term savings vehicle that enables employees to make pre-tax contributions via
payroll deductions, and receive tax-deferred earnings on the contributions made. Employees are
eligible to make voluntary contributions to the plan of up to 100% of their compensation, subject
to Internal Revenue Code limitations, after completing six months of service. The Company makes
matching cash contributions of up to 4% to each participating employees
salary. Employees are able to direct their own investments, among a wide array of choices, in the
Companys 401(k) plan.
The Company has never made a loan to any of its executive officers.
Severance Arrangements
The Company has entered into employment agreements with each of its executive officers. These
employment agreements describe how the employment relationship may be extended or terminated, what
benefits are to be paid in the event of termination of employment, and outline the executives
post-employment obligations. These obligations also restrict the use of confidential and/or
proprietary information both during and after employment. The employment agreements include
severance provisions which provide compensation to the executive officers in the event of certain
employment terminations. The
potential severance benefit is affected by the level of the executives base salary and annual
incentive opportunity. The purpose of the benefits is to focus executive officers on taking
actions that are in the best interests of the shareholders without regard to whether such action
may ultimately have an impact on their job security. The severance arrangements also are a
component of a total compensation package offered to executive officers that enable the Company to
be more competitive with the compensation arrangements of other market participants. A more
comprehensive description of the Companys severance provisions is provided on page 43.
Tax Deductibility of Executive Compensation
To the extent compensation paid to each covered employee (i.e. the Companys CEO and the next three
highest paid officers subject to SEC disclosure, other than the CFO) exceeds $1 million for any
fiscal year, it will not be deductible for federal income tax purposes under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the Code), unless such compensation is performance
based as defined in Section 162(m) of the Code. While the Compensation Committee is mindful of the
potential impact upon the Company of Section 162(m) of the Code, it reserves the right to extend
such compensation arrangements as may from time to time be necessary to retain or attract
top-quality management. The Compensation Committee generally structures executive compensation
arrangements so as to minimize the impact of the limitations of Section 162(m) of the Code, which
includes consideration of the impact of performance-based equity awards to the Companys executive
officers. In 2010, each of the Companys covered employees earned a base salary of less than $1
million and earned other compensation, including bonuses and equity awards. The entire
amount of each covered employees compensation earned during 2010 was not limited by Section 162(m)
of the Code and was deductible by the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the section of this Proxy Statement entitled,
Compensation Discussion and Analysis with management as required by Item 402(b) of Regulation S-K
and, based on such review and discussions, the Compensation Committee has recommended to the Board
that the Compensation Discussion and Analysis be included in this Proxy Statement, and incorporated
by reference into the Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2010. This report is provided by the following independent Directors who comprise the committee:
David Roberts, Chairman
Scott Tabakin
John Fain
John Fuller
37
Compensation Summary
The following table sets forth all compensation awarded to, earned by, or paid to each of the
Companys Named Executive Officers for all services rendered to the Company and its subsidiaries
for the years ended December 31, 2010, 2009 and 2008, including equity awards. The Company does not
offer non-equity incentive plans, defined benefit pension plans or nonqualified deferred
compensation plans.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base |
|
|
Cash Bonus(1) (6) |
|
|
Stock Bonus(1) (7) |
|
|
Stock Awards($) |
|
|
|
Option |
|
|
All Other Comp. ($) |
|
|
|
|
Name and Position |
|
Year |
|
|
Salary ($) |
|
|
($) |
|
|
($) |
|
|
(2) (3) (5) |
|
|
Awards(3)($) |
|
|
(4) |
|
|
TOTAL($) |
|
Steve Fredrickson,
CEO |
|
|
2010 |
|
|
$ |
520,000 |
|
|
$ |
1,185,000 |
|
|
$ |
91,884 |
|
|
$ |
701,862 |
|
|
$ |
0 |
|
|
$ |
16,050 |
|
|
$ |
2,514,796 |
|
|
|
|
2009 |
|
|
$ |
500,000 |
|
|
$ |
600,000 |
|
|
$ |
0 |
|
|
$ |
1,005,979 |
|
|
$ |
0 |
|
|
$ |
12,300 |
|
|
$ |
2,118,279 |
|
|
|
|
2008 |
|
|
$ |
400,000 |
|
|
$ |
440,000 |
|
|
$ |
0 |
|
|
$ |
470,860 |
|
|
$ |
0 |
|
|
$ |
12,300 |
|
|
$ |
1,323,160 |
|
Kevin Stevenson, CFO |
|
|
2010 |
|
|
$ |
312,000 |
|
|
$ |
800,000 |
|
|
$ |
62,061 |
|
|
$ |
300,784 |
|
|
$ |
0 |
|
|
$ |
11,800 |
|
|
$ |
1,486,645 |
|
|
|
|
2009 |
|
|
$ |
300,000 |
|
|
$ |
400,000 |
|
|
$ |
0 |
|
|
$ |
395,195 |
|
|
$ |
0 |
|
|
$ |
9,800 |
|
|
$ |
1,104,995 |
|
|
|
|
2008 |
|
|
$ |
270,000 |
|
|
$ |
330,000 |
|
|
$ |
0 |
|
|
$ |
289,760 |
|
|
$ |
0 |
|
|
$ |
9,800 |
|
|
$ |
899,560 |
|
Michael Petit, SVP,
BK Pres(6) |
|
|
2010 |
|
|
$ |
244,400 |
|
|
$ |
973,500 |
|
|
$ |
319,516 |
|
|
$ |
439,695 |
|
|
$ |
0 |
|
|
$ |
9,800 |
|
|
$ |
1,986,911 |
|
|
|
|
2009 |
|
|
$ |
235,000 |
|
|
$ |
500,000 |
|
|
$ |
0 |
|
|
$ |
395,195 |
|
|
$ |
0 |
|
|
$ |
11,800 |
|
|
$ |
1,141,995 |
|
|
|
|
2008 |
|
|
$ |
190,000 |
|
|
$ |
375,000 |
|
|
$ |
0 |
|
|
$ |
253,540 |
|
|
$ |
0 |
|
|
$ |
10,800 |
|
|
$ |
829,340 |
|
Neal Stern, SVP |
|
|
2010 |
|
|
$ |
228,800 |
|
|
$ |
600,000 |
|
|
$ |
46,508 |
|
|
$ |
300,784 |
|
|
$ |
0 |
|
|
$ |
13,550 |
|
|
$ |
1,189,642 |
|
|
|
|
2009 |
|
|
$ |
220,000 |
|
|
$ |
400,000 |
|
|
$ |
0 |
|
|
$ |
229,994 |
|
|
$ |
0 |
|
|
$ |
12,300 |
|
|
$ |
862,294 |
|
|
|
|
2008 |
|
|
$ |
185,000 |
|
|
$ |
340,000 |
|
|
$ |
0 |
|
|
$ |
591,535 |
|
|
$ |
0 |
|
|
$ |
3,499 |
|
|
$ |
1,120,034 |
|
Craig Grube, EVP |
|
|
2010 |
|
|
$ |
280,800 |
|
|
$ |
505,000 |
|
|
$ |
39,185 |
|
|
$ |
125,331 |
|
|
$ |
0 |
|
|
$ |
16,300 |
|
|
$ |
966,616 |
|
|
|
|
2009 |
|
|
$ |
270,000 |
|
|
$ |
255,000 |
|
|
$ |
0 |
|
|
$ |
308,988 |
|
|
$ |
0 |
|
|
$ |
12,300 |
|
|
$ |
846,288 |
|
|
|
|
2008 |
|
|
$ |
260,000 |
|
|
$ |
300,000 |
|
|
$ |
0 |
|
|
$ |
126,770 |
|
|
$ |
0 |
|
|
$ |
12,300 |
|
|
$ |
699,070 |
|
Kent McCammon, SVP |
|
|
2010 |
|
|
$ |
228,800 |
|
|
$ |
500,000 |
|
|
$ |
38,807 |
|
|
$ |
300,784 |
|
|
$ |
0 |
|
|
$ |
9,800 |
|
|
$ |
1,078,191 |
|
|
|
|
2009 |
|
|
$ |
220,000 |
|
|
$ |
370,000 |
|
|
$ |
0 |
|
|
$ |
359,287 |
|
|
$ |
0 |
|
|
$ |
11,800 |
|
|
$ |
961,087 |
|
|
|
|
2008 |
|
|
$ |
208,000 |
|
|
$ |
380,000 |
|
|
$ |
0 |
|
|
$ |
144,880 |
|
|
$ |
0 |
|
|
$ |
11,800 |
|
|
$ |
744,680 |
|
Judith Scott, EVP |
|
|
2010 |
|
|
$ |
254,800 |
|
|
$ |
300,000 |
|
|
$ |
23,254 |
|
|
$ |
75,208 |
|
|
$ |
0 |
|
|
$ |
12,300 |
|
|
$ |
665,562 |
|
|
|
|
2009 |
|
|
$ |
245,000 |
|
|
$ |
230,000 |
|
|
$ |
0 |
|
|
$ |
94,268 |
|
|
$ |
0 |
|
|
$ |
12,300 |
|
|
$ |
581,568 |
|
|
|
|
2008 |
|
|
$ |
190,000 |
|
|
$ |
150,000 |
|
|
$ |
0 |
|
|
$ |
68,818 |
|
|
$ |
0 |
|
|
$ |
12,300 |
|
|
$ |
421,118 |
|
|
|
|
(1) |
|
This table reflects for a given year all bonuses earned by the above executives in 2010,
2009 and 2008. The Company typically pays bonuses in January of the year following the year in
which the bonus was earned. |
|
(2) |
|
The amounts included in the Stock Awards column represent the aggregate grant date fair value
of the stock awards granted in 2010, 2009 and 2008. The shares awarded vest either (a) ratably over
a five year period, beginning on the first anniversary of the award date or (b) vested immediately
on 1/1/2009, as described in footnote 5, or (c) pursuant to the terms of Companys LTI plans, if
stated performance goals are met (see page 33 for a more complete description of the LTI Plans).
The actual amount of compensation that will be realized by the named executive at the time a share
grant vests, if at all, will depend upon the market price of the Companys common stock at the
vesting date. |
|
(3) |
|
There were no stock options granted in 2010, 2009 or 2008. |
|
(4) |
|
These amounts represent company matching contributions to the recipients 401(k) plan up to
limits for such plans under federal income tax rules. Except with respect to Mr. Stevenson, these
amounts also include matches of charitable contributions pursuant to the
Companys Matching Gift Program, pursuant to which the Company matches charitable contributions to
eligible recipients under Section 501(c)(3) of the Internal Revenue Code. |
|
|
|
(5)Nonvested Retention stock awards granted to certain executives in January 2009 in conjunction
with the renewal of their employment agreements were as set forth below. All such awards vested
immediately upon their award. The shares awarded each executive and their grant date fair values
are shown below. |
|
|
|
(6)Mr. Petit was granted 3,332 nonvested shares of the Companys common stock in February 2010, all
of which will vest in February 2013. |
|
|
|
(7)A portion of the 2010 bonus was paid in shares of the Companys common stock. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Grant
Date Price |
|
|
Grant
Date Fair Value |
|
Steve Fredrickson, CEO |
|
|
13,179 |
|
|
$ |
33.84 |
|
|
$ |
445,977 |
|
Kevin Stevenson, CFO |
|
|
5,177 |
|
|
$ |
33.84 |
|
|
$ |
175,190 |
|
Michael Petit, President, BK |
|
|
5,177 |
|
|
$ |
33.84 |
|
|
$ |
175,190 |
|
Neal Stern, EVP |
|
|
0 |
|
|
|
|
|
|
|
|
|
Craig Grube, EVP |
|
|
4,048 |
|
|
$ |
33.84 |
|
|
$ |
136,984 |
|
Kent McCammon, SVP |
|
|
4,707 |
|
|
$ |
33.84 |
|
|
$ |
159,285 |
|
Judith Scott, EVP |
|
|
941 |
|
|
$ |
33.84 |
|
|
$ |
31,843 |
|
|
|
|
(6) |
|
The total bonus awarded in 2010 included grants of immediately vested stock. The grant date
fair values of the bonus shares awarded to each executive are shown below. |
38
Grant Date Fair Value of Bonus Shares
|
|
|
|
|
Steve Fredrickson, CEO |
|
$ |
91,884 |
|
Kevin Stevenson, CFO |
|
$ |
62,061 |
|
Michael Petit, President, BK |
|
$ |
319,516 |
|
Neal Stern, EVP |
|
$ |
46,508 |
|
Craig Grube, EVP |
|
|
0 |
|
Kent McCammon, SVP |
|
$ |
38,807 |
|
Judith Scott, EVP |
|
$ |
23,254 |
|
Grants of Plan-Based Awards. The following table provides information regarding the grants of
equity-based (LTI) compensation awards made to the executives named therein in 2010.
2010 Grants of Plan-Based Awards Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date Fair |
|
|
|
|
|
|
|
|
|
|
|
Estimated
Payout Under Equity Incentive Plan2 |
|
|
Value of Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold |
|
|
Target |
|
|
|
|
|
|
Awards3 |
|
Name |
|
Award Type 1 |
|
|
Grant Date |
|
|
Date Approved |
|
|
(#) |
|
|
(#) |
|
|
Maximum (#) |
|
|
($) |
|
Steve Fredrickson |
|
2010 LTI Plan |
|
|
1/14/2010 |
|
|
|
1/14/2010 |
|
|
|
4,803 |
|
|
|
14,409 |
|
|
|
24,015 |
|
|
$ |
701,862 |
|
Kevin Stevenson |
|
2010 LTI Plan |
|
|
1/14/2010 |
|
|
|
1/14/2010 |
|
|
|
2,058 |
|
|
|
6,175 |
|
|
|
10,292 |
|
|
$ |
300,784 |
|
Michael Petit |
|
2010 LTI Plan |
|
|
1/14/2010 |
|
|
|
1/14/2010 |
|
|
|
2,058 |
|
|
|
6,175 |
|
|
|
10,292 |
|
|
$ |
300,784 |
|
Neal Stern |
|
2010 LTI Plan |
|
|
1/14/2010 |
|
|
|
1/14/2010 |
|
|
|
2,058 |
|
|
|
6,175 |
|
|
|
10,292 |
|
|
$ |
300,784 |
|
Craig Grube |
|
2010 LTI Plan |
|
|
1/14/2010 |
|
|
|
1/14/2010 |
|
|
|
858 |
|
|
|
2,573 |
|
|
|
4,288 |
|
|
$ |
125,331 |
|
Kent McCammon |
|
2010 LTI Plan |
|
|
1/14/2010 |
|
|
|
1/14/2010 |
|
|
|
2,058 |
|
|
|
6,175 |
|
|
|
10,292 |
|
|
$ |
300,784 |
|
Judith Scott |
|
2010 LTI Plan |
|
|
1/14/2010 |
|
|
|
1/14/2010 |
|
|
|
515 |
|
|
|
1,544 |
|
|
|
2,573 |
|
|
$ |
75,208 |
|
|
|
|
(1) |
|
The amounts reported above relate to the nonvested LTI Shares granted to the above
executives. The threshold represents the time vesting portion of the grants. The value of the LTI
Share awards was determined by multiplying the closing price of the Companys common stock as of
the grant date times the target number of LTI Shares granted. Except for the time vesting portion,
the LTI shares will not vest if the performance criteria set forth above are not met. |
|
(2) |
|
Represents the range of possible awards pursuant to the 2010 LTI Program. |
|
(3) |
|
The amounts reported above relate to the nonvested LTI shares granted to the above
executives The value of the LTI share awards was determined by multiplying the closing price of
the Companys common stock as of the grant date times the target number of LTI shares granted. The
performance-based portion of the shares will not vest if the performance criteria are not met. |
Outstanding Equity Awards at 2010 Fiscal Year End. The following table sets forth certain
information concerning equity awards held by the executives named therein, which were outstanding
as of December 31, 2010. The market value of shares of stock is determined by multiplying the
number of shares by the closing price of the Companys common stock at the end of the last fiscal
year. No options were outstanding as of December 31, 2010.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards(1) |
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Shares or Units |
|
|
Market Value of |
|
|
|
|
|
|
|
of Stock That |
|
|
Shares of Stock that |
|
|
|
|
|
|
|
Have Not |
|
|
Have Not vested as |
|
Name |
|
Grant Date |
|
|
Vested(2) (3) |
|
|
of 12/31/10($) |
|
Steve Fredrickson |
|
|
04/19/2006 |
|
|
|
1,000 |
|
|
$ |
75,200 |
|
|
|
|
1/04/2008 |
(4) |
|
|
13,000 |
|
|
$ |
977,600 |
|
|
|
|
1/20/2009 |
(4) |
|
|
22,481 |
|
|
$ |
1,690,571 |
|
|
|
|
1/14/2010 |
(4) |
|
|
14,409 |
|
|
$ |
1,083,557 |
|
Kevin Stevenson |
|
|
04/19/2006 |
|
|
|
1,000 |
|
|
$ |
75,200 |
|
|
|
|
1/04/2008 |
(4) |
|
|
8,000 |
|
|
$ |
601,600 |
|
|
|
|
1/20/2009 |
(4) |
|
|
8,832 |
|
|
$ |
664,166 |
|
|
|
|
1/14/2010 |
(4) |
|
|
6,175 |
|
|
$ |
464,360 |
|
Michael Petit |
|
|
04/19/2006 |
|
|
|
1,000 |
|
|
$ |
75,200 |
|
|
|
|
1/04/2008 |
(4) |
|
|
7,000 |
|
|
$ |
526,400 |
|
|
|
|
1/20/2009 |
(4) |
|
|
8,832 |
|
|
$ |
664,166 |
|
|
|
|
1/14/2010 |
(4) |
|
|
6,175 |
|
|
$ |
464,360 |
|
|
|
|
2/8/2010 |
|
|
|
3,332 |
|
|
$ |
250,566 |
|
Neal Stern |
|
|
01/02/2008 |
|
|
|
7,500 |
|
|
$ |
564,000 |
|
|
|
|
1/04/2008 |
(4) |
|
|
3,000 |
|
|
$ |
225,600 |
|
|
|
|
1/20/2009 |
(4) |
|
|
9,233 |
|
|
$ |
694,322 |
|
|
|
|
1/14/2010 |
(4) |
|
|
6,175 |
|
|
$ |
464,360 |
|
Craig Grube |
|
|
04/19/2006 |
|
|
|
1,000 |
|
|
$ |
75,200 |
|
|
|
|
1/04/2008 |
(4) |
|
|
3,500 |
|
|
$ |
263,200 |
|
|
|
|
1/20/2009 |
(4) |
|
|
6,905 |
|
|
$ |
519,256 |
|
|
|
|
1/14/10 |
(4) |
|
|
2,573 |
|
|
$ |
193,490 |
|
Kent McCammon |
|
|
1/04/2008 |
(4) |
|
|
4,000 |
|
|
$ |
300,800 |
|
|
|
|
1/20/2009 |
(4) |
|
|
8,029 |
|
|
$ |
603,781 |
|
|
|
|
1/14/2010 |
(4) |
|
|
6,175 |
|
|
$ |
464,360 |
|
Judith Scott |
|
|
4/19/2006 |
|
|
|
300 |
|
|
$ |
22,560 |
|
|
|
|
1/4/2008 |
(4) |
|
|
1,900 |
|
|
$ |
142,800 |
|
|
|
|
1/20/2009 |
(4) |
|
|
2,506 |
|
|
$ |
188,451 |
|
|
|
|
1/14/2010 |
(4) |
|
|
1,544 |
|
|
$ |
116,109 |
|
|
|
|
(1) |
|
The LTI Shares will not vest or be awarded if the Company does not achieve its performance
targets, as described more fully on page 32 If the targets are met, the number of shares to be
received by each executive will increase or decrease depending on actual performance. |
|
(2) |
|
The shares granted vest either (a) ratably over a stated period, beginning on the first
anniversary of the award date or (b) in the case of the LTI share awards, pursuant to the terms of
the respective Long Term Incentive Plan, based on the achievement of stated performance goals.
(See page 33 for a more complete description of the Long Term Incentive Plans). |
|
(3) |
|
Value is calculated based on the closing price ($75.20) of the Companys common stock on the
NASDAQ stock market as of 12/31/2010. |
|
(4) |
|
LTI Shares granted, but not vested or awarded. |
40
Option Exercises and Stock Vested. The following table provides information concerning the
exercises of stock options and shares acquired on vesting during 2010 on an aggregated basis for
each of the executives named therein, and includes the value realized upon exercise or upon
vesting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION AWARDS |
|
|
STOCK AWARDS |
|
|
|
Number of Shares |
|
|
|
|
|
|
Number of Shares |
|
|
|
|
|
|
Acquired on |
|
|
Value Realized on |
|
|
Acquired on |
|
|
Value Realized on |
|
Name |
|
Exercise (#) |
|
|
Exercise ($) |
|
|
Vesting(#) |
|
|
Vesting(1) ($) |
|
Steve Fredrickson |
|
|
0 |
|
|
|
0 |
|
|
|
1,000 |
|
|
$ |
58,920 |
|
Kevin Stevenson |
|
|
0 |
|
|
|
0 |
|
|
|
1,000 |
|
|
$ |
58,920 |
|
Michael Petit |
|
|
0 |
|
|
|
0 |
|
|
|
1,400 |
|
|
$ |
86,320 |
|
Neal Stern |
|
|
0 |
|
|
|
0 |
|
|
|
2,500 |
|
|
$ |
112,125 |
|
Craig Grube |
|
|
0 |
|
|
|
0 |
|
|
|
1,000 |
|
|
$ |
58,920 |
|
Kent McCammon |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
0 |
|
Judith Scott |
|
|
0 |
|
|
|
0 |
|
|
|
650 |
|
|
$ |
41,651 |
|
|
|
|
(1) |
|
Represents the aggregate dollar amount realized upon vesting computed by multiplying the
number of shares of stock by the closing market value of the underlying share on the vesting date. |
Summary of Severance Payments
The Company does not have any plans or programs under which payments to any of the executive
officers are triggered by a change of control of the Company. However, each named executives
employment agreement contains severance provisions providing for payments to the executives
beneficiaries or to their estates in the event of death, and for severance payments upon the
involuntary termination of their employment without Cause (as that term is defined in the
Employment Agreements). In the case of a termination for Cause, no severance payments will be
made. Severance payments are conditioned on the executives execution of a full release of all
claims against the Company, and are payable in a lump sum after termination of employment. The
Severance Agreements provide executives with certain benefits upon their involuntary
termination for reasons other than for their wrongful behavior or misconduct. These provisions
provide protection to the Company and to the executive related to terminations of employment that
could potentially cause harm to the Company and/or the business units managed by the terminated
executive. None of the named executives is provided with any type of golden parachute or excise
tax gross-up.
The following table provides information regarding severance payments that would have been made to
executives listed below pursuant to the terms of their employment agreements under various
employment scenarios if such termination had occurred as of December 31, 2010. The Summary of
Severance Terms and Potential Payments Table that follows this narrative summarizes such payments
and benefits. No severance payments were made to any of the Companys executive officers in 2010.
All of the executive officers executed three year employment agreements with the Company, effective
January 1, 2009.
41
SUMMARY OF SEVERANCE TERMS AND POTENTIAL PAYMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructive |
|
|
|
|
|
|
|
|
|
|
|
|
Termination |
|
Termination |
|
Severance |
|
Salary and Bonus |
|
Benefits |
|
Total |
Name |
|
Provisions |
|
Conditions (1) |
|
Payment |
|
($) |
|
($) |
|
($)(2) |
Steve Fredrickson
|
|
Yes
|
|
Constructive
discharge,(3)
non-renewal of
employment
agreement or
reasons other than
Cause,(4) death or
disability
|
|
Two years salary,
two times bonus
paid for year prior
to termination and
benefits for one
year.
|
|
$ |
3,408,462 |
|
|
$ |
43,122 |
|
|
$ |
3,451,584 |
|
Kevin Stevenson
|
|
Yes
|
|
Constructive
discharge, (3)
non-renewal of
employment
agreement or
reasons other than
Cause, (4) death or
disability
|
|
Two years salary,
two times bonus
paid for year prior
to termination and
benefits for one
year.
|
|
$ |
2,223,077 |
|
|
$ |
33,649 |
|
|
$ |
2,256,726 |
|
Michael Petit
|
|
Yes
|
|
Constructive
discharge, (3)
non-renewal of
employment
agreement or
reasons other than
Cause, (4) death or
disability
|
|
Two years salary,
two times bonus
paid for year prior
to termination and
benefits for one
year.
|
|
$ |
2,435,077 |
|
|
$ |
24,895 |
|
|
$ |
2,459,972 |
|
Neal Stern
|
|
Yes
|
|
Constructive
discharge, (3)
non-renewal of
employment
agreement or
reasons other than
Cause, (4) death or
disability
|
|
One years salary,
one times bonus
paid for year prior
to termination and
benefits for three
months.
|
|
$ |
828,462 |
|
|
$ |
7,491 |
|
|
$ |
835,953 |
|
Craig Grube
|
|
Yes
|
|
Constructive
discharge, (3)
non-renewal of
employment
agreement or
reasons other than
Cause, (4) death or
disability
|
|
One years benefits.
|
|
$ |
0 |
|
|
$ |
25,189 |
|
|
$ |
25,189 |
|
Kent McCammon
|
|
Yes
|
|
Constructive
discharge, (3)
non-renewal of
employment
agreement or
reasons other than
Cause, (4) death or
disability
|
|
Two years salary,
two times bonus
paid for year prior
to termination and
benefits for one
year.
|
|
$ |
1,456,923 |
|
|
$ |
28,569 |
|
|
$ |
1,485,492 |
|
Judith Scott
|
|
Yes
|
|
Constructive
discharge, (3)
non-renewal of
employment
agreement or
reasons other than
Cause, (4) death or
disability
|
|
One years salary,
one times bonus
paid for year prior
to termination and
benefits for one
year.
|
|
$ |
554,423 |
|
|
$ |
31,520 |
|
|
$ |
585,943 |
|
|
|
|
(1) |
|
In the event of their death or disability, executives or their estates will receive their
base salary earned through the month of the date of their death or disability, plus a pro-rata
portion of their target bonus for that year. |
|
(2) |
|
While not included in this total, upon termination, each of the executives listed herein would
also be paid for all accrued vacation. |
|
(3) |
|
Constructive Discharge is defined as the election of the employee to terminate his or her
employment due to the removal of employee from, or a failure of employee to continue in his or her
current position, any material diminution in the nature or scope of the authorities, powers,
functions, duties or responsibilities attached to such position, the relocation of the Companys
principal executive offices to a location more than 50 miles from Norfolk, Virginia, and the
employee does not agree to such changes, or the material breach by the Company of the employees
employment agreement. |
|
(4) |
|
Cause is defined as: (A) conviction, or plea of guilty or nolo contendere to, a felony; (B)
engaging in willful misconduct that is economically injurious to the Company or its subsidiaries,
or the embezzlement of funds or misappropriation of other property of the Company or any
subsidiary; (C) material violation of the Companys written policies and procedures (including
gross and continued failure to satisfy written directives or performance material),
insubordination; or (D) fraudulent conduct as regards the Company, which results either in personal
enrichment to employee or material injury to the Company or its subsidiaries. |
All employment agreements referred to herein are due to expire on December 31, 2011.
42
Items of Business to Be Acted Upon at the Meeting
PROPOSAL ONE
ELECTION OF DIRECTORS
The Companys Board of Directors is classified, and consists of seven members in three classes.
Each Director serves a three year term. One class of Directors is elected at each annual meeting
of shareholders. Because the Annual Meeting will trigger the expiration of the terms of only two
directors, proxies cannot be voted for more than two director nominees. The two candidates
receiving the highest number of affirmative votes of the shares entitled to vote at the Annual
Meeting will be elected. Abstentions, broker non-votes and withheld votes will have no effect on
the outcome of the vote.
The names of James Voss and Scott Tabakin will be placed on the ballot for election to the Board.
Mr. Tabakin serves on the Compensation Committee and the Audit Committee. Mr. Voss serves as chair
of the Audit Committee. He has been determined to be an independent director in accordance with
the NASDAQ listing rules. All nominees have consented to be named as nominees for election in this
Proxy Statement, and to serve if elected. If elected, they will hold office for three-years, with
terms expiring on the date of the 2014 annual meeting, or until their successors are elected and
qualified. Proxies will be voted for the election of the above nominees; however, if for any
reason either nominee is unable to serve (which is not anticipated), the shares represented by all
valid proxies will be voted for the election of such other person as the Board may nominate at the
Annual Meeting.
Vote Required. Under the Delaware General Corporation Law, an abstaining vote is not deemed a
vote cast or represented by proxy. As a result, abstentions are not included in the tabulation of
the results on the election of Directors, and therefore do not have the effect of votes in
opposition. Broker non-votes (i.e. where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned a proxy) will be counted as present for
purposes of determining if a quorum is present, and will be treated as abstentions.
Nominees for Director who receive the affirmative votes of a plurality of the common shares
represented and voting in person or by proxy at the Annual Meeting will be elected.
However, in an uncontested election, any nominee for election as Director who receives a greater
number of votes withheld from his or her election than votes for such election shall promptly
offer his or her resignation following certification of the shareholder vote. The Nominating and Corporate Governance Committee shall consider the
resignation offer and recommend to the Board whether to accept it, after determining whether or not
the interests of the Company and its shareholders would be best served by accepting or rejecting
the candidates tendered resignation. Any Director who tenders his or her resignation pursuant to
this provision shall not participate in any committee deliberations or Board action regarding
whether to accept the resignation offer. The Board will act on the Nominating and Corporate
Governance Committees recommendation within 90 days following the certification of the shareholder
vote. Thereafter, the Board will promptly disclose its decision whether to accept the Directors
resignation offer (and state the reasons for rejecting the resignation offer, if applicable) in a
press release to be disseminated in the manner that the Companys press releases are typically
distributed.
The Board of Directors recommends a vote FOR
each of the nominees named above.
43
PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE COMPANYS CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors recommends the approval by the shareholders of an amendment to the Companys
Certificate of Incorporation to increase the number of authorized shares of common stock from 30
Million shares to 60 Million shares, par value $0.01 per share. The Board of Directors unanimously
approved the amendment and directed that it be submitted to the shareholders for approval at this
Annual Meeting. As of the Record Date, there were approximately 17,099,041 shares of common stock
issued and outstanding out of a total authorized number of 30 Million shares. If approved, the
amendment would allow the Board of Directors to issue additional shares without further shareholder
approval, unless required by applicable law or stock exchange rules. The Board of Directors
believes that the proposed increase in authorized shares of common stock is desirable to enhance
the Companys flexibility in taking possible future actions by providing a sufficient number of
shares of common stock for issuance in connection with subsequent acquisitions,
financings, compensation and benefit plans, stock splits and other proper corporate purposes. The
Board of Directors will determine whether, when and on what terms to issue shares of common stock.
The rights of the additional common stock would be identical to rights of the common stock now
authorized under the Certificate of Incorporation. Under the Certificate of Incorporation,
shareholders do not have preemptive rights to subscribe for additional shares which may be issued
by the Company. This means that current shareholders do not have a prior right to purchase any new
issue of the Companys stock in order to maintain their proportionate ownership of common stock.
Therefore, although the authorization of additional shares pursuant to the proposed amendment will
not, by itself, affect the rights of existing shareholders, the issuance of such shares could
dilute the rights of existing shareholders and could dilute the book value per share of the
Companys common stock. No increase is proposed in the number of preferred shares that are
currently authorized.
Under this proposal, the Fourth paragraph of the Certificate of Incorporation would be amended and
restated to read as follows:
FOURTH: The total number of shares of all classes of stock which the Corporation shall be
authorized to issue is 62,000,000 shares, of which 60,000,000 shall be designated as Common Stock
with a par value of $0.01 per share and 2,000,000 shall be designated as Preferred Stock with a par
value of $0.01 per share.
As noted above, the Board of Directors has approved this amendment to the Companys Certificate of
Incorporation, but it will not become effective unless the shareholders approve this matter. The
affirmative vote of the holders of a majority of the outstanding shares of common stock will be
required for adoption of the amendment. If approved, this amendment will become effective upon the
filing of a certificate of
amendment to our Certificate of Incorporation with the Secretary of State of Delaware, which we
expect to do promptly after the Annual Meeting.
The table below reflects the number of shares subject to outstanding awards and the amount
available for future issuance. All share awards are in the form of grants of shares of nonvested
shares, including LTI Shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities to be |
|
|
|
|
|
|
Number of Securities |
|
|
|
Number of |
|
|
Issued Upon |
|
|
Weighted-average |
|
|
Remaining Available |
|
|
|
Securities |
|
|
Exercise of |
|
|
Exercise Price of |
|
|
for Future Issuance |
|
|
|
Authorized for |
|
|
Outstanding Options |
|
|
Outstanding Options |
|
|
Under Equity |
|
|
|
Issuance Under the |
|
|
and Nonvested |
|
|
and Nonvested |
|
|
Compensation Plans |
|
Plan Category |
|
Plan |
|
|
Shares |
|
|
Shares(1) |
|
|
(2) |
|
Equity compensation
plans approved by
shareholders |
|
|
2,000,000 |
|
|
|
238,277 |
|
|
$ |
0.63 |
|
|
|
746,596 |
|
Equity compensation
plans not approved
by shareholders |
|
None |
|
None |
|
|
N/A |
|
|
None |
TOTAL |
|
|
2,000,000 |
|
|
|
238,277 |
|
|
$ |
0.63 |
|
|
|
746,596 |
|
|
|
|
(1) |
|
Includes grants of nonvested shares, for which there is no exercise price, but with
respect to which shares are awarded without cost when the restrictions have been realized.
Excluding the impact of the nonvested shares, the weighted average exercise price of outstanding
options is $29.79. |
|
(2) |
|
Excludes 1,015,127 exercised options and vested shares, which are not available for
re-issuance. |
The Board of Directors recommends a Vote FOR the approval of an amendment to the Companys
Certificate of Incorporation to increase the authorized common stock to 60 Million shares.
44
PROPOSAL THREE
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Companys shareholders are being asked to approve, on an advisory, nonbinding basis, the
compensation of the Companys executives as disclosed in this proxy statement, including the
Compensation Discussion and Analysis, the Summary Compensation Table and related tables and
disclosures. This vote provides shareholders with the opportunity to express their positive or
negative vote on the Companys overall executive compensation program, policies and procedures as
described in the Compensation Discussion & Analysis section of this Proxy Statement and related
summary tables and narrative that follow it. This is
commonly referred to as Say on Pay. An objective of the Company is to retain highly qualified
and talented executives and to provide appropriate incentives to encourage their high performance,
which creates value for the Companys shareholders. As described in detail in this Proxy
Statement, the Company seeks to closely align the interests of its executive officers with the
interests of its shareholders and appropriately reward executive performance while avoiding the
encouragement of unnecessary or excessive risk-taking. Shareholders are encouraged to read the
Compensation Discussion and Analysis on page 24 of this Proxy Statement for a more detailed
discussion of the Companys executive compensation programs, philosophy and principles. A vote on
this matter will not address any specific item of compensation, but rather the overall compensation
of the Companys executive officers. Accordingly, shareholders are asked to cast their votes FOR
the following resolution:
RESOLVED, that the shareholders of Portfolio Recovery Associates, Inc. approve, on an
advisory basis, the compensation of the executives of the Company whose names are listed in the
Summary Compensation Table on page 40 herein, as disclosed in this proxy statement, including the
Compensation Discussion and Analysis, the Summary Compensation Table and related compensation
tables and disclosures.
This vote is advisory and is not binding on the Company; however, it will provide information to
the Company and the Compensation Committee regarding shareholder sentiment about the Companys
executive compensation philosophy, policies and practices, which the Compensation Committee will be
able to consider when determining executive compensation for the remainder of 2011 and beyond. The
Compensation Committee will take into consideration any concerns which may be raised by the
shareholders.
Vote Required. Approval of the compensation of the Companys executives requires the affirmative
vote of a
majority of votes cast in person or represented by proxy. Broker non-votes (i.e. where brokers are
prohibited from exercising discretionary authority for beneficial owners who have not returned a
proxy) will be treated as abstentions. Under the Delaware General Corporation Law, an abstaining
vote is not deemed a vote cast or represented by proxy. As a result, abstentions are not included
in the tabulation of the results on the adoption of the proposal.
The Board of Directors Recommends a Vote FOR
The approval of the compensation of the Companys executives as disclosed in this Proxy Statement.
45
PROPOSAL FOUR
ADVISORY VOTE ON FREQUENCY OF VOTE ON EXECUTIVE COMPENSATION
The Company is requesting that its shareholders cast a non-binding advisory vote on the frequency
of future advisory votes on executive compensation. In compliance with the Dodd-Frank Wall Street
Reform and Consumer Protection Act, shareholders must be given the opportunity, at least once every
six years, to have a separate shareholder vote to determine the frequency of advisory votes on
executive compensation. This
proposal is to be distinguished from Proposal Three, which is an advisory Say on Pay vote on
executive compensation. This Proposal provides shareholders with the opportunity to express their
preference for how often the Company should provide Say on Pay voting. As prescribed by the
Dodd-Frank Act, under this Proposal shareholders can elect to have Say on Pay voting among one of
three choices: annually, every two years or every three years. Shareholders can also elect to
abstain from voting on this Proposal.
The Board of Directors values and encourages constructive dialogue on executive compensation and
other topics important to shareholders. Say on Pay is a communication vehicle which promotes
feedback from shareholders, and is most useful when it is frequent and received in a consistent
manner. Therefore, the Board supports an annual vote on executive compensation. The vote on this
proposal is advisory and non-binding. However, the Compensation Committee and the Board will review
the voting results and will consider shareholder views on how often Say on Pay voting should be
held.
The Board of Directors recommends a vote FOR
annual Say on Pay voting frequency.
PROPOSAL FIVE
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Upon the recommendation of the Audit Committee, the Board has appointed KPMG LLP as its Independent
Registered Public Accounting Firm, to audit its consolidated financial statements for the year
ending December 31, 2011, and to audit the effectiveness of its internal control over financial
reporting as of
December 31, 2011. Even if the selection of KPMG LLP is ratified by the shareholders, the Audit
Committee, in its discretion, may select a different independent registered public accounting firm
at any time during the year if it determines that such a change would be in the best interests of
the Company and its shareholders.
Vote Required. A majority of votes cast in person or represented by proxy will constitute
ratification of the appointment of KPMG LLP. Broker non-votes (i.e., where brokers are prohibited
from exercising discretionary authority for beneficial owners who have not returned a proxy) will
be treated as abstentions. Under the Delaware General Corporation Law, an abstaining vote is not
deemed a vote cast or represented by proxy. As a result, abstentions are not included in the
tabulation of the results on the ratification of the appointment of KPMG LLP.
The Board of Directors recommends a Vote FOR the ratification of the appointment of KPMG LLP as
the Companys Independent Registered Public Accounting Firm for the year ending December 31, 2011.
2012 Shareholder Proposals, Director Nominations and Other Matters
A shareholder proposal may be considered for inclusion in the Companys proxy statement for the
2012 annual meeting pursuant to Rule 14a-8 of the Securities Exchange Act of 1934 (the Exchange
Act). A shareholder wishing to nominate a Director candidate must be an owner of the Companys
stock who meets the eligibility standards under Rule 14a-8 for submitting such a proposal, must
have owned the Companys common stock for at least one year, must continue to own the stock through
the date of the 2012 annual
meeting and must attend the 2012 annual meeting in person. The Companys By-laws and Certificate of
Incorporation provide that any shareholder of record entitled to vote at an annual meeting who
intends to make a nomination for Director must notify the Corporate Secretary in writing not less
than 60 days and not more than 90 days prior to the anniversary date of the immediately preceding
annual meeting. The notice
46
must meet other requirements contained in the Companys By-laws and
Certificate of Incorporation, copies of which are available on the Investor Relations page on the
Companys website at www.portfoliorecovery.com. Copies of such documents can also be obtained from
the Corporate Secretary at the address set forth herein, or from the SEC. All shareholder
proposals must be received at the Companys headquarters on or before December 29, 2011. Any
proposals submitted thereafter will be opposed as not having been timely filed. The Nominating and
Corporate Governance Committee will consider any qualified nominees for Board membership timely
submitted by shareholders. The candidates name and a detailed background of the
candidates qualifications must be sent to the attention of the Corporate Secretary, and should
include the candidates principal occupations or employment held over the past five years, and a
written statement from the candidate indicating his or her willingness to serve if elected.
Generally, candidates for the position of director must be highly qualified and should have broad
training and experience in their chosen fields. They should also represent the interests of all
shareholders and not those of any special interest group.
The Nominating and Corporate Governance Committee will evaluate any shareholder recommendations. If
after reviewing the materials submitted by shareholders concerning a candidate, the Nominating and
Corporate Governance Committee believes that the candidate merits additional consideration, an
interview of the candidate will be conducted and appropriate reference checks will be obtained. The
Nominating and Corporate Governance Committee will determine whether to recommend to the Board that
the candidates
name be placed on the ballot at the next annual meeting, based upon the candidates skills,
ability, perceived commitment, ability to devote sufficient time to carry out the duties and
responsibilities of a director, the candidates relevant experience in relation to the capabilities
already present on the Board, and such other factors as the Nominating and Corporate Governance
Committee may deem to be in the best interests of the Company and its shareholders.
The Company did not receive any recommendations from shareholders of potential director candidates
for consideration at the 2011 Annual Meeting.
As of the date of this Proxy Statement, the Board does not intend to bring any other business
before the Annual Meeting except items incident to the conduct of the Annual Meeting. The Company
has not received
notice from any shareholder of intent to present a proposal at the Annual Meeting. The enclosed
Proxy Card will confer discretionary authority with respect to matters which are not presently
known to the Board at the time of the printing hereof and which may properly come before the Annual
Meeting. It is the intention of the persons named on the Proxy Card to vote such Proxy Card with
respect to such matters in accordance with their best judgment.
Additional Information
There are a number of other sources for additional information about the Company. The Company
files quarterly and annual reports, proxy statements and other information with the SEC, much of
which can be accessed through the SECs website (http://www.sec.gov), or can be reviewed and copied
at the SECs Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call (800)
732-0330 for further
information on the Public Reference Room. The Companys website, at
http://www.portfoliorecovery.com, also provides additional information about the Company, including
documents that have been filed with the SEC. Printable versions of committee charters and other
governance documents can be found on the Corporate Governance section of the Companys website.
Please note that the information contained on the website does not constitute a part of this Proxy
Statement.
Costs of Solicitation. The Company will bear the entire cost of this proxy solicitation, including
the preparation, assembly, printing and mailing of this Proxy Statement, the proxy card, the notice
regarding the Internet availability of proxy materials and any additional solicitation materials
sent by the Company to shareholders. The Company may reimburse brokerage firms and other persons
representing beneficial owners of Common Stock for their expenses in forwarding the proxy materials
to such beneficial owners. In
addition, proxies may be solicited by directors, officers and regular employees of the Company,
without additional compensation, personally or by telephone.
47
Annual Report. A copy of this Proxy Statement, the Companys 2010 Annual Report to Shareholders,
its audited consolidated financial statements, together with other related information, are
available on the internet and are being mailed to shareholders who requested printed versions.
Additionally, these materials and the Companys Annual Report on Form 10-K for the year ended
December 31, 2010, as filed with the SEC, and all financial statements or schedules required to be
filed with the SEC pursuant to Rule 13a-1 may be obtained from the Investor Relations page of our
website at www.portfoliorecovery.com, or by request directed to the Corporate Secretary at the
Companys headquarters, at 120 Corporate Blvd., Norfolk, VA
23502. A copy of the Companys Annual Report on Form 10-K, and other periodic filings also may be
obtained from the SECs EDGAR database at www.sec.gov.
Electronic Delivery of Proxy Materials and Annual Report. Instead of receiving paper copies of
Proxy Statements and Annual Reports in the mail, shareholders may elect to access their proxy
materials online at the Companys website. The Company encourages all shareholders to make the
election to obtain their proxy materials online in order to save the Company the cost of producing
and mailing these documents, reduce the amount of shareholder mail and help preserve environmental
resources.
This Proxy Statement is dated as of April 27, 2011. You should not assume that the information
contained in this Proxy Statement is accurate as of any date other than the date of this Proxy
Statement. The furnishing of this Proxy Statement to shareholders shall not create any implication
to the contrary.
By the Order of the Board of Directors.
Judith S. Scott
Secretary
Norfolk, Virginia
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Important Notice Regarding the Availability of Proxy Materials for the Annual
Meeting of Shareholders to be held June 10, 2011.
This
proxy statement and our 2010 Annual Report to Shareholders are
available at
http://www.cstproxy.com/portfoliorecovery/2011
6 FOLD AND DETACH HERE AND READ THE REVERSE SIDE 6
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If this Proxy is executed but no instruction is given, the votes entitled to be cast by the
undersigned will be cast FOR each of the nominees for Director, FOR proposals 2, 3, and 5
and for 1 YEAR on proposal 4.
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Please
mark your votes like this |
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The Board of Directors recommends a vote FOR the election of the directors listed
below.
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NOMINEES: |
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(01) James M. Voss
(02) Scott M. Tabakin |
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FOR all Nominees listed
to the left
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WITHHOLD AUTHORITY
to vote for the
nominees listed
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(Instruction: To withhold authority to vote for any individual nominee,
strike a line through that nominees name in the list above)
When this Proxy is properly executed, the shares to which it relates will be voted in the manner
directed herein.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING
I plan to attend the Annual Meeting in person o
The
Board of Directors recommends a vote FOR
proposals 2, 3, and 5 and for 1 YEAR on proposal 4.
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Approve an amendment to the Companys Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Companys Common Stock; |
o FOR o AGAINST o ABSTAIN
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Approve, on a non-binding advisory basis, the Companys 2011 executive compensation; |
o FOR o AGAINST o ABSTAIN
4. |
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Approve, on a non-binding advisory basis, the frequency of future shareholders votes on executive compensation; |
o 1 YEAR o 2 YEARS o 3 YEARS o ABSTAIN
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Ratification of the appointment of KPMG LLP as the Companys Independent
Registered Public Accounting Firm for the year ending December 31, 2011; and |
o FOR o AGAINST o ABSTAIN
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Transact such other business as may properly come before the meeting or any adjournments or
postponements thereof. |
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COMPANY ID: |
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PROXY NUMBER: |
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Signature
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Signature
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Date
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, 2011 |
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Note: Please sign exactly as name appears hereon. Joint owners should each sign. When signing
as attorney, executor, administrator or guardian, please give full title as such. The signer
hereby revokes all proxies heretofore given by the signer to vote at said meeting or any
adjournments thereof. By signing this proxy card, you acknowledge receipt of the Proxy Statement
and the Notice of Annual Meeting of Shareholders to be held on June 10, 2011.
THIS ADMISSION TICKET IS REQUIRED FOR ADMITTANCE TO THE
PORTFOLIO RECOVERY ASSOCIATES, INC.
Annual Meeting of Shareholders to be held June 10, 2011
For Holders of Record as of April 12, 2011
EACH
SHAREHOLDER MAY BE ASKED TO PRESENT VALID PICTURE IDENTIFICATION,
SUCH AS
DRIVERS LICENSE OR EMPLOYEE IDENTIFICATION BADGE, IN ADDITION TO THIS ADMISSION TICKET.
6
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
6
Proxy Card
PORTFOLIO
RECOVERY ASSOCIATES, INC.
Proxy Solicited by the Board of Directors
For Annual Meeting of Shareholders to be held June 10, 2011
For Holders of Record as of April 12, 2011
The undersigned hereby appoints the proxies selected by the Companys Board of
Directors, with the powers the undersigned would possess if personally present, and
with full power of substitution, to vote at the Annual Meeting of Shareholders
of PORTFOLIO RECOVERY ASSOCIATES, INC. to be held at Noon on June 10, 2011, and at any
adjournments thereof, on the following proposals.
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE. Your shares cannot be voted unless you sign, date and return
this card, or vote your shares by using either of the means described on the reverse
side.
The proxies are authorized to vote in their discretion with respect to other
matters that may properly come before the Annual Meeting or any
adjournment thereof. As of April 27, 2011
(the approximate date of this mailing), Portfolio Recovery Associates, Inc. does not know
of any such other matters to be presented at the Annual Meeting.
SEE REVERSE SIDE