KBR - DEF 14A

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

SCHEDULE 14A

 

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KBR, INC.

 

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Notice
of Annual Meeting of
Stockholders

 

 

You are cordially invited to attend KBR’s annual stockholders’ meeting. Below is important information about the meeting, including how you can let your voice be heard through voting. Please review our Proxy, Annual Report and Sustainability Report at the websites noted below and read the voting Q&A on page 79.

By Order of the Board of Directors, April 2, 2018

 

Adam Kramer
Secretary

DATE AND TIME: Wednesday, May 16, 2018, 9:00 a.m. Central Daylight Time

LOCATION: The Texas Room, 601 Jefferson Street, Houston, Texas 77002

AGENDA

The Board of Directors asks that you consider and act upon the following matters:

1.

Elect as directors the nominees named in the attached proxy statement.

2.

Ratify the appointment of KPMG LLP as the independent registered public accounting firm to audit the consolidated financial statements for KBR as of and for the year ending December 31, 2018.

3.

Consider and act upon an advisory vote to approve the named executive officer compensation as described in the Compensation Discussion and Analysis herein.

4.

Approve the first amendment to the KBR, Inc. 2009 Employee Stock Purchase Plan, as amended and restated.

5.

Transact any other business that properly comes before the meeting or any adjournment or postponements of the meeting.

These items are fully described in the following pages, which are made a part of this Notice.

RECORD DATE

The Board of Directors has set Thursday, March 22, 2018, at the close of business, as the record date for the determination of stockholders entitled to notice of and to vote at the meeting and at any adjournment or postponement of the meeting.

HOW TO VOTE

SHAREOWNER OF RECORD
(Shares held directly with KBR)
  BENEFICIAL OWNERS
(Shares held through a broker or bank)
  Via the Internet
at www.proxyvote.com
  Via the Internet at www.proxyvote.com, if your broker or bank participates in the proxy voting program provided by Broadridge Investor Communication Services  
Call toll-free (US/ Canada)
at 1-800-690-6903
  Call toll-free (US/ Canada) at 1-800-690-6903, if your broker or bank participates in the proxy voting program provided by Broadridge Investor Communication Services  
Mail your signed proxy card   Mail your signed voting instruction form  

 

 

 
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Table of Contents

 

PROXY SUMMARY

7

PROXY STATEMENT

15

GENERAL INFORMATION

15

ELECTION OF DIRECTORS

16

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

23

EXECUTIVE OFFICERS

24

CORPORATE GOVERNANCE

27

COMPENSATION DISCUSSION AND ANALYSIS

35

COMPENSATION COMMITTEE REPORT

53

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

53

EXECUTIVE COMPENSATION

55

DIRECTOR COMPENSATION

67

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

69

RELATED PERSON POLICIES

69

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

69

AUDIT COMMITTEE REPORT

70

PRINCIPAL ACCOUNTANT FEES AND SERVICES

73

73

74

75

QUESTIONS AND ANSWERS ABOUT VOTING

79

ADDITIONAL INFORMATION

81

OTHER MATTERS

81

ADDITIONAL INFORMATION AVAILABLE

81

APPENDIX A

83

APPENDIX B

84

 

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Proxy Summary

This summary highlights information contained elsewhere in this proxy statement. For more information about these topics, we encourage you to review the complete proxy statement prior to voting.

 

 

 

GOVERNANCE HIGHLIGHTS

 

We are committed to good corporate governance and to transparent communication with our stockholders and other stakeholders, which we believe is essential for the effectiveness of a dynamic corporate governance framework and for KBR’s long-term success.

 

PROACTIVE   ACCOUNTABLE   INDEPENDENT

   Independent Chairman of the Board

   Refreshed Board – recruited 3 directors and 2 directors retired over the past 3 years

   Significant knowledge of KBR’s industry and market including government services

   Rotation of 50% of all Board committee memberships and chairmen over the past 3 years

 

   Annual director elections with majority voting standards

   Annual Board governance review including investor reviews and feedback

   Periodic independent director meetings with investors

   Downward discretion applied to the: (a) safety performance metrics of the 2016 and 2017 short-term incentive plans and (b) payout of the 2014 long-term incentive performance cash award with the performance period ending in 2016, resulting in a zero payout

 

   6 executive sessions without management present

   Minimum of annual Board visits to KBR businesses or project sites

   22 independent Board committee meetings

   Annual assessment of Board leadership structure

 

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BUSINESS HIGHLIGHTS

 

Consistent Earnings Momentum Positions KBR for Long-Term Growth

KBR delivered strong results across all segments due to our focus on our customers and winning the right work while delivering smart, innovative and dependable results. In a challenging operating environment, we committed to staying the course and as a result we met or exceeded every financial goal set in our 2017 short-term incentive (“STI”) plan. We delivered on the strategy that our Chief Executive Officer (“CEO”) provided to our stockholders and positioned KBR for strong long-term growth with less risk and increased financial flexibility. Our drive and commitment to achieve Zero Harm in all KBR activities across the globe resulted in a remarkable decrease in our incident rate and Zero Harm Days in 2017 versus 2016.

KBR’s strong results reflect the progress we made in advancing our most important strategic priorities outlined below:

 

WINNING THE RIGHT WORK

We were awarded several key contracts:

   In Government Services providing support to Navy bases in Diego Garcia, Djibouti, Bahrain, Europe and the Arabian Peninsula.

   An engineering services five-year indefinite-delivery / indefinite-quantity contract to support more than 20 NASA exploration missions.

   A contract to provide licensing and basic engineering to revamp an ammonia plant- originally built by KBR- located in Russia.

   A guidance study contract for the Integrity Management Process of Tension Leg Platforms in the U.S. Gulf of Mexico.

   An EPC contract at the major gas developments in Algeria.

   A project management services contract for management of the FEED phase of one of the largest sour gas field projects in Abu Dhabi.

 

INTEGRATE AND GROW BUSINESSES

   The acquisitions of Wyle, Inc. (“Wyle”) and Honeywell Technology Solutions Inc. (“HTSI”) in the third quarter of 2016 (as discussed in Note 3 to our consolidated financial statements), moved KBR’s Government Services business into the highly technical and professional services industry for U.S. clients such as NASA, the Department of Defense and other federal agencies. As a result of these acquisitions, KBR experienced a significant increase in total revenue from contracts with the U.S. government in 2017 compared to 2016.

    During the 4th quarter we acquired Sigma Bravo Pty Ltd, a leading provider of high-end Information and Communication Technology services specializing in mission planning systems and solutions to the Australian Defence Force. The acquisition of Sigma Bravo represents KBR’s entry into classified work in Australia and is a continued element of KBR’s strategy to expand its global Government Services offerings.

    In the first quarter of 2018, we entered into a definitive agreement to purchase Stinger Ghaffarian Technologies, Inc. (“SGT”), a leading provider of technology solutions, engineering services, mission operations, and scientific and IT software solutions in the Government Services market. The addition of SGT solidifies our position as an established leader in human space exploration and opens up significant new opportunities in both civil and military space. The acquisition will also strengthen KBR’s support for strategic clients and enhance our position for opportunities in the national security and commercial space markets. This strategic acquisition of SGT builds on previous acquisitions of Wyle and HTSI and will be an important accelerator to KBR’s strategy to increase technology and mission capabilities.

 

STOCKHOLDER RETURN

   Due to our overall strong 2017 results, our 1-year total stockholder return (“TSR”) was 21%, outpacing 100% of our TSR Peer Group, which comprised (in order of TSR ranking):

 

1.   KBR, Inc.

2.   Jacobs Engineering Group, Inc.

3.   Emcor Group, Inc.

4.   Quanta Services, Inc.

5.   Chiyoda Corporation

6.   AECOM Technology Corporation

7.   Fluor Corporation

8.   TechnipFMC

9.   McDermott International, Inc.

10. Chicago Bridge & Iron Company, N.V.

   

  Our TSR Peer Group is used to determine KBR’s TSR performance ranking among its peers during the performance periods of our KBR Long-Term Performance Cash Awards.

 

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FINANCIAL HIGHLIGHTS

 

 

SIGNIFICANT INCREASE IN NET INCOME

 

      2017 2016
Revenue 2.3% $4,171 MM $4,268 MM
Net Income* 966.7% $442 MM $(51) MM

 

* Excluding net income attributable to non-controlling interests of negative $8 million in 2017 and negative $10 million in 2016.

 

INCREASING STOCKHOLDER RETURN AND SIGNIFICANT IMPROVEMENT OF SAFETY HOURS WORKED

 

 

 

 

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PAY FOR PERFORMANCE PHILOSOPHY

 

In 2017, we continued to focus on executing our strategy implemented in December 2014. Despite challenging global economic conditions in the energy industry, KBR delivered on its targets and took strategic actions to ensure long-term growth with a relatively low-risk profile. The link between pay and Company performance for the past three years is illustrated below and correlates closely with our earnings per share (“EPS”) and TSR over the same time period as indicated in the graphs on the prior page.

Changes made to Compensation Programs in 2017

The Compensation Committee oversees the design and administration of our compensation programs and evaluates this annually to improve the link between pay and Company performance. During the past year, the following changes were made to our compensation programs to improve the link:

Increased STI plan EPS performance metric weighting from 25% to 40%.

Decreased individual Key Performance Indicator (“KPI”) (formerly called Strategic Initiatives) weighting for the STI plan from 45% to 30%.

Added more financially measurable metrics to the KPIs.

Based the CEO’s KPIs for the STI plan solely on earnings before interest, tax, depreciation and amortization (“EBITDA”) targets.

 

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CHARITABLE GIVING – WE CARE ABOUT OUR KBR FAMILY

 

Parts of the United States continue to deal with the aftermath of Hurricane Harvey, which caused historic levels of flooding throughout the Gulf Coast. The Houston area was hit particularly hard, affecting many KBR employees, some of whom lost their vehicles and homes. At KBR, we value our people, and we take our responsibility seriously to support the communities where we live and work. To support our people, KBR donated $500,000 to the KBR Disaster Relief Fund and granted two weeks of paid time off (“PTO”) to approximately 300 affected KBR employees to give them time to start rebuilding their lives. Our employees donated approximately $81,000 and 2,200 hours of PTO to the KBR Disaster Relief Fund to assist their colleagues.

 

 

 

 

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ZERO HARM – A NORM AND NOT AN ANOMALY

 

Since the inception of Zero Harm in 2014, one of our fundamental beliefs is that Zero Harm is achievable. KBR’s safety program incorporates three dynamic components: Zero Harm, 24/7 and Courage to Care. Our regional and business segment leadership hosts at a minimum biweekly teleconferences to discuss incidents and prevention measures, which are shared globally. The outcome of these meetings is presented in the Regional and Global Incident Review Board sessions. The inclusion of safety results in our short-term incentive plan and exercising downward discretion in the payout for any fatality during the year emphasizes the importance of safety for us. On our annual Zero Harm Day employees at all KBR offices and sites globally recognize improvements in our safety performance and reflect on the importance of being an incident free organization with demonstrations of personal and workplace safety practices. Since the Zero Harm program was implemented, safety incidents have declined by 50%, and we are proud to announce that KBR completed the month of February 2018 without a single recordable injury or illness globally. This milestone has been achieved through an all-day, every-day approach at work and at home, which has resulted in a culture of truly caring for not only ourselves but also others in a transparent interdependent work environment.

 

 

 

ASPIRE – INFLUENCING, LEADING AND LEARNING

 

KBR’s ASPIRE group provides our employees with a platform with a mission to cultivate women leaders and promote gender diversity through a collaborative community for the benefit of all employees and KBR. At KBR we value and respect our people and we emphasize development of each person to reach his or her full potential. ASPIRE promotes this behavior through several interactive sessions led by female leadership, brown bag sessions, webinars, networking events, panel discussions and book club sessions. Each event hosts influential leaders from KBR and from the community sharing their perspective on gender diversity and equality. A periodic newsletter with inspirational leadership insights and upcoming events is shared with employees.

 

 

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INVESTOR DAY AT THE NEW YORK STOCK EXCHANGE

 

We rebranded our Government Services business segment as “KBRwyle” and officially shared the news during KBR’s Investor Day event at the New York Stock Exchange (“NYSE”) on May 11, 2017, which also marked the tenth anniversary of our initial public offering on the NYSE. We are proud of our KBRwyle history because, among other accomplishments, we have supported every astronaut who has gone to space with training programs, flight technology and equipment, nutrition and health-tracking, and all the other aspects that keep them alive while in space.

 

 

 

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Proxy Statement

General Information

The accompanying proxy is solicited by the Board of Directors of KBR, Inc. (“KBR,” the “Company,” “we” or “us”). By executing and returning the enclosed proxy or by following the enclosed voting instructions, you authorize the persons named in the proxy to represent you and vote your shares on the matters described in the Notice of Annual Meeting of Stockholders.

Subject to space availability, all stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Admission to the meeting will be on a first-come, first-served basis and no guests will be admitted. Registration will begin at 8:00 a.m. CT, and the meeting will begin at 9:00 a.m CT. Please note that you may be asked to present valid picture identification, such as a driver’s license or passport, when you check in at the registration desk.

If you hold your shares in “street name” (that is, through a broker or other nominee), you are required to bring a copy of a brokerage statement reflecting your stock ownership as of the record date.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the meeting.

If you attend the meeting, you may vote in person. If you are not present, your shares can be voted only if you have followed the instructions for voting via the Internet or by telephone or returned a properly executed proxy, and in these cases, your shares will be voted as you specify. If no specification is made, the shares will be voted in accordance with the recommendations of the Board of Directors. You may revoke the authorization given in your proxy at any time before the shares are voted at the meeting.

The record date for determination of stockholders entitled to vote at the meeting is Thursday, March 22, 2018. KBR’s common stock, par value $0.001, is the only class of capital stock that is outstanding. As of March 22, 2018, there were 140,571,869 shares of common stock outstanding. Each of the outstanding shares of common stock is entitled to one vote on each matter submitted to the stockholders for a vote at the meeting. A complete list of stockholders entitled to vote will be kept at our offices at the address specified below for ten days prior to, and will be available at the meeting.

Votes cast by proxy or in person at the meeting will be counted by the persons appointed by us to act as election inspectors for the meeting. Except as set forth below, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter will be the act of the stockholders. Except as set forth below, shares for which a holder has elected to abstain on a matter will count for purposes of determining the presence of a quorum and will have the effect of a vote against the matter.

Directors are elected by a majority of votes cast (the number of shares voted “for” a candidate must exceed the number of shares voted “against” the candidate). Shares present but not voting on the election of directors will be disregarded, except for quorum purposes, and will have no legal effect.

The election inspectors will treat shares held in street name that cannot be voted by a broker on specific matters in the absence of instructions from the beneficial owner of the shares, known as broker non-vote shares, as shares that are present and entitled to vote for purposes of determining the presence of a quorum. In determining the outcome of any matter for which the broker does not have discretionary authority to vote, however, those shares will not have any effect on that matter. Those shares may be entitled to vote on other matters for which brokers may exercise their own discretion.

The proxy solicitor, the election inspectors, and the tabulators of all proxies, ballots, and voting tabulations that identify stockholders are independent and are not employees of KBR.

This proxy statement, the form of proxy, and voting instructions are being made available to stockholders on or about April 2, 2018, at www.proxyvote.com. You may also request a printed copy of this proxy statement and the form of proxy by any of the following methods: (a) telephone at 1-800-579-1639; (b) Internet at www.proxyvote.com; or (c) e-mail at sendmaterial@proxyvote.com. Our Annual Report to Stockholders, including financial statements, for the fiscal year ended December 31, 2017, is being made available at the same time and by the same methods. The Annual Report is not to be considered as a part of the proxy solicitation material or as having been incorporated by reference.

Our principal executive office is located at 601 Jefferson Street, Suite 3400, Houston, Texas 77002 and our website address is www.kbr.com. Information contained on our website, including information referred to in this proxy statement, is not to be considered as part of the proxy solicitation material and is not incorporated into this proxy statement.

 

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ELECTION OF DIRECTORS

 

At our 2018 Annual Meeting of Stockholders, nine directors are to be elected to hold office until the 2019 Annual Meeting of Stockholders. All directors are elected annually, with each nominee standing for election to a one-year term. The members of our Board of Directors hold office until their successors are elected and qualified or until their earlier resignation or removal. The size of our Board of Directors is currently set at ten members. Mr. Curtiss has elected to retire and is not standing for re-election.

Each nominee has indicated his or her willingness to serve, if elected. If any of the nominees declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election, the proxies may be voted for such substitute nominee as we may designate. We have no reason to believe that any of the nominees will be unable to serve if elected. If a quorum is present, the nominees for director receiving the majority of votes will be elected directors.

OUR BOARD

A top priority of the Board and the Nominating and Corporate Governance Committee is ensuring that the Board of Directors is composed of directors who bring a variety of skills relevant to our business, provide expertise that is useful to KBR and complementary to the background and experience of other Board members, and effectively represent the long-term interests of our stockholders. Below is a summary of our Board of Directors qualifications.

 

 

 

 

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For additional information regarding the qualifications the Nominating and Corporate Governance Committee and the Board consider in the nomination process, see “Corporate Governance — Nominating and Corporate Governance Committee — Qualifications of Directors.”

The Board of Directors recommends that you vote FOR the election of all the director nominees listed below. Properly dated and signed proxies, and proxies properly submitted over the Internet and by telephone, will be so voted unless stockholders specify otherwise.

Directors are elected by a majority of votes cast (the number of shares voted “For” a candidate must exceed the number of shares voted “Against” the candidate). Shares present but not voting on the election of directors will be disregarded, except for quorum purposes, and will have no effect on the election of directors.

The following biographical information is furnished with respect to each of the director nominees for election at the meeting. The information includes age as of March 22, 2018, present position, if any, with KBR, period served as director, and other business experience during at least the past five years.

Nominees for Director – Term Ending 2018

 

Mark E. Baldwin

 

Director since: October 2014

Age: 64

Board Committees: Audit Committee (Chair) and Health, Safety, Security, Environment and Social Responsibility Committee

Other Public Company Boards: Nine Energy Service, Inc. (Audit Chair) and TETRA Technologies, Inc. (Audit Chair)

Key Qualifications and Skills: 

 

 

 

Prior Business Experience

Executive Vice President and Chief Financial Officer of Dresser-Rand Group, Inc.

Executive Vice President, Chief Financial Officer, and Treasurer of Veritas DGC Inc.

Operating Partner at First Reserve Corporation

Executive Vice President and Chief Financial Officer for NextiraOne

Chairman of the Board and Chief Executive Officer for Pentacon Inc.

Variety of finance and operations positions with Keystone International Inc., including Treasurer, Chief Financial Officer, and President of the Industrial Valves and Controls Group

Education

B.S. (Mechanical Engineering), Duke University

M.B.A, Tulane University

Graduate of the Stanford Executive Program

 

James R. Blackwell

 

Director since: August 2014

Age: 59

Board Committees: Compensation Committee and Nominating and Corporate Governance Committee

Other Public Company Boards: None

 

Current Memberships: Harbour Energy Ltd. (Director)

Previous Memberships: Center for Strategic and International Studies (“CSIS”) U.S.-Association of Southeast Asian Nations Strategy Commission (Commissioner); CSIS U.S.-China Policy Advisory Roundtable (Member); National Action Council for Minorities in Engineering, Inc. (Director); National Bureau of Asian Research (Director); and Saint Mary’s College of California (Trustee)

Key Qualifications and Skills: 

 

 

 

 

Prior Business Experience

Executive Vice President, Technology and Services for Chevron

President, Chevron Asia Pacific Exploration and Production Company

Various positions of increasing responsibility following start of career as an offshore roustabout for Gulf Oil

Education

B.S. (Biology and Environmental Technology), University of Southern Mississippi

M.S. (Petroleum Engineering), Tulane University

Graduate of the Columbia Senior Executive Program

 

Finance

Leadership

Risk Management

Industry / Market

Government

Global

 

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Stuart J. B. Bradie

 

President and Chief Executive Officer for KBR, Inc. since: June 2014

Director since: October 2014

Age: 51

Board Committees: None (the CEO may not serve on any committees of the Board)

Other Public Company Boards: None

Key Qualifications and Skills: 

 

 

 

Prior Business Experience

Group Managing Director – Operations and Delivery for WorleyParsons

Managing Director across Europe, Africa, Asia and the Middle East for WorleyParsons

Managing Director for PT Kvaerner Indonesia

Country Manager for Kvaerner Philippines

Global experience across over 40 countries in the hydrocarbons, mining and chemicals, power and infrastructure sectors

Education

B.S. (Mechanical Engineering), Aberdeen University

M.B.A, Edinburgh Business School, Heriot Watt University

 

Loren K. Carroll

 

Chairman of the Board

Director since: April 2007

Age: 74

Other Public Company Boards: None

Previous Memberships: CGG (Audit) and Forest Oil Corporation (NCG Chair and Compensation)

 

Key Qualifications and Skills: 

 

 

 

Prior Business Experience

Independent Consultant and Business Advisor (current)

President and Chief Executive Officer of M-I SWACO

Executive Vice President and Chief Financial Officer of Smith International, Inc.

Managing Partner with Arthur Andersen & Co.

Education

B.S. (Accounting), California State University

 

Umberto della Sala

 

Director since: January 2015

Age: 69

Board Committees: Compensation Committee and Health, Safety, Security, Environment and Social Responsibility Committee

Other Public Company Boards: Trevi Finanziaria Industriale SPA

Current Memberships: Ansaldo Energia SPA (Director); Fondo FSI SGR (Industrial Partner); and Kedrion SPA (Director)

Previous Memberships: Ansaldo Energia SPA (Chairman); Foster Wheeler AG (Director); and Stork Technical Services (Supervisory Board)

Key Qualifications and Skills: 

 

 

 

 

Prior Business Experience

President and Chief Operating Officer for Foster Wheeler AG

Interim Chief Executive Officer for Foster Wheeler AG

Various positions of increasing responsibility following start of career as process engineer of Foster Wheeler’s environmental division

Education

Laurea in Chemical Engineering from Politecnico di Milano

 

Finance

Leadership

Risk Management

Industry / Market

Government

Global

 

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General Lester L. Lyles, USAF (Ret.)

 

Director since: November 2007

Age: 71

Board Committees: Health, Safety, Security, Environment and Social Responsibility Committee (Chair) and Compensation Committee

Other Public Company Boards: General Dynamics Corporation (Audit)

Current Memberships: Battelle Memorial Institute (Director); NASA Advisory Council (Member); and United Services Automobile Association (Chair)

Previous Memberships: Defense Science Board in the Pentagon (Member); International Security Advisory Board at the U.S. Department of State (Member); Precision Castparts Corp. (Director); and President’s Intelligence Advisory Board in the White House (Member)

Key Qualifications and Skills: 

 

 

Prior Business Experience

Independent Consultant (current)

Retired Four-Star General of the U.S. Air Force

Commander of the U.S. Air Force Materiel Command

Vice Chief of Staff of the Headquarters of the U.S. Air Force

Director of the Ballistic Missile Defense Organization

Commander of the Space and Missile Systems Center

Education

B.S. (Mechanical Engineering), Howard University

M.S. (Mechanical and Nuclear Engineering), Air Force Institute of Technology Program, New Mexico State University

Defense Systems Management College, Fort Belvoir, Virginia

Armed Forces Staff College, Norfolk, Virginia

National War College, Fort Lesley J. McNair, Washington, D.C.

National and International Security Management Course at Harvard University

Honorary Doctor of Laws degrees from New Mexico State University and Urbana University

Inducted into the National Academy of Engineering

 

General Wendy M. Masiello, USAF (Ret.)

 

Director since: August 2017

Age: 59

Board Committees: Audit Committee and Health, Safety, Security, Environment and Social Responsibility Committee

Other Public Company Boards: None

Current Memberships: National Contract Management Association (Board of Advisors) and Public Spend Forum (Board of Advisors)

Key Qualifications and Skills: 

 

 

Prior Business Experience

Independent Consultant (current)

Retired Three-Star General of the U.S. Air Force

Director of the Defense Contract Management Agency

Deputy Assistant Secretary (Contracting), Office of the Assistant Secretary of the Air Force for Acquisition

Program Executive Officer for the Air Force’s $30 billion Service Acquisition portfolio

Deployment to Iraq to lead contracting support for military forces in Iraq and Afghanistan

Education

B.B.A. (Marketing), Texas Tech University

M.S. (Logistics Management), Air Force Institute of Technology

Defense Systems Management College, Fort Belvoir, Virginia

M.S. (National Resource Strategy), Industrial College of the Armed Forces, Fort Lesley J. McNair, Washington, D.C.

Senior Acquisition Course, Industrial College of the Armed Forces, Fort Lesley J. McNair, Washington, D.C.

Joint and Combined Warfighting School, Joint Forces Staff College, Norfolk, Virginia

Harvard Kennedy School’s Senior Managers in Government

 

Finance

Leadership

Risk Management

Industry / Market

Government

Global

 

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Jack B. Moore

 

Director since: January 2012

Age: 64

Board Committees: Compensation Committee (Chair) and Nominating and Corporate Governance Committee

Other Public Company Boards: Occidental Petroleum Corporation; ProPetro Holding Corp.; and Rowan Companies plc

Current Memberships: MAM (Director); United Way of Greater Houston (Executive Committee); and University of Houston System Board of Regents (Member)

Previous Memberships: American Petroleum Institute (Director); Cameron International Corporation (Chair); and University of Houston’s Board of Visitors (Director)

Key Qualifications and Skills: 

 

 

 

Prior Business Experience

President and Chief Executive Officer for Cameron International Corporation

President and Chief Operating Officer for Cameron International Corporation

President, Western Hemisphere of Drilling & Production Systems group for Cameron International Corporation

Vice President and General Manager, Western Hemisphere of Drilling & Production Systems group for Cameron International Corporation

Various management positions at Baker Hughes Incorporated

Education

B.B.A., University of Houston

Graduate of the Advanced Management Program at Harvard Business School

 

Ann D. Pickard

 

Director since: December 2015

Age: 62

Board Committees: Audit Committee and Health, Safety, Security, Environment and Social Responsibility Committee

Other Public Company Boards: Woodside Petroleum Ltd. (Sustainability Chair)

Current Memberships: The University of Wyoming Foundation (Budget/Audit) and Chief Executive Women (Member)

Previous Memberships: Advisory Council of the Eurasia Foundation (Member); Catalyst (Board of Advisors); Global Agenda Council on the Arctic for the World Economic Forum (Member); and Westpac Banking Corporation (Director)

Key Qualifications and Skills: 

 

 

 

Prior Business Experience

Executive Vice President, Arctic for Royal Dutch Shell plc

Executive Vice President, Exploration and Production for Royal Dutch Shell plc

Country Chair, Australia for Royal Dutch Shell plc

Regional Executive Vice President, Sub Saharan Africa for Royal Dutch Shell plc

Director, Global Businesses and Strategy and a member of the Shell Gas & Power Executive Committee for Royal Dutch Shell plc

11-year tenure with Mobil prior to its merger with Exxon

Significant business experience throughout South America, Australia, the countries of the former Soviet Union, the Middle East, and Africa

Education

B.A., University of California San Diego

M.A., University of Pennsylvania

 

Finance

Leadership

Risk Management

Industry / Market

Government

Global

 

  2018  |  PROXY STATEMENT    21   

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The Following Director with a Term Ending in 2018 is Retiring and Elected Not to Stand for Re-Election

 

Jeffrey E. Curtiss

 

Director since: November 2006

Age: 69

Board Committees: Nominating and Corporate Governance Committee (Chair) and Audit

Other Public Company Boards: None

Current Memberships: CFA Society of Houston (President)

Previous Memberships: Houston Chapter of Financial Executives International (Director)

Key Qualifications and Skills: 

 

 

 

Prior Business Experience

Private Investor (current)

Senior Vice President and Chief Financial Officer of Service Corporation International

Senior Vice President and Chief Financial Officer of Browning-Ferris Industries, Inc.

Education

Law degrees from two universities

CPA, Colorado

CFA charterholder

 

Finance

Leadership

Risk Management

Industry / Market

Government

Global

 

  2018  |  PROXY STATEMENT    22   

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Security Ownership of Certain Beneficial Owners and Management

The table below sets forth certain information, as of March 15, 2018, regarding the beneficial ownership of KBR’s common stock by persons known by KBR to beneficially own more than five percent of its outstanding common stock, each director or nominee, each of the named executive officers referenced in the Summary Compensation Table contained in this Proxy Statement, and all directors and executive officers as a group. Information regarding five percent stockholders in the table and footnotes is based on the most recent Statement on Schedule 13G or 13D or amendment thereto filed by each such person with the Securities and Exchange Commission (the “SEC”), except as otherwise known to KBR. To our knowledge, except as otherwise noted in the footnotes to this table or as provided by applicable community property laws, each individual has sole voting and investment power with respect to the shares of common stock listed in the second column below as beneficially owned by the individual.

 

Name and Address of Beneficial Owner(1)

 

Shares of KBR Common Stock Beneficially Owned

Number of Shares

(2) 

Percentage of Class

BlackRock, Inc.(3)

55 East 52nd Street, New York City, New York 10055

 

14,740,863

 

10.5

%

The Vanguard Group(4)

100 Vanguard Boulevard, Malvern, Pennsylvania 19355

 

12,766,260

 

9.11

%

FMR LLC(5)

245 Summer Street, Boston, Massachusetts 02210

 

10,900,979

 

7.771

%

Stuart J. B. Bradie(6)(7)

 

324,056

 

*

 

Brian K. Ferraioli(6)

 

61,209

 

*

 

K. Graham Hill(6)(7)

 

70,714

 

*

 

J. Jay Ibrahim(6)(7)

 

53,892

 

*

 

Farhan Mujib(6)(7)

 

161,033

 

*

 

Mark W. Sopp(6)(7)

 

25,012

 

*

 

Mark E. Baldwin(6)(7)

 

28,329

 

*

 

James R. Blackwell(6)(7)

 

27,740

 

*

 

Loren K. Carroll(6)(7)

 

53,024

 

*

 

Jeffrey E. Curtiss(6)(7)

 

64,190

 

*

 

Umberto della Sala(6)(7)

 

22,551

 

*

 

Lester L. Lyles(6)(7)

 

43,599

 

*

 

Wendy M. Masiello(6)(7)

 

5,587

 

*

 

Jack B. Moore(6)(7)

 

34,043

 

*

 

Ann D. Pickard(6)(7)

 

20,810

 

*

 

All directors and executive officers as a group (19 persons)(6)(7)(8)

 

1,096,372

 

*

 

*

Less than one percent (1%).

(1)

The address of each of the named executive officers and directors is c/o KBR, Inc., 601 Jefferson Street, Suite 3400, Houston, Texas 77002.

(2)

Beneficial ownership means the sole or shared power to vote, or to direct the voting of, shares of KBR common stock, or investment power with respect to KBR common stock, or any combination of the foregoing. Each director and executive officer and the directors and executive officers as a group beneficially own less than 1% of the outstanding shares of KBR common stock.

(3)

Based solely on a Schedule 13G filed January 19, 2018, BlackRock, Inc. is deemed to be the beneficial owner of 14,740,863 shares as a result of being a parent holding company or control person in accordance with §240.13d-1(b)(1)(ii)(G).

(4)

Based solely on a Schedule 13G filed February 9, 2018, The Vanguard Group is deemed to be the beneficial owner of 12,766,260 shares as a result of being an investment adviser in accordance with §240.13d-1(b)(1)(ii)(E).

(5)

Based solely on a Schedule 13G filed March 12, 2018, FMR LLC is deemed to be the beneficial owner of 10,900,979 shares as a result of being a parent holding company in accordance with §240.13d-1(b)(1)(ii)(G).

(6)

Includes the following shares of restricted stock and/or restricted stock units that have vested or will vest on or before May 14, 2018: Mr. Bradie, 200,880; Mr. Ferraioli, 61,209; Mr. Hill, 43,341; Mr. Ibrahim, 31,702; Mr. Mujib, 70,339; Mr. Sopp, 10,012; Mr. Baldwin, 28,329; Mr. Blackwell, 27,740; Mr. Carroll, 53,024; Mr. Curtiss, 64,190; Mr. della Sala, 22,551; General Lyles, 43,599 (4,269 of which were deferred into the nonqualified elective deferral plan for non-executive directors); General Masiello, 5,587; Mr. Moore, 34,043; Ms. Pickard, 20,810; and all executive officers as a group, 215,471. Includes the following shares that may be acquired upon the exercise of options that are exercisable or will become exercisable on or before May 14, 2018: Mr. Bradie, 123,176; Mr. Hill, 27,373; Mr. Ibrahim, 22,190; Mr. Mujib, 90,694; and all executive officers as a group, 241,972. Includes 15,000 shares of common stock purchased by Mr. Sopp on March 7, 2017, and March 8, 2017.

(7)

Does not include the following shares of restricted stock units as to which the holder has no voting power and no investment power, but which convert to common stock on a 1-to-1 ratio upon vesting, which for some restricted stock units requires that certain performance measures be met: Mr. Bradie, 289,392; Mr. Ibrahim, 36,683; Mr. Mujib, 61,733; Mr. Sopp, 49,398; and all executive officers and directors as a group, 705,480.

(8)

All directors and executive officers as a group refers to the current 10 directors (General Masiello, Ms. Pickard, and Messrs. Baldwin, Blackwell, Bradie, Carroll, Curtiss, della Sala, Lyles, and Moore) and the current 9 executive officers, excluding Mr. Bradie (Ms. Akerson and Messrs. Bright, Carney, Conlon, Derbyshire, Ibrahim, Mackey, Mujib, and Sopp).

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Executive Officers

The following biographical information is furnished with respect to each of KBR’s executive officers. The information includes age as of March 22, 2018, present position, KBR employment history, and other business experience.

 

Eileen G. Akerson

 

Executive Vice President and General Counsel

Current Position since: November 2014

Joined KBR in: 1999

Age: 52

 

 

Prior Business Experience

KBR Senior Vice President, Commercial responsible for project commercial management and oversight of the review and approval process for significant transactions and joint venture relationships

KBR Vice President – Legal & Chief Counsel responsible for managing the legal functions for the Hydrocarbons Business Group

KBR advisor and counselor to senior management on company policies affecting ethics and compliance matters

Attorney for Spriggs & Hollingsworth in Washington D.C.

Education

B.A., Catholic University of America

J.D., Catholic University of America Columbus School of Law

Member of the bars of Texas, Connecticut and the District of Columbia

 

W. Byron Bright, Jr.

 

President, KBRwyle

Current Position since: May 2017

Joined KBR in: 2010

Age: 44

 

 

Prior Business Experience

KBR Senior Vice President of Operations for U.S. Government Services

KBR Vice President of Business Development for U.S. Government Services

Supported the government services business at Jacobs Engineering Group Inc.

Officer in the U.S. Air Force primarily working in the Developmental Test and Engineering career field supporting weapons development and rotary wing aircraft flight testing

Education

B.S. (Engineering and Mechanics), distinguished graduate, U.S. Airforce Academy

M.S. (Mechanical Engineering), Georgia Institute of Technology

Graduated from the U.S. Air Force Test Pilot School and has flown in over 25 different aircraft as a Flight Test Engineer

 

Raymond L. Carney

 

Vice President and Chief Accounting Officer

Current Position since: May 2017

Joined KBR in: 2017

Age: 50

 

 

Prior Business Experience

Chief Accounting Officer and Vice President of Exterran Corporation

Chief Accounting Officer, Vice President and Controller of Dresser-Rand Group Inc.

Group Controller for Global Rolled Products, Hard Alloy Extrusions and Asia of Alcoa Inc.

Manager of Financial Transactions of Alcoa Inc.

Various leadership positions at EY responsible for client projects including public filings, acquisitions and audit engagements

Education

B.S. (Accounting), Pennsylvania State University

Certified Public Accountant

 

Gregory S. Conlon

 

Executive Vice President and Chief Development Officer

Current Position since: February 2018

Joined KBR in: 2016

Age: 49

 

 

Prior Business Experience

KBR President, Asia-Pacific (“APAC”) responsible for Engineering & Construction (“E&C”) and Government Services (“GS”) in this region

KBR President, E&C APAC

Executive Vice President leading business development globally for the WorleyParsons Services business line, the largest business within WorleyParsons

Mr. Conlon has over 25 years of experience in the E&C business, with global experience across a range of subsectors from hydrocarbons to specialist infrastructure.

Throughout his career, Mr. Conlon pursued challenging project execution and management opportunities in the energy and resources sector and held positions in Australia, Canada, China, Indonesia, Singapore, Thailand, and the United Kingdom.

Education

B.S. (Mechanical Engineering), Royal Melbourne Institute of Technology

 

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John T. Derbyshire

 

President, Technology & Consulting

Current Position since: May 2011

Joined KBR in: 2008

Age: 67

 

 

Prior Business Experience

KBR President, Technology responsible for KBR’s global technology licensing business, delivering technology, proprietary equipment, engineering, and consulting services to the refining, petrochemical, coal monetization, and synthesis gas segments

KBR Senior Vice President, Commercial Management for the Technology Business Unit

Vice President and General Manager of Invensys Process Systems global solutions business

Various executive leadership roles at Aspen Technology

Vice President, Sales and Marketing at ABB Process Automation

Education

B.S. (Chemical Engineering), University of Salford in the United Kingdom

 

J. Jay Ibrahim

 

President, Europe, Middle East and Africa and Asia-Pacific

Current Position since: February 2018

Joined KBR in: 2015

Age: 57

 

 

Prior Business Experience

KBR President, Europe, Middle East and Africa (“EMEA”) responsible for E&C and GS in this region

KBR President, E&C EMEA

Mr. Ibrahim has over 22 years of E&C and GS experience across the globe, having served in a variety of engineering, project management, business development, and business management roles for Parsons E&C/WorleyParsons.

Mr. Ibrahim brings to KBR a wealth of senior project and construction management experience within the hydrocarbon, infrastructure, and government services sectors as well as broad experience in complex contract negotiations, business analysis, and long-range strategic planning in both domestic and international markets.

Education

B.S. (Mechanical Engineering), Wichita State University

M.S. (Mechanical Engineering), Wichita State University

Diploma in Advanced Management, Harvard University

 

Ian J. Mackey

 

Executive Vice President, Chief Corporate Officer

Current Position since: January 2016

Joined KBR in: 2015

Age: 52

 

 

Prior Business Experience

KBR Executive Vice President, Global Human Resources

Global People Director at WorleyParsons Services where he was responsible for the overall strategy and delivery of all human resources activities for the company

Director of Human Resources at Carillion PLC

Education

Ashridge Management College – Tarmac Executive Programme

Carillion Accelerated Leadership Programme – Corporate Top 20 Development Programme

 

Farhan Mujib

 

President, E&C Americas

Current Position since: October 2016

Joined KBR in: 1988

Age: 54

 

 

Prior Business Experience

KBR Executive Vice President, Commercial

KBR Executive Vice President, Operations

During his 30-year career with KBR, Mr. Mujib has worked in Africa, Australia, Asia, Europe, the Americas, and the Middle East, employing his in-depth knowledge of international project requirements, cultural sensitivities, and business practices to manage a number of major developments.

Education

B.S. (Civil Engineering), University of Engineering and Technology in Lahore, Pakistan

Master of Engineering from the Asian Institute of Technology in Bangkok, Thailand

M.B.A., Macquarie University in Sydney, Australia

Fellow, Institution of Engineers, Australia

Chartered Professional Engineer

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Mark W. Sopp

 

Executive Vice President and Chief Financial Officer

Current Position since: February 2017

Joined KBR in: 2017

Age: 52

 

 

Prior Business Experience

Chief Financial Officer and Executive Vice President for Leidos Holdings, Inc., previously Science Applications International Corporation, one of the largest publicly-traded government contractors in the U.S. with significant technically-focused commercial professional services operations, including serving energy markets

Various executive positions with Titan Corporation, also involved in government contracting and commercial business areas

Education

B.S. (Accounting), New Mexico State University

Completed the Executive Program at UCLA Anderson School

 

 

  2018  |  PROXY STATEMENT    26   

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Corporate Governance

CORPORATE GOVERNANCE MATERIALS

We are committed to good corporate governance and to effective communication with our stockholders. The roles, duties and responsibilities of the Board of Directors and each committee of the Board of Directors are summarized below. To ensure that our stockholders have access to our governing documents, we provide copies of our Code of Business Conduct and Corporate Governance Guidelines and the charters of each of the committees of our Board of Directors on our website at www.kbr.com. Copies will be provided to any stockholder who requests them by writing to our Investor Relations Department at: 601 Jefferson Street, Suite 3400, Houston, Texas 77002.

ROLE OF THE BOARD OF DIRECTORS

The Board of Directors represents the interests of our stockholders in perpetuating a successful business. It is the responsibility of the Board of Directors to provide oversight of the effectiveness of management’s policies and decisions, including the execution of its strategies, with a commitment to enhancing stockholder value over the long term. To this end, Board members are expected to act in the best interests of all stockholders, be knowledgeable about our businesses, exercise informed and independent judgment and maintain an understanding of general economic trends and conditions as well as trends in corporate governance. In addition, it is our Board’s policy that Board members are expected to make every effort to attend the meetings of the Board and committees of the Board upon which they serve, as well as stockholder meetings. All of KBR’s directors attended greater than 75% of the aggregate of all meetings of the Board and of committees on which they served during the periods that they served during 2017.

Our Corporate Governance Guidelines provide that all Directors should attend our annual stockholder meetings, and all of our directors attended (in person or via teleconference) our 2017 Annual Meeting of Stockholders.

INDEPENDENCE STANDARDS

At this time, all of our directors are independent, as set forth in our Corporate Governance Guidelines and outlined below, except our President and Chief Executive Officer, Mr. Bradie, who does not qualify as an independent director.

A director will be considered independent under our Corporate Governance Guidelines if he or she:

has no material relationship with KBR;

has not been employed by us or any affiliate of ours during the preceding three years, and no member of the director’s immediate family has been employed as an executive officer of ours or any of our affiliates during the preceding three years;

has not received, and does not have an immediate family member who has received, during any twelve-month period within the preceding three years, more than $100,000 in direct compensation from KBR, other than director’s fees, committee fees or pension or deferred compensation for prior service;

is not a partner or an employee of KBR’s independent auditor, and was not during the past three calendar years a partner or employee of KBR’s independent auditor who personally worked on KBR’s audit;

does not have an immediate family member who is a partner of KBR’s independent auditor or an employee of KBR’s independent auditor who participates in that firm’s audit, assurance or tax compliance (but not tax planning) practice or was during the past three calendar years a partner or employee of KBR’s independent auditor who personally worked on KBR’s audit;

is not a current employee and does not have an immediate family member who is a current executive officer of any company that has made payments to, or received payments from, KBR or any of its affiliates in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; and

has not (and has not had a family member who) within the preceding three years served as an executive officer with a company for which a KBR executive served on its compensation committee.

The definition of independence and compliance with this policy will be reviewed periodically by the Nominating and Corporate Governance Committee. All directors complete independence questionnaires at least annually, and our Board makes determinations of the independence of its members under the listing standards of the NYSE and the SEC requirements for Audit Committee members. Our Board believes that its membership should include no more than two directors who are also employees of KBR. While this number is not an absolute limitation, other than the Chief Executive Officer, who should at all times be a member of the Board, employee directors should be limited only to those officers whose positions or potential make it appropriate for them to sit on the Board.

 

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BOARD OF DIRECTORS LEADERSHIP STRUCTURE

Since March 31, 2014, Mr. Carroll, the Company’s former Lead Director, began serving as non-executive Chairman of the Board. Our non-executive Chairman leads the Board. Mr. Carroll has significant board experience, as described in his biographical information in this proxy statement, and works closely with Mr. Bradie and the Board on risk oversight and governance matters. Prior to being non-executive Chairman of the Board, Mr. Carroll served as the Company’s Lead Director, as well as Chairman of the Nominating and Corporate Governance Committee, since 2012, and a director since April 2007. Our CEO is responsible to the Board for the overall management and functioning of the Company.

KBR’s Corporate Governance Guidelines provide for the Chairman of the Board, if the Chairman of the Board is independent, to perform a strong role in the leadership of the Board, as follows:

The Chairman of the Board presides at executive sessions of the non-executive directors at each regular Board meeting and sets the agenda for these sessions.

The Chairman of the Board approves meeting agendas for each regular Board and committee meeting and approves the information to be sent to the directors with respect to each meeting.

The Chairman of the Board presides at the executive session of the Board to evaluate the performance of our CEO. In addition, he has a key role in communicating to the CEO, after approval by the Compensation Committee, the evaluation and compensation of the CEO for the next full year and the results of the Board’s review and approval of management succession plans and development programs.

KBR’s Corporate Governance Guidelines provide for the following checks and balances regarding the role of the CEO:

The CEO may not serve on any committees of the Board, as only non-executive directors may do so.

One of the elements of the CEO’s evaluation is the extent to which he keeps the Board informed on matters affecting the Company and its operating units.

At least two-thirds of the Board must be independent directors. In practice, our CEO has been the only executive director at KBR since its inception as an independent public company. Each of our other directors is independent, as defined under the listing standards of the NYSE.

KBR’s Board of Directors has determined that its current leadership structure is appropriate as of the date of this proxy statement, given the complexity and global nature of KBR’s business and the risks inherent in our business. The Board believes that Mr. Carroll, acting in his role as non-executive Chairman, is well positioned to facilitate communications with the Board of Directors and stockholders about our complex business. During Mr. Carroll’s service on the Board, KBR’s business has undergone significant transformation, including reorganization into more strategically-aligned business groups and evolution from a wholly owned subsidiary with significant support from its parent company into an independent operating company.

RISK OVERSIGHT ROLE OF THE BOARD OF DIRECTORS

KBR’s Board of Directors considers risk oversight to be an integral part of its role, and discussions regarding risks faced by the Company are part of its meetings and deliberations throughout the year. As part of the implementation of KBR’s strategic expansion, KBR’s management improved its enterprise risk management system to provide greater executive oversight for managing risks and provided semi-annual reports to the Board regarding significant strategic, operational, financial, and hazard risks determined by management to have a potential significant impact on the Company as a whole. The risk report involves both current and emerging risks and is the culmination of a process involving input from all business groups and executive leadership. Management’s assessment of risk included specific strategic, operational, financial and hazard risks, the perceived trend for each of those specific risks — whether increasing, decreasing or stable — and the measures being taken to monitor and mitigate those risks.

In addition to the enterprise risk management process described above, the Board also engages in risk oversight through the project approval process, whereby projects reaching a threshold level of expected revenues require Board approval. Fixed-price contracts have a lower threshold level than reimbursable-type contracts because of their potential price and financial risks. In reviewing projects, the Board is presented with management’s assessment of a particular project’s cost exposure associated with operations risk, liabilities and funding risks, among others. In this manner, KBR’s Board is engaged in risk oversight at the outset of the largest projects, which could have a material effect on KBR’s operations and financial condition.

The Board also engages in risk oversight through the approval of acquisitions proposed by management where the purchase consideration exceeds a certain threshold. The review conducted by the Board includes presentations by management regarding the strategic fit of the acquired business within the Company’s existing operations and offerings; the commercial, legal, and financial risks identified in the diligence process, among others, and the measures to be implemented by management to mitigate those risks; the valuation analysis and projected returns on investment; agreement terms, including conditions to close, ability to terminate and terms of indemnification protection; details on the planned integration, including budgets and employee resources; and metrics identified for measuring the success of the acquisition. In this process, the Board engages in oversight of the various risks associated with acquiring and integrating new businesses, which, if not successfully performed, could have a material effect on KBR’s operations and financial condition. The Board is also engaged in risk oversight through regular reports from its Audit Committee. The Audit Committee is charged with reviewing with management the Company’s major financial risk exposures, as well as other areas of risk exposure if requested to do so by the Board, and the steps management has taken to monitor and mitigate those exposures. The Audit Committee receives periodic reports from management on these areas of potential exposure, including litigation, liquidity and capital resources, financial reporting and disclosures, regulatory and tax risks, among others. The Audit Committee also receives in-depth periodic reports from management regarding specific processes designed to monitor and manage risk, such as internal controls testing program development and foreign exchange risk management. The Audit Committee also receives periodic reports from management on cyber security measures and assessments

 

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performed on their efficacy. The Audit Committee conducts private sessions with KBR’s Chief Financial Officer, Chief Accounting Officer, Vice President of Internal Audit and General Counsel at each regular meeting and with KBR’s independent auditors at each meeting prior to the release of quarterly and annual results. The Audit Committee Chairman gives a report of the Audit Committee’s activities to the full Board at each regular meeting and in this manner the entire Board is informed of matters that the Audit Committee determines warrant full Board discussion. Additional risk oversight reviews undertaken by the Audit Committee in 2017 are included in the Audit Committee Report on page 70.

Finally, the Health, Safety, Security, Environment and Social Responsibility Committee has the responsibility for the oversight of KBR’s activities in managing its major risk exposures within the health, safety and sustainable development areas. The Health, Safety, Security, Environment and Social Responsibility Committee receives periodic reports from KBR’s Chief HSSE Officer relating to these risk exposures and the Company’s efforts to mitigate those risks.

DIRECTORS’ MEETINGS AND STOCKHOLDER COMMUNICATIONS WITH DIRECTORS

The Board of Directors will meet each year immediately following the Annual Meeting of Stockholders to transact such business as may properly be brought before the meeting. Additional regular meetings of the Board of Directors may be held without notice at such times as the Board of Directors may determine, but shall consist of at least four other regularly scheduled meetings. Special meetings may be called by the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Corporate Secretary or a majority of the directors in office. KBR’s Bylaws permit action to be taken without a meeting if all members of the Board of Directors consent to such action in writing or by electronic transmission. During 2017, the Board of Directors held twelve meetings. The Chairman of the Board presides at all Board meetings.

During each regular Board meeting, KBR’s non-executive directors, all of whom have been determined by our Board to be independent under the standards of our Corporate Governance Guidelines and the NYSE, meet in scheduled executive sessions. Our non-executive Chairman of the Board, Mr. Carroll, presides at all executive sessions of the Board. During 2017, the non-executive directors met without management six times.

In addition, each December our non-executive directors meet in executive session to evaluate the performance of our Chief Executive Officer. In evaluating our CEO, the non-executive directors consider qualitative and quantitative elements of the CEO’s performance, including:

leadership and vision;

integrity;

keeping the Board informed on matters affecting KBR and its operating units;

performance of the business (including such measurements as total stockholder return and achievement of financial objectives and goals);

development and implementation of initiatives to provide long-term economic benefit to KBR;

accomplishment of strategic objectives; and

development of management.

In addition, the non-executive directors annually review management succession plans and development programs for senior members of executive management. The CEO’s performance evaluation and compensation for the next full year, management succession plans, and development programs will be communicated to the CEO only after review and approval by the Compensation Committee and the full Board of Directors (other than the CEO).

MANAGEMENT SUCCESSION PLANNING

The Board of Directors considers management evaluation and CEO succession planning an important responsibility of the Board. Our Corporate Governance Guidelines, which are available on our website at www.kbr.com/About/Corporate-Governance, provide that the Board’s responsibility for effective governance of the corporation includes reviewing succession plans and management development programs for members of executive management. The Board of Directors, with input from the Nominating and Corporate Governance Committee, the Chairman of the Board, and the CEO, regularly reviews KBR’s succession plan and management development programs for all senior management positions. The review process includes identification of internal candidates, any developmental needs for such candidates, and a determination of whether a search for external candidates would be more appropriate.

Issues relating to CEO succession planning are also addressed regularly, and no less than annually, by the entire Board. This process is led by the non-executive Chairman of the Board on behalf of the non-executive directors. While the Nominating and Corporate Governance Committee performs the initial review of the succession plans and makes recommendations to the Board as necessary, the entire Board has primary responsibility for CEO succession planning and develops both long-term and contingency plans for succession of the CEO. This process necessarily involves the development and review of criteria for the CEO position that reflect the Company’s business strategy and identifying and developing internal candidates or identifying the need for external candidates, as appropriate. Additionally, one of the elements that the CEO is evaluated upon each year by the Compensation Committee is the existence and completeness of a succession plan, including assessment and development of internal candidates for the CEO and top level executive positions. The CEO’s evaluation and compensation for the next full year, including an evaluation of the completeness of aspects of the management succession plans and development programs that are the responsibility of the CEO, are communicated to the CEO by the non-executive Chairman of the Board after review and approval by the Compensation Committee and the full Board of Directors (other than the CEO).

 

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THE BOARD OF DIRECTORS AND STANDING COMMITTEES OF DIRECTORS

KBR’s Bylaws authorize the Board of Directors to appoint such committees as they deem advisable, with each committee having the authority to perform the duties as determined by the Board. A substantial portion of the analysis and work of the Board is done by standing Board committees. A director is expected to participate actively in the meetings of each committee to which he or she is appointed. At this time, the Board of Directors has four standing committees to which it has delegated certain duties and responsibilities: the Audit Committee, the Compensation Committee, the Health, Safety, Security, Environment and Social Responsibility Committee, and the Nominating and Corporate Governance Committee. Each of the standing committees is comprised entirely of non-executive directors and, in the business judgment of the Board, independent, directors. The members and chairmen of the respective committees are indicated below:

 

 

Age

Director

Since

Audit

Committee

 

Compensation

Committee

 

Health, Safety, Security,

Environment and Social

Responsibility Committee

Nominating and

Corporate Governance

Committee

Mark E. Baldwin

 

64

2014

  

 

 

 

 

 

James R. Blackwell

 

59

2014

 

 

 

 

 

 

 

Loren K. Carroll

74

2007

 

 

 

 

 

 

 

 

 

Jeffrey E. Curtiss

 

69

2006

 

 

 

 

 

 

 

Umberto della Sala

 

69

2015

 

 

 

 

 

 

Lester L. Lyles

 

71

2007

 

 

 

 

 

 

Wendy M. Masiello

 

59

2017

 

 

 

 

 

 

Jack B. Moore

 

64

2012

 

 

 

 

 

 

 

Ann D. Pickard

 

62

2015

 

 

 

 

 

 

Member

Chairman

Chairman of the Board

Financial Expert

 

The Board of Directors has approved a charter for each of the standing committees, which sets forth the duties and responsibilities delegated to each of the committees by the Board of Directors and governs each of the committee’s actions. The purpose, duties and responsibilities of each committee are briefly described below.

AUDIT COMMITTEE

The Audit Committee currently comprises General Masiello, Ms. Pickard and Messrs. Baldwin and Curtiss. Mr. Baldwin serves as Chairman. The Audit Committee met ten times in 2017.

The Audit Committee reviews and reports to the Board of Directors the scope and results of audits by our principal independent public accountants and our internal auditing staff and reviews with the principal independent public accountants the effectiveness of our system of internal controls. It reviews transactions between us and our directors and officers, our policies regarding those transactions and compliance with our Code of Business Conduct. The Audit Committee also engages our principal independent registered public accounting firm for each fiscal year, reviews the audit and other professional services rendered by our principal independent registered public accounting firm and periodically reviews the independence of our principal independent registered public accounting firm. Additional information about the Audit Committee and its responsibilities is included in the section of this proxy statement entitled “Audit Committee Report” and in the charter of the Audit Committee, which was adopted by the Board of Directors.

AUDIT COMMITTEE FINANCIAL EXPERT DETERMINATIONS

Our Board has determined that each member of its Audit Committee is financially literate and qualifies as an “audit committee financial expert,” as defined in Item 407(d) of Regulation S-K and, as described above, that each member of the Audit Committee is independent, as defined by our Corporate Governance Guidelines, the NYSE’s listing standards and Rule 10A-3 under the Securities Exchange Act of 1934.

 

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COMPENSATION COMMITTEE

The Compensation Committee currently comprises Messrs. Blackwell, della Sala, Lyles and Moore. Mr. Moore serves as Chairman. The Board of Directors has determined that each member of the Compensation Committee is independent as defined in the listing standards of the NYSE. The Compensation Committee met six times during 2017.

The Compensation Committee reviews and recommends to the Board of Directors the compensation and benefits of our executive officers, establishes and reviews general policies relating to our compensation and benefits and administers the compensation plans described in the Compensation Discussion and Analysis in this proxy statement. The Compensation Committee’s responsibilities include, but are not limited to:

evaluating and advising the Board regarding the compensation policies applicable to our executive officers, including guidance regarding the specific relationship of corporate performance to executive compensation;

reviewing and recommending to the Board: the corporate goals and objectives relevant to compensation for the CEO; the CEO’s performance in light of these established goals and objectives; the CEO’s compensation, including salary, bonus, incentive and equity compensation based on this evaluation and considering, with respect to the long-term incentive compensation component of the CEO’s compensation, KBR’s performance and relative stockholder return, the value of similar incentive awards to chief executive officers at comparable companies, the awards given to the CEO in past years and any other factors it deems relevant;

reviewing the CEO’s recommendations with respect to, and approving, the compensation to be paid to KBR’s other executive officers in accordance with the general compensation policies established by the Board;

reviewing and making recommendations to the Board with respect to incentive compensation and other stock-based plans;

assisting the full Board with respect to the administration of KBR’s incentive compensation and other stock-based plans;

maintaining appropriate, regular contact with KBR management;

reviewing and discussing with management the “Compensation Discussion and Analysis” and determining whether to recommend to the Board that it be included in KBR’s annual proxy statement or annual report on Form 10-K;

preparing and publishing, over the names of the members of the Compensation Committee, an annual executive compensation report as required by the SEC to be included in KBR’s annual proxy statement or annual report on Form 10-K;

evaluating its own performance and reviewing the adequacy of its charter, at least annually;

reviewing the risk assessment of KBR’s compensation plans to ensure that the programs do not create risks that are reasonably likely to have a material adverse effect on KBR (in 2017, our Compensation Committee determined that our compensation plans do not create risks that are reasonably likely to have a material adverse effect on KBR);

approving disclosures and making recommendations to the Board regarding the disclosures on KBR’s Advisory Vote To Approve Named Executive Officer Compensation and the Advisory Vote On The Frequency of Advisory Votes To Approve Named Executive Officer Compensation to be included in KBR’s annual proxy statement or annual report on Form 10-K and to disclose on Form 8-K, if required, the frequency in which KBR will hold the Advisory Vote To Approve Named Executive Officer Compensation;

reviewing periodically the compensation paid to non-executive directors (including Board and committee chairpersons) in the form of annual retainers and meeting fees, if any, and making recommendations to the Board regarding any adjustments. In 2017 we performed a compensation review against the benchmark for our directors; and

selecting a compensation consultant or other adviser to the Compensation Committee after considering the factors identified by the SEC (as well as any other factors identified by the NYSE) as affecting the independence of such consultant or adviser, including, but not limited to the following:

the provision of other services to KBR by the employer of the compensation consultant or other adviser;

the amount of fees received from KBR by the employer of the compensation consultant or other adviser, as a percentage of the total revenue of the employer of the compensation consultant or other adviser;

the policies and procedures of the compensation consultant or other adviser that are designed to prevent conflicts of interest;

any business or personal relationship of the compensation consultant or other adviser with a member of the Compensation Committee;

any stock of KBR owned by the compensation consultant or other adviser; and

any business or personal relationship of the compensation consultant or other advisor or the compensation consultant or other advisor’s employer with any of the executive officers of KBR.

 

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HEALTH, SAFETY, SECURITY, ENVIRONMENT AND SOCIAL RESPONSIBILITY COMMITTEE

The Health, Safety, Security, Environment and Social Responsibility Committee currently comprises General Masiello, Ms. Pickard and Messrs. Baldwin, della Sala and Lyles. General Lyles serves as Chairman. The Health, Safety, Security, Environment and Social Responsibility Committee met twice in 2017.

The Health, Safety, Security, Environment and Social Responsibility Committee’s responsibilities include, but are not limited to:

reviewing the status of KBR’s health, safety, security, environmental, and social responsibility policies and performance, including processes to ensure compliance with applicable laws and regulations;

reviewing KBR’s health, safety, security, environmental, and social responsibility performance to determine consistency with policies and goals;

reviewing and providing input to KBR on the management of current and emerging health, safety, security, environmental, and social responsibility issues;

overseeing KBR’s activities in managing its major risk exposures within the health, safety, security, environmental, and social responsibility areas;

reviewing KBR’s political and charitable contributions and social responsibility activities; and

reviewing KBR’s public sustainability report.

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

The Nominating and Corporate Governance Committee currently comprises Messrs. Blackwell, Curtiss and Moore. Mr. Curtiss serves as Chairman. The Board of Directors has determined that each member of the Nominating and Corporate Governance Committee is independent as defined in the listing standards of the NYSE. The Nominating and Corporate Governance Committee met four times during 2017.

The Nominating and Corporate Governance Committee’s responsibilities include, but are not limited to:

developing, implementing and periodically reviewing KBR’s corporate governance guidelines;

developing and implementing a process to assess Board and committee effectiveness;

identifying and evaluating individuals qualified to become Board members, consistent with Board-approved criteria, the listing standards of the NYSE and any other applicable law, regulation or rule;

performing an annual evaluation of our independent directors;

determining the composition of the Board and its committees, including selection of the director nominees for the next annual meeting of stockholders, and changes to the size and composition of the Board or any of its committees; and

reviewing succession plans and management development programs for members of executive management and the CEO and providing regular reports on the progress of the succession planning and management development to the Board.

 

STOCKHOLDER NOMINATIONS OF DIRECTORS

 

Stockholders may suggest candidates for nomination by the Nominating and Corporate Governance Committee by contacting the Committee in the manner provided below under “Contact the Board.” If selected for nomination by the Nominating and Corporate Governance Committee, as described below under “Process for the Selection of New Directors,” such candidate will be included in KBR’s proxy statement for the annual meeting of stockholders.

Nominations by stockholders may also be made at an annual meeting of stockholders in the manner provided in our Bylaws, although such nominees will not necessarily be included in KBR’s proxy statement. The Bylaws provide that a stockholder entitled to vote for the election of directors may make nominations of persons for election to the Board at a meeting of stockholders by complying with required notice procedures. Nominations shall be made pursuant to written notice to our Secretary at the address set forth on page 81 of this proxy statement and must be received at our principal executive offices not less than ninety (90) days, nor more than one hundred twenty (120) days, prior to the anniversary date of the immediately preceding annual meeting of stockholders. The notice shall set forth the information required by our Bylaws, including:

as to each person the stockholder proposes to nominate for election or reelection as a director:

the name, age, business address and residence address of the person;

the principal occupation or employment of the person;

the class and number of shares of KBR common stock that are beneficially owned by the person;

all other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended;

such person’s written consent to serve as a director if elected;

a description of all direct and indirect compensation and other material monetary or other arrangements between the stockholder and such person; and

such person’s completed director’s and officer’s questionnaire and agreement not to enter into certain arrangements; and

as to the stockholder giving the notice:

the name and record address of the stockholder;

 

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the class and number of shares of KBR common stock that are beneficially owned by the stockholder;

a representation that the stockholder intends to appear in person or by proxy at the meeting to propose the nomination;

any hedging or other transactions entered into with the effect or intent to mitigate loss to, or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, the stockholder with respect to KBR’s shares; and

a representation whether the stockholder intends to solicit proxies from the holders of at least the percentage of common stock required to elect the nominee.

The proposed nominee may be required to furnish other information as KBR may reasonably require to determine the eligibility of the proposed nominee to serve as a director. At any meeting of stockholders, the presiding officer may disregard the purported nomination of any person not made in compliance with these procedures.

 

QUALIFICATIONS OF DIRECTORS

 

Candidates nominated for election or re-election to the Board of Directors should possess the following qualifications:

personal characteristics:

highest personal and professional ethics, integrity and values;

an inquiring and independent mind;

practical wisdom and mature judgment;

broad training and experience at the policy-making level in business, government, education or technology;

expertise that is useful to KBR and complementary to the background and experience of other Board members so that an optimum balance of members on the Board can be achieved and maintained;

willingness to devote the required amount of time to carrying out the duties and responsibilities of Board membership;

commitment to serve on the Board for several years to develop knowledge about KBR’s principal operations;

willingness to represent the best interests of all stockholders and objectively appraise management performance; and

involvement only in activities or interests that do not create a conflict with his or her responsibilities to KBR and its stockholders.

The Nominating and Corporate Governance Committee is responsible for assessing the appropriate mix of skills and characteristics required of Board members in the context of the needs of the Board at a given point in time and shall periodically review and update the criteria. Diversity in personal background, race, gender, age and nationality for the Board as a whole may be taken into account in considering individual candidates, but KBR does not have a policy with regard to any particular aspect of diversity of its directors.

 

PROCESS FOR THE SELECTION OF NEW DIRECTORS

 

The Board is responsible for filling vacancies on the Board. The Board has delegated to the Nominating and Corporate Governance Committee the duty of selecting and recommending prospective nominees to the Board for approval. The Nominating and Corporate Governance Committee considers suggestions of candidates for Board membership made by current Committee and Board members, KBR management, and stockholders. Each of the nominees for director at this meeting is an incumbent director recommended by the non-executive directors. The Committee may also retain an independent executive search firm to identify candidates for consideration. The Nominating and Corporate Governance Committee will also consider candidates nominated by the stockholders in accordance with our Bylaws. A stockholder who wishes to recommend a prospective candidate should notify KBR’s Secretary, as described in this proxy statement.

When the Nominating and Corporate Governance Committee identifies a prospective candidate, the Committee determines whether it will carry out a full evaluation of the candidate. This determination is based on the information provided to the Committee by the person recommending the prospective candidate and the Committee’s knowledge of the candidate.

This information may be supplemented by inquiries to the person who made the recommendation or to others. The preliminary determination is based on the need for additional Board members to fill vacancies or to expand the size of the Board and the likelihood that the candidate will meet the Board membership criteria listed above. The Committee will determine, after discussion with the non-executive Chairman of the Board and other Board members, whether a candidate should continue to be considered as a potential nominee. If a candidate warrants additional consideration, the Committee may request an independent executive search firm to gather additional information about the candidate’s background, experience, and reputation and to report its findings to the Committee. The Committee then evaluates the candidate and determines whether to interview the candidate. Such an interview would be carried out by one or more members of the Committee and others as appropriate. Once the evaluation and interview are completed, the Committee recommends to the Board which candidates should be nominated. The Board makes a determination of nominees after review of the recommendation and the Committee’s report.

CODE OF ETHICS

KBR has adopted a “code of ethics,” as defined in Item 406(b) of Regulation S-K. KBR’s code of ethics, known as the Code of Business Conduct, applies to all directors, officers, and employees of KBR, including, but not limited to, its principal executive officer, principal financial officer, principal accounting officer, and controllers, and also applies to all employees of KBR’s agents. KBR has posted its Code of Business Conduct on its website, www.kbr.com. In addition, KBR intends to satisfy the disclosure requirements regarding any amendment to, or waiver from, a provision of the Code of Business Conduct that relates to any element of the definition of code of ethics set forth in Item 406(b) of Regulation S-K, including the requirements of Item 5.05 of Form 8-K, by posting such information on its website, www.kbr.com. The most recent revisions to the Code of Ethics were approved by the Board of Directors in February 2016.

 

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CONTACT THE BOARD

To foster better communication with our stockholders, KBR has established a process for stockholders and other interested parties to communicate with the Audit Committee and the Board of Directors. The process has been approved by our Board and its Audit Committee and is designed to meet the requirements of the NYSE and the SEC. You may communicate with our Board of Directors or the non-executive directors via mail (Board of Directors c/o Director of Business Conduct, KBR, Inc., P.O. Box 3406, Houston, Texas 77253-3406), telephone 1-855-231-7512 (toll-free from the U.S. or Canada) or 1-503-619-1884 (calling collect from any other country)), or e-mail (fhoukbrbod@kbr.com). Information regarding these methods of communication is also on our website, www.kbr.com, under “Corporate Governance.”

Our Director of Business Conduct reviews all communications directed to the Audit Committee and the Board of Directors. The Chairman of the Audit Committee is promptly notified of any significant communication involving accounting, internal controls, auditing matters or any other significant communications. Communications addressed to a named director are promptly sent to the director. Communications directed to the non-executive directors are promptly sent to the non-executive Chairman of the Board. A report summarizing the significant communications is sent to each director quarterly, and copies of communications are available for review by any director, except that those designated for the non-executive directors are not available to executive directors. The process has been approved by both the Audit Committee and the Board and is designed to meet the requirements of the NYSE and the SEC. Concerns may be reported anonymously or confidentially.

 

 

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Compensation Discussion and Analysis

EXECUTIVE SUMMARY

 

NAMED EXECUTIVE OFFICERS

 

This Compensation Discussion and Analysis provides a detailed description of our compensation philosophy, objectives, policies, and practices in place during 2017, and explains the factors considered by the Compensation Committee of our Board of Directors (our “Compensation Committee” or the “Committee”) in making compensation decisions during 2017. This Compensation Discussion and Analysis focuses on the compensation of our Named Executive Officers or “NEOs” for 2017, namely:

Name

Title

Stuart Bradie

President and Chief Executive Officer

Mark Sopp (February 28, 2017 - Present)

Executive Vice President and Chief Financial Officer

Brian Ferraioli (through February 28, 2017)

Executive Vice President and Chief Financial Officer

Farhan Mujib

President, E&C Americas

Graham Hill (retired February 28, 2018)

Executive Vice President, Global Business Development & Strategy

Jay Ibrahim

President, EMEA and APAC


These NEOs, together with the other members of our Senior Executive Management whose compensation is determined by our Compensation Committee and our Board of Directors, are referred to as our “Senior Executive Management.”

 

FINANCIAL AND PERFORMANCE HIGHLIGHTS

 

Performance Highlights

In 2017, KBR achieved strong financial results throughout all business segments. Our success in 2017 can be directly attributed to our commitment to staying the course through the continued challenges in the energy industry and natural disasters, like Hurricane Harvey, that affected our business around the world. The Wyle and HTSI acquisitions in the third quarter of 2016 moved KBR's GS business into the highly technical and professional services industry for U.S. clients such as NASA, the Department of Defense and other federal agencies. As a result of these acquisitions, KBR experienced a significant increase in total revenues from contracts with the U.S. government in 2017 as compared to 2016.

In certain hydrocarbon markets we continued to see opportunities, including midstream gas projects such as LNG to satisfy future demand, particularly at locations where major supporting infrastructure already exists (i.e., near existing gas pipelines and electric power grids, port facilities, etc.). Throughout the year we sought to collaborate with our customers in developing these prospects by using integrated teams, from project conceptualization and technical solutions selection through project award and implementation.

2017 was a strong year due to our strategic decisions and performance, which were beyond expectation. Our CEO's focused leadership in a tough economic climate ensured that we persevered with the strategy he implemented in December 2014. Due to our CEO's vision and leadership, we have reached a balanced portfolio of global professional services, program delivery and technologies across the government services and hydrocarbons markets, offering greater stability and predictability, which are reflected in the strong results in 2017. Our efforts, vision and leading enthusiasm were the driving factors behind KBR being well positioned for long-term growth and increased financial stability.

Below are the milestones we achieved in 2017:

Our financial results were significantly improved from 2016 due in part to better execution on the remaining legacy fixed price Engineering, Procurement, and Construction (“EPC”) projects that carried into 2017. We have substantially completed the last domestic EPC power project in our non-strategic business segment. This represents the final step in exiting the execution phase of this segment. KBR has also made substantial progress in completing a downstream fixed price EPC project which is tracking for completion during 2018. The above projects incurred charges for loss reserves in late 2016 that have proven to be sufficient throughout 2017.

Consistent with our strategy to expand our government services market, the KBRwyle business had noticeable revenue synergy wins in the year. The most impactful win was the Diego Garcia opportunity in which KBR lost previously, but combined with the past practices of KBRwyle, we were able to secure the contract.

Our Technology & Consulting (“T&C”) segment has grown backlog and earnings in the year. In particular, the downstream markets for T&C continued to be robust, with olefins and ammonia displaying sustained growth during the year. While our E&C markets continue to be impacted by reduced capital spend, we have remained selective in determining the EPC prospects we pursue. The greater percentage of reimbursable/services mix in our backlog has allowed us to be disciplined in the pursuit of EPC projects in the hydrocarbons markets that are economically attractive to KBR.

 

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SIGNIFICANT INCREASE IN NET INCOME

 

      2017 2016
Revenue 2.3% $4,171 MM $4,268 MM
Net Income* 966.7% $442 MM $(51) MM

 

* Excluding net income attributable to non-controlling interests of negative $8 million in 2017 and negative $10 million in 2016.

 

The decrease in consolidated revenues in 2017 was primarily driven by the completion or substantial completion of several projects within our E&C and Non-strategic Business segments. These decreases were offset by an increase in revenues within our GS segment driven by an increase in revenues of $741 million associated with the Wyle and HTSI acquisitions in 2016 and continued expansion under existing U.S. government contracts.

The increase in consolidated net income in 2017 was primarily due to additional gross profit related to the Wyle and HTSI acquisitions in our GS segment that occurred in 2016, the favorable settlement of PEMEX litigation which resulted in a $35 million increase to gross profit in our E&C segment, the non-recurrence of unfavorable changes in estimates on E&C projects and the non-recurrence of loss provisions related to a project in our Non-strategic Business segment. These increases were partially offset by the completion or near completion of projects discussed above and the non-recurrence of a $64 million settlement on closeout of an LNG project in Africa during 2016.

Lastly, we successfully resolved a long standing dispute with PEMEX. This had a material impact to both our earnings and operating cash flow. The proceeds allowed for the buy-back of shares, reduction of debt and funding the working capital needs of the legacy projects that carried into 2017.

Pay for Performance in 2017

2017 was a year of momentum in which we experienced the positive results of our hard work since implementing our strategy in December 2014. The strong course and strategic decisions translated into higher than expected EPS in 2017 and a higher one-year relative TSR. We met or exceeded every financial goal we set in our 2017 Short-Term Incentive (“STI”) Plan. Our three-year TSR from January 1, 2015 to December 31, 2017 was close to the median of our TSR Peer Group, resulting in a payout in 2018 of the KBR Long-Term Performance Cash Awards (“PAs”) granted in 2015, after not paying out the 2012 and 2013 PAs in 2015 and 2016, respectively, due to non-satisfaction of applicable performance goals, and after not paying out the 2014 PAs in 2017 due to a downward adjustment by our Compensation Committee.

As a result, our CEO’s compensation in 2017 exceeded previous years, which is appropriately linked to Company performance in 2017. To further demonstrate the link between pay and performance, due to non-satisfaction of applicable performance goals, our CEO forfeited 100% of his KBR Performance Restricted Stock Units (“PSUs”) which were scheduled to vest in June 2017 while the PSUs granted to him in December 2014 vested in 2017. The PSUs have a performance requirement of 6% TSR for the twelve full calendar months prior to vesting.

 

 

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OVERVIEW OF EXECUTIVE COMPENSATION PHILOSOPHY, POLICIES AND PRACTICES

 

Key Considerations in Determining Executive Compensation

Our Compensation Committee regularly reviews the elements of the individual compensation packages for our CEO and Senior Executive Management. Our Compensation Committee delegates to our CEO the duty to approve and administer the individual compensation packages for other executives and employees, excluding our Senior Executive Management, subject to the Committee’s annual review of the delegation. In determining executive compensation, our Compensation Committee takes into consideration:

Alignment with stockholders’ interest;

Importance of consistent performance;

Challenging performance metrics;

Appropriate mix of short-term and long-term incentives; and

Base salary, short-term incentives, long-term incentives, and total compensation levels are targeted near the 50th percentile of the competitive market for good performance and above the 50th percentile of the competitive market for consistent, outstanding performance over time, but also consider other factors, including differences in our position responsibilities compared to our peers, experience, retention risk, and internal equity.

Our executive compensation program is regularly reviewed to ensure that the program’s components continue to align with the above objectives and that the program is administered in a manner consistent with established compensation policies.

Policies and Practices

Below is a summary of our compensation policies and practices in place during 2017 for our Named Executive Officers:

Clawbacks

If our Committee determines that a NEO (or any other employee) has been paid

incentive compensation (both cash and equity) based on restated financial results,

the Committee may seek recovery of any overpayments.

Stock Ownership Guidelines

We require our CEO to own a significant amount of stock equivalent to five times his base salary and our other NEOs to own an amount of stock equivalent to three times their base salary to align their interests with our stockholders.

No Pledging

No officers may pledge Company stock.

No Hedging

No officers may hedge Company stock.

No Option Repricing

We prohibit the repricing of KBR stock options.

Market Comparison

Base salary, short-term incentives, long-term incentives and total compensation levels are generally targeted near the median of peer companies for good performance, and above the 50th percentile of the competitive market for consistent, outstanding performance over time, but also consider other factors, including differences in our position responsibilities compared to our peers, experience, retention risk, and internal equity.

Performance-Based Compensation

A majority of our NEOs’ compensation is performance-based compensation and is paid on the achievement of absolute and relative performance goals.

Double-Trigger

The severance and change-in-control agreements require a double-trigger for a change-in-control termination (i.e., the occurrence of both a change-in-control and a termination of employment within two years following the change-in-control event) in order for an executive to receive change-in-control benefits.

No Employment Agreements

No employment agreements are provided.

No Tax Gross-Ups

No excise tax gross-up agreements are provided.

No House Buyouts

No house buyouts are provided to any NEOs.

We encourage you to read the following detailed discussion and analysis of our executive compensation program, including the tables that follow the Compensation Discussion and Analysis.

Third-Party Consultants

Under its charter, our Compensation Committee is authorized to retain a compensation consultant and has the sole authority to approve the consultant’s fees and other retention terms. While our Compensation Committee believes that using third-party consultants is an efficient way to keep current regarding competitive compensation practices, our Compensation Committee does not accord undue weight to the advice of outside professional advisors, but instead makes changes in our compensation program in light of whether the program’s intended objectives are being achieved. In 2017, our Compensation Committee used the services of one compensation consulting firm, Meridian Compensation Partners, LLC (“Meridian”). Our Compensation Committee engaged and managed its relationship with the Meridian executive compensation consultants directly. In addition, Meridian reported directly to the Compensation Committee with respect to all executive and non-executive director compensation matters.

The nature and scope of Meridian’s engagement by the Compensation Committee included advising the Compensation Committee, as it needed, with respect to all executive compensation matters under the Compensation Committee’s purview. The material elements of the instructions or directions given to Meridian with respect to the performance of its duties to the Compensation Committee included engaging Meridian to provide the Compensation Committee with: (1) a 2017 proxy update; (2) a review of the peer groups used to assess the competitiveness of our executive compensation programs for the 2017-2018 compensation cycle; (3) regular updates of the valuation of our long-term performance cash awards; (4) a competitive market study of

 

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executive compensation for the Senior Executive Management; (5) regular updates on notable legislative and regulatory activities; (6) a review of the risk profile of the proposed long-term incentive performance metrics for 2018; (7) a review of the CEO’s 2018 executive compensation recommendations for our Senior Executive Management; (8) a review of the CEO’s compensation for 2018; and (9) a review of non-executive director compensation for 2018.

Outside of providing executive and director advisory services to our Compensation Committee, Meridian provided no other services to us or our affiliates. In May 2017, after the Compensation Committee reviewed the independence factors approved by the SEC for implementation by the NYSE in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) for compensation consultants and considered Meridian’s independence based on such factors, the Compensation Committee confirmed Meridian’s independence and approved the continued retention of Meridian.

Core Peer Group

In the design and administration of our 2017 executive compensation programs for our Named Executive Officers, our Compensation Committee considered competitive market data from our Core Peer Group. Our Compensation Committee also used its discretion and business judgment in determining overall compensation.

The Core Peer Group is comprised of nine companies with primary operations in the engineering, construction, and services industry, against which we believe KBR most competes for employees and business. The compensation data for our Core Peer Group was obtained from publicly available sources, including proxy statements and Form 4 and 8-K disclosures, and was not adjusted. The Core Peer Group used for 2017 compensation decisions consisted of the companies in the table below, which includes revenue, asset, and market cap data relevant at the time these companies were relied upon for making the decisions on 2017 compensation.

Data in billions – as of 12/30/2016

Company

Revenues

 

Assets

 

Market Cap

 

AECOM Technology Corporation(1)

$

17.411

 

$

13.670

 

$

5.546

 

Chicago Bridge & Iron Company N.V.

$

8.600

 

$

7.839

 

$

3.178

 

CH2M Hill Companies, Ltd.(2)

$

5.236

 

$

2.670

 

$

-

 

EMCOR Group, Inc.

$

7.552

 

$

3.852

 

$

4.123

 

Fluor Corporation

$

19.037

 

$

9.495

 

$

7.260

 

Jacobs Engineering Group Inc.(3)

$

10.964

 

$

7.360

 

$

6.739

 

McDermott International, Inc.

$

2.636

 

$

3.222

 

$

1.764

 

Quanta Services, Inc.

$

7.651

 

$

5.354

 

$

5.199

 

Median (including KBR)

$

7.651

 

$

5.354

 

$

4.661

 

KBR, INC.

$

4.268(4)

 

$

4.144

 

$

2.381

 

(1)

AECOM Technology Corporation’s Revenues and Assets are as of 9/30/2016 and Market Cap is as of 12/31/2016.

(2)

CH2M Hill Companies, Ltd.’s Revenues and Assets are as of 12/30/2016. CH2M Hill Companies, Ltd.’s Market Cap is not listed above because its stock was not publically traded.

(3)

Jacobs Engineering Group Inc.’s Revenues and Assets are as of 9/30/2016 and Market Cap is as of 12/31/2016.

(4)

KBR’s revenue does not include our share of revenue from our unconsolidated joint ventures, which was approximately $2.2 billion in 2016.

In addition to publicly-available data for the Core Peer Group, a supplemental group of companies was selected to provide additional data for assessing the competitiveness and reasonableness of our compensation programs for our Named Executive Officers. The Diversified Peer Group consisted of 20 companies that were participants in the Equilar Executive Compensation Survey (which was used by Meridian to analyze peer company compensation data that was not publicly available), crossing multiple manufacturing and operations-focused industries of similar size and scope as KBR. The companies were generally selected based on company revenue, size, complexity and performance, and the nature of their principal business operations with specific emphasis on engineering, heavy manufacturing, and industrial services. Special consideration was also given to companies based in Houston. The Compensation Committee believes the Diversified Peer Group appropriately represents both the local Houston and the broader market for key management and technical talent. The companies that comprised the Diversified Peer Group used for 2017 compensation decisions were: AECOM Technology Corporation; Boise Cascade Co; CH2M Hill Companies, Ltd.; Colfax Corporation; Dover Corporation; EMCOR Group, Inc.; Flowserve Corporation; Fluor Corporation; Hubbell Inc.; Jacobs Engineering Group Inc.; Leidos Holdings Inc.; Lennox International Inc.; McDermott International, Inc.; Meritor Inc.; Newell Rubbermaid Inc.; Rockwell Collins, Inc.; Terex Corporation; Tetra Tech, Inc.; Timken Corporation; and Visteon Corporation.

During 2017, our Compensation Committee asked Meridian to review the appropriateness of the Core and Diversified Peer Groups used in the assessment of the competitiveness of our executive compensation programs. The review considered several factors relating to the companies in both our Core and Diversified Peer Groups, including an analysis of certain financial metrics drawn from the Equilar Executive Compensation Survey (i.e., revenue, net assets, market capitalization, enterprise value, and number of employees), the business strategies of the peer group companies, the effects of corporate transactions, and the availability of market data. As a result of the review, effective for 2018 compensation decisions, our Compensation Committee updated our Core Peer Group to include several peers that provide highly technical and professional services to the U.S. government. Our Core Peer Group for 2018 compensation decisions includes: AECOM Technology Corporation; Booz Allen Hamilton Holding Corporation; CACI International Inc.; CH2M Hill Companies, Ltd.; Chicago Bridge & Iron Company N.V.; EMCOR Group, Inc.; Fluor Corporation; Jacobs Engineering Group Inc.; Leidos Holdings, Inc.; ManTech International Corporation; McDermott International, Inc.; Quanta Services, Inc.; and Science Applications International Corporation. Our Compensation Committee also made changes to our Diversified Peer Group. The changes to our Diversified Peer Group were made due to some of our peers not participating in the Equilar Executive Compensation Survey.

 

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Role of Compensation Committee and CEO

During 2017, our CEO made recommendations to our Compensation Committee regarding the compensation and incentives for our Senior Executive Management other than himself. Our CEO also:

recommended performance measures, target goals and award schedules for short-term and long-term incentive awards, and reviewed performance goals for consistency with our projected business plan;

reviewed competitive market data for Senior Executive Management positions; and

developed specific recommendations regarding the amount and form of equity compensation to be awarded to our Senior Executive Management.

Based on the CEO’s recommendations and in concert with him, our Compensation Committee’s role is to annually review and approve the compensation and incentive awards for our Senior Executive Management.

Changes Made in 2017 to KBR’s Compensation Program

In 2017, our Compensation Committee determined to continue with our current compensation practices relatively unchanged except for:

Increased STI plan EPS performance metric weighting from 25% to 40%.

Decreased individual KPI weighting for the STI plan from 45% to 30%.

Added more financially measurable metrics to the KPIs.

Based the CEO’s KPIs for the STI plan solely on EBITDA targets.

By increasing the weight of our EPS performance metric from 25% to 40% in our STI plan and by basing the incentive payout on financial and safety metrics for 70% versus 55% in 2016, we aligned incentive compensation more closely to company performance and stockholders’ interest. In addition, by having measurable performance-related goals for our CEO specifically rather than a discretionary performance factor, the Compensation Committee ensures that our CEO is held accountable for the Company’s performance and growth and for creating long-term value.

 

STOCKHOLDER ADVISORY VOTE ON COMPENSATION

 

We believe we have a well-designed executive compensation program. The most recent stockholder advisory proposal on executive compensation (“Say-on-Pay Proposal”) was presented to our stockholders during the Company’s annual meeting of stockholders on May 17, 2017. At that 2017 annual meeting, approximately 91% of the votes cast (in person and by proxy) on the Say-on-Pay Proposal were voted in favor of the proposal.

Our Compensation Committee considered the results to be an affirmation of the stockholders’ support of our compensation policies and decisions. Our Company maintains a regular dialogue with our stockholders on a broad range of topics, including governance and executive compensation, and we will continue to consider the outcome of our Say-on-Pay Proposal when determining future compensation policies and decisions for our NEOs.

 

SUMMARY OF 2017 COMPENSATION TO NAMED EXECUTIVE OFFICERS

 

2017 Base Salary and Target Short- and Long-Term Incentives

The table below reflects target annual compensation and is not intended to replace the more detailed information provided in the Summary Compensation Table. The target dollar amounts for restricted stock units are rounded to the next whole share upon grant, as reflected in the Summary Compensation Table.

 

 

2017 Base

Salary

Target

2017

Short-Term

Incentive

 

Target 2017 Long-Term

Performance Incentives

 

Total Target

Amount

Restricted

Stock Units

Target Dollar

Amount

 

Performance

Cash Award

Target Dollar

Amount

Mr. Bradie

$

1,000,000

$

1,250,000

$

2,000,000

$

4,000,000

$

8,250,000

Mr. Sopp

$

640,000

$

512,000

$

333,333

$

666,667

$

2,152,000

Mr. Ferraioli

$

650,000

$

0

$

0

$

0

$

650,000

Mr. Mujib

$

550,000

$

495,000

$

466,667

$

933,333

$

2,445,000

Mr. Ibrahim

$

509,250

$

407,400

$

283,333

$

566,667

$

1,766,650

Mr. Hill

$

550,000

$

440,000

$

333,333

$

666,667

$

1,990,000

 

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Performance-Based Compensation

A significant portion of our NEOs’ target annual compensation in 2017 was performance-based compensation. The following circle charts show the percentage of our CEO’s and other NEOs’ (excluding Mr. Ferraioli, whose employment terminated before year-end) 2017 total target annual compensation that is performance-based compensation and the percentage that is not performance-based compensation. The circle charts reflect target annual compensation, except where actual is noted, and are not intended to replace the more detailed information provided in the Summary Compensation Table. “Other NEOs” includes all NEOs except for the CEO and Mr. Ferraioli, whose employment terminated before year-end.

 

ELEMENTS OF COMPENSATION

Our executive compensation program has been designed to ensure that KBR is able to attract and retain ideal executives for applicable positions and that its compensation plans support KBR’s strategies, focus efforts, help achieve business success, and align with KBR’s stockholders’ interests. There is no pre-established formula for the allocation between cash and non-cash compensation or short-term and long-term compensation. Instead, each year our Compensation Committee determines, at its discretion and business judgment, the appropriate level and mix of short-term and long-term incentive compensation for our Senior Executive Management to reward near-term superior performance and to encourage commitment to our long-range strategic business goals. To determine the appropriate combination of elements, we consider our philosophy to condition the majority of Named Executive Officer compensation on Company performance.

As illustrated in the below charts, our 2017 executive compensation program consisted of the following core elements (at target): base salary, short-term incentives (annual), and long-term incentives. The circle charts are not intended to replace the more detailed information provided in the Summary Compensation Table. “Other NEOs” includes all NEOs except the CEO and Mr. Ferraioli. Mr. Ferraioli was excluded because his employment terminated before year-end.

 

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In addition to the core elements outlined above, our 2017 executive compensation program included the following supplemental benefits: severance and change-in-control protection and other generally available benefits, which are not reflected in the circle charts. Each element of our executive compensation program is described below.

 

A. BASE SALARY

 

We pay our Senior Executive Management market-competitive base salaries for the skills and experience necessary to meet the requirements of the executive’s role. To determine base salary for our Senior Executive Management, our Compensation Committee relied primarily on (1) market data for comparable positions within the Core Peer Group, (2) individual performance, and (3) internal pay equity. In addition to considering market comparisons in making salary decisions, our Compensation Committee exercised discretion and judgment based on the following factors:

level of responsibility;

experience in current role and equitable compensation relationships among our executives;

performance and leadership; and

external factors involving competitive positioning, general economic conditions, and marketplace compensation trends.

No specific formula is applied to determine the weight of each factor, and the factors are considered by our Compensation Committee in its discretion. Salary reviews are conducted annually in which individual performance is evaluated; however, individual salaries are not necessarily adjusted each year. Our Compensation Committee generally established base salaries at competitive levels, primarily using the median pay levels of comparable positions in the Core Peer Group as reference points.

In 2017, the Committee made no increases to the Named Executive Officers’ base salaries after suspending salary increases in 2016 Company-wide, except for Mr. Ibrahim, whose responsibilities increased in 2017 with overseeing the GS business segment in the EMEA region besides overseeing the E&C business segment in the same region. Other considerations for his salary increase included alignment with the market and internal equity.

The following are the base salaries for our Named Executive Officers, effective January 1, 2017, except as otherwise noted:

Name   Increase (% of 2016
Base Salary)
  2017 Base Salary   Basis for Decision
Mr. Bradie   $ 0 (0%)   $ 1,000,000   Core Peer Group data and cost control.
Mr. Sopp   $ 0 (0%)   $ 640,000   Core Peer Group data and cost control (new hire in 2017).
Mr. Ferraioli   $ 0 (0%)   $ 650,000   Retired in 2017.
Mr. Mujib   $ 0 (0%)   $ 550,000   Core Peer Group data, internal equity, and cost control.
Mr. Hill   $ 0 (0%)   $ 550,000   Core Peer Group data, internal equity, and cost control.
Mr. Ibrahim   $ 24,250 (5%)   $ 509,250   Core Peer Group data, internal equity, and increased responsibilities.

 

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B. SHORT-TERM INCENTIVES (ANNUAL)

 

Our Compensation Committee established the KBR Senior Executive Performance Pay Plan (the “Performance Pay Plan”) to reward Senior Executive Management for improving financial results for stockholders of KBR and to provide a means to link cash compensation to KBR’s short-term performance. The Performance Pay Plan is a performance program under the stockholder-approved KBR, Inc. 2006 Stock and Incentive Plan, as amended and restated (the “KBR Stock and Incentive Plan”). We provide for short-term incentives in order to motivate and reward achievement of, and performance in excess of, KBR’s annual goals.

In December 2016, our Compensation Committee met to determine the 2017 target award percentages of base salary for our Named Executive Officers other than Mr. Sopp, whose employment commenced on February 28, 2017, and Mr. Ferraioli, who retired in 2017, under the Performance Pay Plan. The target award percentages of base salary among our Named Executive Officers were generally set to be consistent with the median target awards of similar positions within our Core Peer Group as provided below. The short-term incentive award opportunities were based on a percentage of base salary assuming attainment of specified threshold, target, and maximum performance levels, which were, respectively: (i) for Mr. Bradie, 31.25%, 125%, and 250%; (ii) for Mr. Mujib, 22.5%, 90%, and 180%; and (iii) for Messrs. Hill, Ibrahim and Sopp, 20%, 80%, and 160%.

 

Name

Increase to Target

Short-Term Award

% of Base Salary

2017 Target

Short-Term Award

% of Base Salary

 

Basis for Decision

Mr. Bradie

0%

125%

 

Core Peer Group data and performance.

Mr. Sopp

0%

80%

 

Core Peer Group data (new hire in 2017).

Mr. Ferraioli

0%

0%

 

Retired in 2017.

Mr. Mujib

0%

90%

 

Core Peer Group data and internal equity.

Mr. Hill

5%

80%

 

Core Peer Group data and internal equity.

Mr. Ibrahim

5%

80%

 

Core Peer Group data, internal equity, and increased responsibility.

Fiscal year 2017 was the third full year after Mr. Bradie’s arrival at KBR in June 2014 and after the initiation of our strategic plan in December 2014. The metrics below reflect the continued vision and strategy of our Company. The metrics remained the same as our 2016 short-term incentive plan, which focused our Senior Executive Management on the key measures of success in connection with the execution of our strategic plan, except for:

Increased STI plan EPS performance metric weighting from 25% to 40%.

Decreased individual KPI (formerly called Strategic Initiatives) weighting for the STI plan from 45% to 30%.

Added more financially measurable metrics to the KPIs.

Based the CEO’s KPIs for the STI plan solely on EBITDA targets.

By increasing the weight of the EPS performance metric and adding an EBITDA performance metric for the CEO under the 2017 Short-Term Incentive Plan (Annual), we emphasized the importance of increasing our profitability on the success of our strategy. This brought focus to winning the right work, working efficiently on existing projects and actively seeking opportunities to expand our business to increase our profitability.

In addition, our Compensation Committee took measures to ensure that targets remained challenging and competitive. Our Compensation Committee adopted the following performance metrics (and weightings) for our CEO and NEOs:

 

Performance Metric

Weighting

 

Rationale

KBR EPS

Measures net income divided by the weighted average number of fully diluted Company shares outstanding (excluding legacy legal fees).

40%

 

This metric helps to align our Senior Executive Management with the interests of our stockholders because strong EPS generally increases the value of our stock. EPS was set at a challenging level given the difficult energy market. Buybacks are considered in reviewing EPS achievement to provide for an accurate comparison against the pre-established target. In 2017, we increased the weighting from 25% to 40% to emphasize the creation of stockholder value.

KPIs

KPIs are individual performance metrics specific to each NEO. For the CEO, the KPIs are solely based on EBITDA. The KPIs for the other NEOs (other than Mr. Ferraioli who retired in 2017) are described on pages 44 and 45.

30%

 

KPIs allow the Company to incentivize individual performance by rewarding individual contributions to KBR’s key strategy focus areas.

KBR Operating Cash Flow (“OCF”)

KBR OCF measures the amount of cash generated by KBR’s operations.

20%

 

KBR’s OCF Target is based on its 2017 budgeted Cash Flow from Operations. This metric was aligned with our strategic transformation plan. This metric was established to ensure that our Senior Executive Management focuses on generating cash flow. Threshold is Target minus 33 ⅓%, and Maximum is Target plus 33 ⅓%.

 

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Performance Metric

Weighting

 

Rationale

Completed SAFE Tours

SAFE (Shaping Accident Free Environments) Tours measure the number of SAFE tours completed by KBR leadership.

5%

 

This is intended to be a forward-looking metric to promote the safety of all Company employees and affiliates. Safety incentives also help reduce costs for the Company. KBR’s 2017 Completed SAFE Tours target number was derived from the goal to have at least one SAFE tour per week (excluding two weeks for vacation). While we exceeded the maximum SAFE Tours in 2016 by 28 tours, we maintained Target at the same level as in 2016 because our KBR leadership team reduced in size. We also believe maintaining this level emphasizes the quality of the tours rather than just the quantity. Threshold is Target minus 11%, and Maximum is Target plus 11%. A SAFE Tour is a project, office, or site visit by a member of our Senior Executive Management team where the member must ensure implementation of KBR’s Zero Harm 24/7 initiative. The objective of the SAFE Tour is to exhibit visible leadership and commitment to health, safety, security and environment from the highest level of our Company. It requires a significant commitment from each member of our Senior Executive Management.

KBR Consolidated Safety

Safety measures the total recordable incident rate (“TRIR”), which is calculated as the number of recordable incidents for every 200,000 work-hours, for consolidated KBR.

5%

 

This historic metric measures the safety of all Company employees and affiliates. Safety incentives also help reduce costs for the Company.

We believe the above metrics are the most important measures to drive KBR’s growth and to increase our stockholders’ value. Given that our CEO completed two years of his strategy plan by the end of 2016 and that the overhead reduction goal of $200 million was met in 2016, we believed that our most important goal in 2017 would be to increase our EPS. By increasing the weight of our EPS performance metric from 25% to 40%, we believe our STI plan is more aligned with our stockholders’ interest and can drive outstanding performance from our CEO and other NEOs. In addition, the overhead reduction goal was removed as a gateway to the strategic initiatives (now KPIs) metric because the $200 million goal was met in 2016.

Target Award Level

When establishing target levels for the incentive reward schedule for 2017, the Compensation Committee considered, among other things, projected Company performance, strategic business objectives, and forecasted general business and industry conditions. Although oil prices have improved since they dropped below $30 in 2016, our industrial clients have exercised caution in their capital expenditures. At the beginning of 2017, the challenging energy industry showed little signs of improvement. We took this into consideration when setting targets for 2017. Generally, award target levels reflect the objectives set by our Compensation Committee and are generally intended to approximate the 50th percentile of our Core Peer Group (using the Diversified Peer Group data for additional input) for good performance and above the 50th percentile for consistent, outstanding performance, but our Compensation Committee also considers other factors as noted earlier in this Compensation Discussion and Analysis. At the time the target levels are established, the outcome is intended to be substantially uncertain but achievable, and to require better than expected performance from our executives. Our Compensation Committee adopted target levels for its annual incentive reward schedule that maintained the same rigor as the performance targets from the prior year, especially in light of the challenging hydrocarbons market.

Our Compensation Committee established the target award levels below, with actual results and payouts certified in February 2018.

2017 SHORT-TERM INCENTIVES TABLE

Weight

Measure

Threshold

Target

Maximum

Actual

Result

Payout

40%

KBR EPS (excluding legacy legal fees of –$.10)

$1.00

$1.20

$1.40

$3.16

80%

20%

KBR OCF

$55MM

$82.5MM

$110MM

$193MM

40%

5%

SAFE Tours Completed

49

55

61

61

10%

5%

Consolidated Safety (TRIR)(1)

.252

.236

.220

.195

10%

30%

KPIs

 

 

 

As noted
below

As noted
below

Total Payout(2)

 

 

 

140%

(1)

The TRIR actual result of .195 excludes Wyle and HTSI safety incidents for the first six months of 2017 to provide time for our Zero Harm program to be implemented within these businesses. If we include Wyle and HTSI safety incidents, our TRIR for 2017 would be .215.

(2)

The total payout percentage does not include the percentages earned with respect to KPIs. The final payouts for our CEO and NEOs are on the following two pages.

Exercise of Negative Discretion for EPS and Safety Metrics

In 2017, we exceeded our maximum goal for all non-KPI performance metrics, including safety. Despite our strong EPS, Cash Flow and Safety results, the Compensation Committee exercised negative discretion to reduce payouts for the TRIR safety metric from 10% payout to 5% payout because of one fatality. This emphasizes the importance of safety to KBR and aligns with KBR’s mission to achieve Zero Harm every day.

In addition, our Compensation Committee recognized that the December 2017 Tax Reform Act and the Tax Valuation Allowance were unusual items and outside the influence of the Senior Executive Management. As a result, our Compensation Committee exercised negative discretion to reduce our actual EPS achievement by ($1.71) to $1.45 to remove the postive effect of the December 2017 Tax Reform Act and the Tax Valuation Allowance. However, we still exceeded the maximum level of the EPS measure without the positive tax effect.

 

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KPIs and STI Payout for Mr. Bradie

Mr. Bradie earned 47.6% on his KPIs as provided below:

Weight

Measure

Threshold

Target

Maximum

Actual

Result

Payout

15%

Combined Industrial Services business (EBITDA)

$11.0MM

$18.0MM

$25.0MM

$19.2MM

17.6%

15%

Integrate U.S. GS businesses
(combined EBITDA percentage growth)

15%

20%

25%

28.8%

30%

Mr. Bradie’s performance against his KPIs earned him the following payout:

CEO and Target

STI Payout

per Actual Metrics

Results

(excluding KPIs)

Negative Discretion

for Safety

KPI Payout

Final Payout

Mr. Bradie

Target 125%

$1,750,000

140% of target

$(62,500)

(-5%)

$595,000

47.6%

$2,282,500

182.6% of target

KPIs and STI Payout for Mr. Sopp

Mr. Sopp earned 30% on his KPIs as provided below:

Weight

Measure

Actual

Result

Payout

15%

Upskill accounting function demonstrated by people enhancements, improving controls and reducing significant deficiencies.

100%

15%

15%

Champion efficiency in the function through greater outsourcing and/or improved systems functionality.

100%

15%

Mr. Sopp’s performance against his KPIs earned him the following payout:

NEO and Target

STI Payout

per Actual Metrics

Results

(excluding KPIs)

Negative Discretion

for Safety

KPI Payout

Final Payout

Mr. Sopp

Target 80%

$716,800

140% of target

$(25,600)

(-5%)

$153,600

30%

$844,800

165% of target

KPIs and STI Payout for Mr. Mujib

Mr. Mujib earned 10% on his KPIs as provided below:

Weight

Measure

Actual

Result

Payout

10%

Execute projects within E&C forecasts with no material write downs >$5MM.

100%

10%

10%

Grow earnings backlog through 2017. Measured by ending backlog 2016 of $1.35B vs. 2017 of $734MM.

0%

0%

10%

Overall responsibility for successfully managing the Ichthys project from an overall KBR perspective. Measured by 2017 Project Income Budget of $52.8MM vs. Actual of $31.3MM.

0%

0%

Mr. Mujib’s performance against his KPIs earned him the following payout:

NEO and Target

STI Payout

per Actual Metrics

Results

(excluding KPIs)

Negative Discretion

for Safety

KPI Payout

Final Payout

Mr. Mujib

Target 90%

$693,000

140% of target

$(24,750)

(-5%)

$49,500

10%

$717,750

145% of target

 

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KPIs and STI Payout for Mr. Hill

Mr. Hill earned 0% on his KPIs as provided below:

Weight

Measure

Actual

Result

Payout

30%

Realign/upskill and improve the global Business Development function demonstrated through a step-up in secured work especially in the E&C Americas business but measured via 2017 JIS Budget of $92.5MM vs. Actual of $51.7MM.

0%

0%

Mr. Hill’s performance against his KPIs earned him the following payout:

NEO and Target

STI Payout

per Actual Metrics

Results

(excluding KPIs)

Negative Discretion

for Safety

KPI Payout

Final Payout

Mr. Hill

Target 80%

$616,000

140% of target

$(22,000)

(-5%)

$0

0%

$594,000

135% of target

KPIs and STI Payout for Mr. Ibrahim

Mr. Ibrahim earned 22.5% on his KPIs as provided below:

Weight

Measure

Actual

Result

Payout

15%

By Q2 have in place robust succession plans for own role and key direct reports.

50%

7.5%

15%

Win or be in prime position to secure industrial services work. Measured by 2017 EBITDA Budget of $4.2MM vs. Actual of $7.5MM.

100%

15%

Mr. Ibrahim’s performance against his KPIs earned him the following payout:

NEO and Target

STI Payout

per Actual Metrics

Results

(excluding KPIs)

Negative Discretion

for Safety

KPI Payout

Final Payout

Mr. Ibrahim

Target 80%

$570,360

140% of target

$(20,370)

(-5%)

$91,665

22.5%

$641,655

157.5% of target

Changes Made to KBR’s 2018 STI Plan

In 2018, our Compensation Committee made no changes to the STI plan as the changes made in 2017 (such as increasing the EPS performance metric weighting from 25% to 40%) are still considered to be aligned with the interests of the Company and our stockholders and the goals are set at rigorous levels.

 

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C. LONG-TERM PERFORMANCE INCENTIVES

 

Under the KBR Stock and Incentive Plan, our Compensation Committee made the following grants to our Named Executive Officers in 2017: KBR Long-Term Performance Cash Awards and KBR Restricted Stock Units. A description of the KBR Stock and Incentive Plan, the methodology used by our Compensation Committee to determine the mix of awards to grant, and the KBR Long-Term Performance Cash Awards and KBR Restricted Stock Units granted under the KBR Stock and Incentive Plan is provided below.

Our internal stock award process is designed and administered to provide equity award grant dates that are prospective and not retrospective, or back-dated. Stock awards approved by our Compensation Committee are generally effective on the date of the meeting at which the approval occurs. Stock option grants, when approved by our Compensation Committee, are never issued with an exercise price below the fair market value of our common stock on the date of grant.

KBR Stock and Incentive Plan

We use long-term performance incentives to achieve the following objectives:

reward consistent achievement of value creation and operating performance goals;

align management’s interests with stockholders’ interests; and

encourage long-term perspectives and commitment.

Long-term incentives represent the largest component of total executive compensation opportunity for our executives. We believe this is appropriate given our belief that executive pay should be closely tied to stockholders’ interests.

The KBR Stock and Incentive Plan provides for a variety of cash and stock-based awards, including nonqualified and incentive stock options, restricted stock/units, performance shares/units, stock appreciation rights, and stock value equivalents, also known as phantom stock. The KBR Stock and Incentive Plan allows the Compensation Committee the discretion to select from among these types of awards to establish individual long-term incentive awards. Our Compensation Committee met in December 2016 to review the amount of shares available under the KBR Stock and Incentive Plan for future stock-based awards and to review the CEO’s recommendations on the value of the long-term incentive awards to our Senior Executive Management. In addition, the Committee met in February 2017 to review and approve the amount and appropriate mix of long-term incentive awards to be granted to our Named Executive Officers.

For purposes of establishing the target dollar value of the long-term incentive awards, our Compensation Committee engaged Meridian to review our Named Executive Officers’ long-term incentive compensation. In February 2017, the Compensation Committee elected to increase the long-term incentive target dollar values for our Named Executive Officers, except for Messrs. Mujib and Hill. Mr. Bradie’s original compensation package when he was hired was well below the median of our Core Peer Group. Because of his significant strategic contributions in 2016 with the expansion of our GS business, our Compensation Committee elected to increase his 2017 long-term incentive target dollar value closer to, but still below, the median of our Core Peer Group. Mr. Ibrahim’s long-term incentive award was increased due to added responsibilities for 2017 to oversee the GS business segment in the EMEA region besides overseeing the E&C business segment in the same region. Mr. Ferraioli was not granted a 2017 long-term incentive award due to his retirement in 2017. The below table outlines the changes for 2017:

Name  

Increase (% of Target 2016

Long-Term Incentive Award)

 

2017 Long-Term Incentive Target

Dollar Value of Award

  Basis for Decision
Mr. Bradie   $ 500,000 (9%)   $ 6,000,000   Core Peer Group data and in connection with his strong performance.
Mr. Sopp   $ 0 (0%)   $ 1,000,000   Core Peer Group data and internal equity (new hire in 2017).
Mr. Ferraioli   $ 0 (0%)   $ 0   Retired in 2017.
Mr. Mujib   $ 0 (0%)   $ 1,400,000   Core Peer Group data and internal equity.
Mr. Hill   $ 0 (0%)   $ 1,000,000   Core Peer Group data and internal equity.
Mr. Ibrahim   $ 100,000 (13.3%)   $ 850,000   Core Peer Group data and internal equity.

 

Using the long-term incentive target dollar value of award for each Named Executive Officer listed above, our Compensation Committee granted our Named Executive Officers a mixture of 66 2/3% performance cash awards (based on target value) and 33 1/3% restricted stock units under the KBR Stock and Incentive Plan. The Committee concluded that this mix of performance cash awards and restricted stock units was consistent with the Company’s pay for performance objectives. Specifically, 50% of the performance cash awards are directly tied to our stock price performance and, therefore, directly to stockholder value. The other 50% of the performance cash awards focus executives to improve job income sold (“JIS”) long term. In addition, our restricted stock units are tied directly to stockholder value and provide a significant incentive for our Named Executive Officers to remain with the Company. Our Compensation Committee reviewed the mix of equity awards of our Core Peer Group and Diversified Peer Group. Our Compensation Committee awarded a much higher percentage of performance cash awards (66 2/3%) than either of our peer groups because our Compensation Committee believes that emphasizing job income sold and sustained TSR is more likely to increase sustained stockholder value. Our Compensation Committee decided in 2015 against granting stock options under the KBR Stock and Incentive Plan because it wanted to add more emphasis on our performance cash awards tied to our relative TSR and JIS and our restricted stock units, which are aligned directly with our stockholders. In addition, stock options were no longer as prevalent among our Core Peer Group.

 

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KBR Long-Term Performance Cash Awards

The KBR Long-Term Performance Cash Awards are long-term incentive awards designed to provide selected executives with specified incentive opportunities contingent on the level of achievement of pre-established corporate performance objectives. When establishing target levels of corporate performance, our Compensation Committee considered, among other things, projected Company performance, strategic business objectives, and forecasted general business and industry conditions. At the time the target levels were established, the outcome was intended to be substantially uncertain, but achievable. The KBR Long-Term Performance Cash Awards may only be paid in cash, which minimizes stockholder dilution.

The 2017 KBR Long-Term Performance Cash Awards were granted to our Named Executive Officers in February 2017. Each KBR Long-Term Performance Cash Award has a target value of $1.00. For the 2017 KBR Long-Term Performance Cash Awards, the Compensation Committee maintained the weightings of the two performance measures, TSR and JIS, at 50% each. JIS was moved from the short-term annual Performance Pay Plan in 2014 because the Compensation Committee believed it was more appropriate to measure JIS over a longer, three-year period given the long-term nature of our projects and to focus more weight on it due to the operational challenges we experienced before our CEO’s tenure. The long-term tracking of JIS ensures that contract amendments and scope adjustments (both increases and decreases) are captured. Given that winning the right work is one of our key strategic priorities through which we can create long-term growth and through which we can position KBR for a strong and stable future amidst economic volatility, we believe that JIS measured over three years is an appropriate metric. Because we measure JIS over a three year period we capture contract adjustments that may impact future earnings. TSR and JIS are measured over a three-year performance period beginning January 1, 2017, and ending December 31, 2019, as indicated below:

 

 

The Compensation Committee determined the number of KBR Long-Term Performance Cash Awards for each Named Executive Officer by multiplying the total long-term incentive target value by 66 2/3% and dividing the product by $1.00 (the target value of each KBR Long-Term Performance Cash Award). The Compensation Committee established the amount of the total long-term incentive value as described above in the section titled “KBR Stock and Incentive Plan.” Our Compensation Committee decided to use $1.00 as the target value for each KBR Long-Term Performance Cash Award for the purpose of administering and communicating the award to participants. In addition, the use of $1.00 as a target value for each KBR Long-Term Performance Cash Award is a means of expressing the value of each award since the number of KBR Long-Term Performance Cash Awards was granted based on the total target value of long-term incentive awards. The actual value of a KBR Long-Term Performance Cash Award may increase to a maximum of 200% of $1.00, or $2.00, or decrease to below threshold to 0% of $1.00, or $0.00. The value of KBR Long-Term Performance Cash Awards for performance between threshold and target or target and maximum will be calculated using linear interpolation. A 3-year performance award cycle was adopted because of the ability to provide for retention and align with long-term stockholder returns.

TSR is measured based on a sustained approach rather than a cumulative (point to point) approach. The Compensation Committee believes that the cumulative approach to measure TSR did not discern sustained performance over the three-year performance period. To measure sustained performance, each peer group company’s TSR (measured with a 20-trading-day average price) is calculated every quarter during the three-year performance period, and KBR’s average quarterly indexed TSR is ranked relative to the average quarterly indexed TSR of KBR’s peers. The average TSR for a company for the three-year performance period is the sum of the TSRs of the company measured at the end of each calendar quarter during the three-year performance period, divided by 12. The Compensation Committee believes that the sustained approach is better because it does not overemphasize a single ending point, but rather considers how investors may fare at different points over the entire three-year performance period.

Our 2017 TSR Peer Group includes: AECOM Technology Corporation, Chicago Bridge & Iron Company N.V., Chiyoda Corporation, EMCOR Group, Inc., Fluor Corporation, Jacobs Engineering Group Inc., McDermott International, Inc., Quanta Services, Inc., and TechnipFMC (previously Technip prior to the merger of FMC Technologies and Technip in January 2017). This is unchanged from the 2016 and 2015 TSR Peer Groups.

The 2017 TSR Peer Group is slightly different than our Core Peer Group used for market comparison of the compensation of our Named Executive Officers, as described above under the section titled “Core Peer Group.” In our Core Peer Group, we excluded two foreign companies used for our TSR percentage, Chiyoda Corporation and Technip (now TechnipFMC due to the merger of FMC Technologies and Technip in January 2017), due to difficulties in determining compensation data for foreign companies.

 

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The TSR percentage is calculated by subtracting KBR’s TSR ranking as compared to the peer group from the total number of companies in the peer group, including KBR, dividing the difference by the number of companies in the peer group excluding KBR, and multiplying the quotient by 100%. Assuming a peer group of 10 companies (including KBR), the TSR rankings and corresponding payout percentages are shown in the table below.

2017 LONG-TERM PERFORMANCE CASH AWARD

TSR Payout

Performance Level

TSR Ranking

Percentile*

Payout

Maximum

1

100.0

%

200.0

%

 

2

88.9

%

197.3

%

 

3

77.8

%

169.5

%

 

4

66.7

%

141.8

%

Target

5

55.6

%

114.0

%

 

6

44.4

%

86.0

%

 

7

33.3

%

58.3

%

Threshold

8

22.2

%

30.5

%

 

9

11.1

%

0.0

%

 

10

0.0

%

0.0

%

After the end of each performance award cycle, our Compensation Committee will determine the extent to which the performance goals have been achieved, and the amount of the performance award attributable to the TSR performance measure will be computed for each selected executive in accordance with the table above. For results between Threshold and Target and Target and Maximum, the Performance Percentage earned is determined by linear interpolation between the two applicable standards based on the results achieved for the TSR performance measure.

The remaining 50% of the KBR Long-Term Performance Cash Awards will be determined based on JIS over the same 3-year performance period. JIS is the Company’s and its consolidated subsidiaries’ job income from (i) new projects awarded and (ii) earnings changes from contract amendments (increases or decreases), or scope adjustments (increases or decreases) to existing projects. JIS is calculated as the average of the achievement levels of the JIS performance metric for each year during the three-year performance period. For 2017, Target JIS was $390.0MM, Maximum JIS was 128% of Target, and Threshold JIS was 72% of Target. Like the TSR portion of the 2017 KBR Long-Term Performance Cash Awards, achievement of Threshold pays out at 25%, Target at 100%, and Maximum at 200%, all weighted 50%. For the second and third years in the JIS performance period, the Compensation Committee will set the JIS target to ensure that it remains rigorous. The Compensation Committee decided to establish the JIS Target one year at a time due to the inability to forecast JIS beyond one year in the challenging hydrocarbons market. No award will be paid for JIS under the KBR Long-Term Performance Cash Awards until after the end of the three-year performance period when the average JIS earned will be calculated using the average JIS percentage achieved during each year in the three-year performance period.

In addition to the TSR and JIS performance measures, 20% of the KBR Long-Term Performance Cash Awards payout was subject to forfeiture on December 31, 2017 in the discretion of our Compensation Committee if it determined that 2017 was not a successful year for us. The 20% metric applied to the total KBR Long-Term Performance Cash Award granted in 2017. The 20% was a one-time threshold to be applied in 2017 only with permanent forfeiture if the Compensation Committee decided that 2017 was not a successful year on or before March 31, 2018. The 20% could not be earned back during the second and third years of the three-year performance period. In addition, there was no upside with the 20% metric. In 2017, this metric goal was met as the Compensation Committee determined that 2017 was a successful year for us and, accordingly, it did not exercise its discretion to cause a forfeiture of 20% of the award. Our Compensation Committee added this measure to allow the Compensation Committee to forfeit 20% of the KBR Long-Term Performance Cash Awards if the year did not perform as well as expected. In addition, the KBR Long-Term Performance Cash Awards that were granted to our NEOs in 2017 provide our Compensation Committee with the discretion to reduce, but not increase, by any amount (including a reduction resulting in no payout) the potential payments that would otherwise be made with respect to such awards based on the actual level of performance achieved during the performance period. This negative discretion may be exercised by the Compensation Committee at any time prior to the date of payment with respect to the award, except that it may not be exercised following the occurrence of a corporate change (as defined in the KBR Stock and Incentive Plan).

In February 2018, our Compensation Committee certified the results for the KBR Long-Term Performance Cash Awards that were granted in February 2015, which were based on TSR and JIS performance measures. The following table is a summary of the 2015 KBR Long-Term Performance Cash Awards for the January 1, 2015, to December 31, 2017, performance period and amounts actually paid for each of our Named Executive Officers. Mr. Sopp did not participate because he was not an employee of the Company when the 2015 KBR Long-Term Performance Cash Award was granted. Mr. Ferraioli forfeited his 2015 KBR Long-Term Performance Cash Award due to his retirement in 2017. 

 

PAYOUT TABLE FOR 2015-2017 KBR LONG-TERM PERFORMANCE CASH AWARD PERIOD

2015 Long-Term Incentive Payout

 

Total Stockholder Return

 

Job Income Sold

Named

Executive

Officer

Target

($)

Max

($)

Actual

Payout

($)

 

Target

(%)

Max

(%)

Actual

(% rank)

Actual

Payout

(%)

 

Actual

TSR

Payout

($)

 

Target

(Avg $

2015-2017)

Max

(Avg $

2015-2017)

Actual

(Avg $

2015-2017)

Actual

Payout

(%)

Actual JIS

Payout

($)

Mr. Bradie

2,700,000

5,400,000

3,439,800

 

50

100

37.5

68.8

 

$928,800

 

$365.6MM

$480.8MM

$478.7MM

186

$2,511,000

Mr. Mujib

840,000

1,680,000

1,070,160

 

50

100

37.5

68.8

 

$288,960

 

$365.6MM

$480.8MM

$478.7MM

186

$781,200

Mr. Hill

600,000

1,200,000

764,400

 

50

100

37.5

68.8

 

$206,400

 

$365.6MM

$480.8MM

$478.7MM

186

$558,000

Mr. Ibrahim

450,000

900,000

573,300

 

50

100

37.5

68.8

 

$154,800

 

$365.6MM

$480.8MM

$478.7MM

186

$418,500

 

 

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For the 2015 KBR Long-Term Performance Cash Awards, a TSR ranking below the 20th percentile results in zero payout, a ranking in the target 50th percentile results in target payout of 100%, and a ranking in the maximum 100th percentile results in a maximum payout. Therefore, the ranking of 37.5 percentile resulted in a 68.8% payout of 100% as the ranking was below the target for TSR.

For JIS the 2015 and 2016 JIS payout ratio was above target at 174% and 184% respectively and the 2017 JIS payout ratio exceeded the maximum, resulting in a 200% payout. The average JIS for the three year performance period starting January 1, 2015 and ending on December 31, 2017 resulted in a JIS payout of 186%.

Based on the weighting of 50% for TSR and JIS, the total payout ratio for the 2015 KBR Long-Term Performance Cash Awards is 127.4% of target.

KBR Restricted Stock Units

During 2017, our Compensation Committee granted our Named Executive Officers restricted stock units that are subject to a three-year graded vesting schedule, based on service with the Company. In addition, dividend equivalents are paid on restricted stock units at the same time dividends are paid to common stockholders. The Compensation Committee determined the number of restricted stock units for each Named Executive Officer by multiplying the total long-term incentive target value by 33 1/3% and dividing the product by the closing price of our common stock on the date of grant. The Compensation Committee established the amount of the total long-term incentive value as described above in the section titled “KBR Stock and Incentive Plan.” The Compensation Committee selected a three-year vesting schedule to facilitate retention and provide incentives to enhance long-term value. The three-year schedule meets the minimum vesting period generally mandated in the KBR Stock and Incentive Plan (other than with respect to a small, limited number of awards) for grants of restricted stock units.

In addition to the service requirement for vesting of the restricted stock units, 20% of the restricted stock units were subject to forfeiture on December 31, 2017 in the discretion of our Compensation Committee if it determined on or before the first anniversary of the date of grant that 2017 was not a successful year for us. Our Compensation Committee added this measure to allow the Compensation Committee to forfeit 20% of the restricted stock units if the year did not perform as well as expected. The metric was a one-time metric that if not satisfied at the end of 2017 would result in the permanent forfeiture of 20% of the restricted stock units. In 2017, this metric was met as the Compensation Committee determined that 2017 was a successful year for us and, accordingly, it did not exercise its discretion to cause a forfeiture of the restricted stock units.

In addition to the above, our CEO continued to hold his performance restricted stock units granted in 2014. In June 2017, our CEO forfeited 100% of his June 2014 performance restricted stock units that were scheduled to vest in June 2017 while his performance restricted stock units granted in December 2014 scheduled to vest in December 2017 vested, as shown below:

 

SUMMARY OF ACTIONS WITH RESPECT TO FORMER NAMED EXECUTIVE OFFICERS

Our former NEO, Mr. Ferraioli, retired as KBR’s Executive Vice President and Chief Financial Officer effective February 28, 2017. His retirement was voluntary and as a result he forfeited all of his unvested awards. Mr. Ferraioli is subject to a one-year noncompete.

 

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OTHER COMPENSATION ELEMENTS

 

NONQUALIFIED DEFERRED COMPENSATION

 

We maintain the following active nonqualified deferred compensation plans in which one or more of our Named Executive Officers participate: (1) KBR Elective Deferral Plan and (2) KBR Benefit Restoration Plan. Our Compensation Committee approved these plans in April 2007 in order to provide a continuation of benefits to our employees who were entitled to such benefits under our prior parent’s nonqualified plans. Both of these plans are available to all KBR employees who meet the limits imposed by the Internal Revenue Code or the Employee Retirement Income Security Act. Our Compensation Committee continues to maintain these plans because they are offered by many of the companies in our Core Peer Group.

KBR Elective Deferral Plan

Our Named Executive Officers may participate in the KBR Elective Deferral Plan, a nonqualified deferred compensation plan, to meet their retirement and other future income needs. No Company contributions are made to fund deferrals to the KBR Elective Deferral Plan. Deferrals are entirely employee funded. Benefits under this plan are payable upon a termination of employment (or a specified future date).

KBR Benefit Restoration Plan

Our Named Executive Officers may participate in the KBR Benefit Restoration Plan, a nonqualified plan that provides a vehicle to restore qualified plan benefits that are reduced because of limitations imposed under the Internal Revenue Code or due to participation in other Company sponsored plans. Benefits under this plan are payable upon a termination of employment.

Defined Benefit Pension Plan

Our Named Executive Officers do not participate in any KBR sponsored defined benefit pension plans.

 

SEVERANCE AND CHANGE-IN-CONTROL PROTECTION

 

Since 2008, our Compensation Committee has offered certain members of our Senior Executive Management with a severance and change-in-control agreement (the “Agreement”) with the Company for several reasons. Providing termination benefits under a severance and change-in-control agreement allows the Company to be competitive with the practices of its Core Peer Group as well as the general market. Also, the specific terms for receiving termination benefits under the Agreement provide a means to motivate and retain key employees of the Company. Noncompetition and clawback provisions provide protection for the Company by ensuring that the Company’s trade secrets and confidential information are safeguarded and that the Company retains rights to recover any termination benefits paid in the event of material evidence of an executive’s malfeasance. In addition, the Compensation Committee elected for the Agreement to require a double-trigger change-in-control termination (i.e., the occurrence of both a change-in-control and a termination of employment within two years following the change-in-control event) in order for an executive to receive change-in-control benefits. In March 2009, our Compensation Committee publicly committed to rejecting any proposals that request new excise tax gross-ups. Our Compensation Committee reconfirms that commitment, which is evidenced by each new Agreement we have entered into since March 2009, none of which have provided an excise tax gross-up. None of our NEOs’ Agreements contain an excise tax gross-up.

The Compensation Committee offered the Agreement to Mr. Mujib in February 2013, Mr. Ferraioli in October 2013, Mr. Bradie in June 2014, Mr. Hill in November 2014, Mr. Ibrahim in May 2015, and Mr. Sopp in February 2017 because each of our other members of Senior Executive Management at those times had an Agreement or to incentivize them to leave their former employer and join the Company. The Agreement will terminate automatically on the earlier of (i) the executive’s termination of employment with the Company or (ii) in the event of a change-in-control during the term of the Agreement, two years following the change-in-control. The Agreement provides for (i) severance termination benefits (prior to a change-in-control), which for some members of Senior Executive Management are graded based on service time with the Company, (ii) double-trigger change-in-control termination benefits (on or after a change-in-control), and (iii) death, disability, and retirement benefits. As a condition of receipt of these benefits (other than the death and disability benefits), the executives must first execute a release and full settlement agreement. The Agreement contains customary confidentiality, noncompetition, and nonsolicitation covenants, as well as a mandatory arbitration provision. In addition, the Agreement contains a clawback provision that allows the Company to recover any benefits paid under the Agreement if the Company determines within two years after the executive’s termination of employment that his employment could have been terminated for cause as defined within the Agreement. The Agreement provides that all unvested stock options, stock appreciation rights, restricted stock, restricted stock units, and performance cash awards granted to the executive by the Company will be forfeited upon severance. Such awards, however, will fully vest upon a double-trigger change-in-control termination. The terms of the Agreements for each NEO are further described and quantified below in the section titled “2017 Potential Payments Upon Termination or Change-in-Control” and “Severance and Change-in-Control Agreements.”

 

OTHER BENEFITS

 

Generally, our Named Executive Officers participate in the same retirement and health and welfare programs as our other employees. In 2017, our Named Executive Officers participated in the Company’s 401(k) plan. Pursuant to this plan, we made employer matching contributions equal to 5.5% of eligible compensation. Their health care and insurance coverage is the same as that provided to other active employees, except that the Named Executive Officers are eligible to receive an executive physical. Executives are provided physicals as part of our Zero Harm initiative.

 

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Our Compensation Committee generally does not offer perquisites to our Named Executive Officers, unless generally available to other Company employees. Our executives do not have company cars or car allowances, housing, or travel allowances, except in the case of relocation-related travel, housing, and car allowances.

To allow for maximum efficiency and productive use of time, one Company-leased car and a driver is provided in Houston for use by our Named Executive Officers and others for business purposes, except that our Named Executive Officers may use the Company-leased car and a driver for limited personal use only if the car is not being used by another Named Executive Officer for business purposes at that time. In addition, Named Executive Officers are eligible to receive limited financial planning advice.

In connection with his international assignment, Mr. Ibrahim received the standard allowances for a car, housing, school, and relocation costs. In addition, Mr. Ibrahim was included in our standard tax equalization program. As part of Mr. Mujib’s relocation (at the Company’s request) to the United States in October 2016 to assume his new role, we provided him with an apartment from October 2016 to June 2017, a six-month car lease, and airfare to relocate.

IMPACT OF EXECUTIVE CONDUCT OR A RESTATEMENT OF EARNINGS ON COMPENSATION (CLAWBACK POLICY)

If we determine at any time within two years after the termination of employment of a Named Executive Officer that such senior executive’s employment could have been terminated for Cause, as defined in the senior executive’s Agreement, we retain the right to recover any severance benefits (both cash and equity) provided under the Agreement to such senior executive. In such case, the senior executive agrees to promptly repay such amounts to us.

In addition, our Company’s cash and equity incentive programs allow the Compensation Committee to seek recovery of any incentives that are determined to be an overpayment due to any restatement of our financial results that impact the performance metrics on which the incentive awards were calculated. The Compensation Committee will adopt all clawback provisions required by the Dodd-Frank Act.

IMPACT OF ACCOUNTING, REGULATORY, AND TAX REQUIREMENTS ON COMPENSATION

We apply the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718-10 for share-based payments to account for and report equity-based compensation. FASB ASC 718-10 requires equity-based compensation expense to be measured based on the grant-date fair value of the award. For performance-based awards, compensation expense is measured based on the grant-date fair value of the award and the fair value of that award is re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period or the vesting period are recognized as compensation cost on a straight line basis over that period. Compensation expense was recognized for restricted stock unit awards.

In the years where we grant stock option awards, the grant-date fair value of employee share options is estimated using option-pricing models. If an award is modified after the grant date, incremental compensation cost is recognized immediately before the modification. The benefits of tax deductions in excess of the compensation cost recognized for the options (excess tax benefits) are classified as addition to paid-in-capital, and cash retained as a result of these excess tax benefits is presented in the statement of cash flows as financing cash inflows.

We carefully review and take into account current tax regulations as they relate to the design of our compensation programs and related decisions. Prior to the enactment of tax reform legislation signed into law on December 22, 2017, which was originally known as the Tax Cuts and Jobs Act (the “TCJA”), Section 162(m) of the Internal Revenue Code limited a company’s ability to deduct compensation paid in excess of $1 million during any fiscal year to each of certain named executive officers, unless the compensation was performance-based as defined under federal tax laws. Subject to certain transitional rules, the TCJA has repealed the exemption for performance-based compensation from the deduction limitation of Section 162(m) of the Internal Revenue Code for taxable years beginning after 2017. The scope of the transitional rules is uncertain, and we are awaiting further guidance from the Internal Revenue Service with respect to such rules in order to determine the impact of the TCJA on certain remuneration that our Compensation Committee intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code prior to the enactment of the TCJA. Our Compensation Committee historically reviewed and considered the deductibility of our executive compensation programs and provided compensation that was not fully deductible when necessary to retain and motivate certain executive officers and when it was in the best interest of the Company and our stockholders. To the extent compensatory awards are not covered by the transitional rules, the performance-based exception to the deduction limitation under Section 162(m) of the Internal Revenue Code will no longer be available to the Company and annual compensation paid to our covered executives in excess of $1 million will not be deductible.

Section 304 of the Sarbanes-Oxley Act of 2002 applies to any cash or equity-based incentive compensation paid to specified executives where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of restatement.

We are administering all nonqualified, deferred compensation plans and payouts applicable to our Named Executive Officers with the intent to be exempt from, or in compliance with, the provisions of Section 409A of the Internal Revenue Code added under the American Jobs Creation Act of 2004.

 

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STOCK OWNERSHIP GUIDELINES FOR OFFICERS

The Nominating and Corporate Governance Committee of our Board of Directors determined that we should establish stock ownership guidelines for certain of our officers and officers of our subsidiaries in an effort to link more closely the financial interests of these officers with those of our stockholders.

Our Board of Directors adopted the following ownership guidelines for our common stock, $0.001 par value (“Common Stock”), for the officers at the levels indicated below:

Group Ownership Level
CEO 5x base salary
Level 1 Executives
(Direct reports to CEO)
3x base salary
Level 2 Executives
(Direct reports to Level 1 Executives and at least a vice president)
1x base salary

Our Board of Directors approved that: (a) each such officer will have five years after the adoption of these guidelines or his or her appointment to an applicable office, whichever is later, to achieve the indicated ownership level; (b) all beneficially owned shares of Common Stock and vested and unvested restricted stock and restricted stock units are counted towards achievement of the ownership guideline; (c) once an officer has achieved the applicable level of Common Stock ownership he or she is not required to retain or purchase additional shares if a decline in the price for the Common Stock causes his or her holdings to be less than the applicable ownership level; (d) the value of shares of Common Stock is determined as the closing price of the Common Stock for the particular date; and (e) on and after each officer’s 60th birthday, the officer’s required ownership level is reduced to fifty percent (50%) of the ownership level provided for above; provided, however, no such adjustment will be made for the ownership levels of the CEO, Chief Operating Officer (if any), CFO, and General Counsel. All of our Named Executive Officers meet our Stock Ownership Guidelines or are on track to meet the guidelines within the five year period described above.

NO PLEDGING

Our Board of Directors approved as part of the stock ownership guidelines above that no officer of the Company may pledge, hypothecate, create any lien or security interest on, or enter into a margin contract secured by, any shares, options to purchase shares, or any other interest in shares of Common Stock.

MINIMUM HOLDING PERIOD FOR RESTRICTED STOCK UNITS AND STOCK OPTIONS

Our Compensation Committee has reviewed whether or not to adopt a holding period for our restricted stock units and stock options. The Compensation Committee has elected not to adopt a minimum holding period because we have (i) strong stock ownership guidelines and (ii) adopted a long vesting schedule for our restricted stock units.

ANTI-HEDGING POLICY

Our anti-hedging policy prohibits all of our Board of Directors, employees, and agents from (i) speculative trading in our securities; (ii) engaging in hedging transactions using our securities; (iii) “short selling” our securities; and (iv) trading derivative securities, such as put options, call options, swaps, or collars related to our securities.

CONCLUSION

In a highly competitive market for executive talent, we believe our customers’ and employees’ interests, as well as those of our stockholders and other stakeholders, are well served by our compensation programs. These programs are reasonably positioned among our Core Peer Group, encourage and promote our compensation objectives with a strong emphasis on pay for performance, and permit the exercise of our Compensation Committee’s discretion in the design and implementation of compensation packages. Going forward, we will continue to review our compensation plans periodically to determine what revisions, if any, should be made.

 

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Compensation Committee Report

The foregoing report of the Compensation Committee shall not be deemed to be “soliciting material” or to otherwise be considered “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference into such filing.

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, as provided above, with KBR’s management. Based on its review, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. Respectfully submitted,

The Compensation Committee of Directors

Jack B. Moore, Chairman
James R. Blackwell
Umberto della Sala
Lester L. Lyles

March 19, 2018

Compensation Committee Interlocks and Insider Participation

As of the date of this proxy statement, our Compensation Committee consists of Messrs. Moore, Blackwell, della Sala, and Lyles, all of whom are independent, non-executive directors. None of our Compensation Committee members has served as an officer or employee of KBR. Further, none of KBR’s executive officers has served as a member of a board of directors or compensation committee of any entity that had one or more of its executive officers serving on the Board or the Compensation Committee of KBR.

 

 

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Executive Compensation

SUMMARY COMPENSATION

The following table sets forth information regarding the compensation of our Named Executive Officers for the fiscal year ended December 31, 2017, and, if the individual was a NEO for the applicable fiscal year, for the fiscal years ended December 31, 2016 and 2015.

 

Name and
Principal Position
Year Salary
($)(1)
Bonus
($)
Stock
Awards
($)(2)(3)
Option
Awards
($)(2)(3)
Non-Equity
Incentive Plan
Compensation
($)(4)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(5)
All
Other
Compensation
($)(6)
Total
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
Stuart J. B. Bradie 2017 1,000,022 3,458,010 4,793,500 2,717 63,814 9,318,063
President & CEO 2016 1,000,022 2,276,270 625,000 2,307 61,642 3,964,642
  2015 1,038,485 2,533,062 675,004 1,870,000 5,391 151,363 6,273,305
Mark W. Sopp(7) 2017 534,167 876,349 844,800 119,573 2,374,889
EVP & CFO                  
(February 28, 2017 - Present)                  
Brian K. Ferraioli(8) 2017 142,505 25,935 11,676 180,116
Former EVP & CFO 2016 650,021 579,424 263,250 17,100 40,159 1,549,954
(through February 28, 2017) 2015 675,022 788,076 210,005 837,720 11,313 65,490 2,587,626
Farhan Mujib 2017 547,899 806,870 1,498,950 152 118,283 2,972,154
President, E&C Americas 2016 499,502 579,424 297,000 171 65,785 1,441,882
  2015 543,372 788,076 210,005 668,274 1,945 207,353 2,419,025
K. Graham Hill 2017 537,137 576,343 1,152,000 874 46,171 2,312,525
EVP, Global Business Development & Strategy 2016 550,014 413,871 185,625 694 35,337 1,185,542
J. Jay Ibrahim 2017 506,935 489,896 1,060,155 311 312,509 2,369,806
President, EMEA and APAC 2016 447,706 310,404 163,688 118 262,899 1,184,815

(1) Salary equals base pay paid to each Named Executive Officer during the applicable year, including any elective deferrals into the Kellogg Brown & Root, Inc. Retirement and Savings Plan or the KBR Elective Deferral Plan. The actual salary paid may fluctuate due to the number of pay periods during the calendar year and the timing of payroll processing at each calendar-year end.

(2) The amounts in columns (e) and (f) represent the aggregate grant date fair value of awards granted in 2015, 2016, and 2017, pursuant to the KBR Stock and Incentive Plan. The fair values were determined in accordance with FASB ASC 718, “Stock Compensation.” Assumptions used in the calculation of these amounts are described in note 1 under “Description of Company and Significant Accounting Policies” and note 21 under “Share-based Compensation and Incentive Plans” of our audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2017, and the comparable disclosures in 2015 and 2016. The portion of the awards granted to Mr. Ferraioli in 2015 and 2016 that had not yet vested before he terminated employment were forfeited on his termination of employment from KBR in 2017.

(3) With respect to the performance cash awards granted in 2015, 2016 and 2017, which are based 50% on TSR, and to that extent are included in the value of stock awards in column (e), the assumptions assume the probable outcome of the TSR performance condition, which is computed in accordance with FASB ASC 718 (excluding the effect of estimated forfeitures). At maximum performance, each performance award unit reported in column (e) would be equal to $2.00. This would give (i) Mr. Bradie a stock awards value under column (e) of $6,000,010 in 2017, $5,500,005 in 2016 and $6,525,012 in 2015; (ii) Mr. Sopp a stock awards value under column (e) of $1,300,016, comprising $1,000,000 for his annual award and $300,016 for his sign-on award in 2017; (iii) Mr. Ferraioli a stock awards value under column (e) of $1,400,014 in 2016 and $2,030,016 in 2015 (iv) Mr. Mujib a stock awards value under column (e) of $1,400,003 in 2017, $1,400,014 in 2016 and $2,030,016 in 2015; (v) Mr. Hill a stock awards value under column (e) of $1,000,009 in 2017 and $1,000,006 in 2016; and (vi) Mr. Ibrahim a stock awards value under column (e) of $850,013 in 2017 and $750,004 in 2016; Mr. Ferraioli was not granted restricted stock units, stock options, or performance cash awards in 2017 due to his termination of employment from KBR in 2017.

(4) Amounts reportable in column (g) relate to (i) payments under our KBR Senior Executive Performance Pay Plan for 2017, 2016, and 2015; and (ii) payments related to the 50% portion of the 2015 performance cash awards that is based on the JIS performance measure and which were granted under our KBR 2006 Stock Incentive Plan. Benefits under our KBR Senior Executive Performance Pay Plan and the KBR 2006 Stock Incentive Plan are payable by their terms during the first quarter of the following year.

 

  2018  |  PROXY STATEMENT    55   

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(5) The amounts shown in column (h) include the following:

 

Name

Year

Benefit Restoration

Elective Deferral

Total(A)

 

Bradie

2017

2,717

2,717

 

 

2016

2,307

2,307

 

 

2015

5,391

5,391

 

Sopp

2017

 

Ferraioli

2017

1,469

24,466

25,935

 

 

2016

1,843

15,257

17,100

 

 

2015

9,134

2,179

11,313

 

Mujib

2017

152

152

 

 

2016

171

171

 

 

2015

1,945

1,945

 

Hill

2017

874

874

 

 

2016

694

694

 

Ibrahim

2017

311

311

 

 

2016

118

118

(A)

Any amounts reportable here and in column (h) of the Summary Compensation Table are payable in connection with KBR’s nonqualified deferred compensation plans, including the KBR Benefit Restoration Plan (“Benefit Restoration”), and KBR Elective Deferral Plan (“Elective Deferral”). These amounts reflect above-market or preferential earnings on nonqualified deferred compensation.

(6) The amounts shown in column (i) above include the following:

 

Name

Year

Company

Retirement

Plan

Match

Benefit

Restoration

Award(A)

Dividends(B)

Vacation

Payoff(C)

Housing

Allowance(D)

Company

Car(E)

Relocation

Costs(F)

School

Fees(G)

Standard Tax

Equalization(H)

Travel(I)

Executive

Physicals(J)

Financial

Planning

Tax

Preparation

Fees(K)

Total

 

Bradie

2017

14,850

40,151

317

1,807

2,150

4,539

63,814

 

 

2016

14,575

45,290

651

1,186

2,150

2,190

61,042

 

 

2015

14,143

42,542

40,174

9,994

584

28,223

5,120

2,150

8,433

151,363

 

Sopp

2017

14,850

100,000

2,573

2,150

119,573

 

Ferraioli

2017

7,838

3,838

11,676

 

 

2016

14,575

23,724

1,860

40,159

 

 

2015

14,438

22,551

28,442

59

65,490

 

 Mujib

2017

14,850

15,284

33,232

36,666

11,804

2,150

4,297

118,283

 

 

2016

30,510

13,556

15,515

1,647

996

3,561

65,785

 

 

2015

50,968

18,532

13,785

122,443

1,625

207,353

 

Hill

2017

14,850

14,693

1,562

2,150

12,916

46,171

 

 

2016

14,575

17,562

2,150

1,050

35,337

 

Ibrahim(L)

2017

14,850

13,031

102,605

15,846

48,342

90,762

22,794

2,150

2,129

312,509

 

 

2016

14,575

11,353

91,982

14,627

38,946

40,485

27,611

17,416

2,150

1,625

262,899

(A)

The amount for Messrs. Bradie, Ferraioli, Ibrahim and Hill's amounts in this column for 2016 were adjusted after further review to reflect their actual amounts received.

(B)

Dividends reflect amounts paid on non-performance related stock awards. Dividends on the stock awards listed in column (e) of the Summary Compensation Table are factored into the grant date fair value. As a result, we are not required under the SEC rules to report separately in column (i) of the Summary Compensation Table any dividends paid on the stock awards. For 2015, we reported dividends paid in column (i) of the Summary Compensation Table under the “Dividends” column of footnote 6 of the Summary Compensation Table. For 2016 and going forward, we are not reporting dividends paid to be consistent with the SEC rules that allow them to be excluded if they are factored into the grant date fair value. We did not remove the dividends paid in 2015 from the “Dividends” column of footnote 6 of the Summary Compensation Table to be consistent with what we reported in the proxy statement for 2015.

(C)

The amounts in this column represent payment of Mr. Ferraioli’s Paid Time Off balance due to his termination of employment from KBR in 2017.

(D)

The amounts in this column represent housing allowances provided to: Messrs. Bradie in connection with his initial business-related move; Mr. Mujib in connection with his relocation to the United States in October 2016 to assume his new role; and Mr. Ibrahim in connection with his international assignment, which is consistent with the Company’s standard KBR Relocation Policy offered to all employees who receive a relocation package.

(E)

The amounts in this column represent: (i) costs for Messrs. Bradie’s and Ferraioli’s personal use of the Company-leased car and driver; (ii) Mr. Mujib’s car allowance received during his employment in the United Kingdom from January 1, 2016, through September 30, 2016, and his six-month car lease to assist with his relocation to the United States in October 2016 to assume his new role and his car allowance received during his employment in the United Kingdom from January 1, 2015 through December 31, 2015; and (iii) Mr. Ibrahim’s car allowance in connection with his international assignment. The amount of Mr. Mujib’s car allowance in this column, which was provided under the UK car allowance policy offered to all similarly situated employees, was converted from British Pounds to U.S. Dollars using the exchange rate applicable for the month paid.

(F)

The amounts in this column represent closing and/or other relocation costs in connection with Messrs. Bradie, Sopp, and Mujib’s business-related relocations, which are consistent with the Company’s standard KBR Relocation Policy offered to all employees who receive a relocation package and Mr. Ibrahim’s in connection with his international assignment, which is consistent with the Company’s standard KBR Relocation Policy offered to all employees who receive a relocation package. Messrs. Bradie, Sopp, and Mujib did not receive any home-loss buyout protection in connection with their relocations. The relocation payments are one-time and limited in duration.

(G)

The amounts in this column represent school fees paid by the Company for Mr. Ibrahim’s dependents in connection with his international assignment. The amount of Mr. Ibrahim’s dependents’ school fees was converted from United Arab Emirates Dollars to U.S. Dollars using the exchange rate applicable for the month paid, which was 0.27226.

(H)

The tax equalization is the payment of the taxes associated with international assignment, which is consistent with the Company’s standard KBR Relocation Policy that is offered to all employees who receive a relocation package.

(I)

The travel payments for Mr. Bradie are payments for his family to travel between the United Kingdom and Houston, Texas to assist with the international relocation, except for $1,807 in 2017 and $1,186 in 2016, which relate to spousal travel for a business trip. The travel expenses for Mr. Mujib relate to payments for his dependents to travel between the United Kingdom and Houston, Texas to assist with the international relocation. The travel expenses for Messrs. Sopp and Hill relate to spousal travel for a business trip. The travel expenses for Mr. Ibrahim relates to travel by him and/or his dependents to assist with his international assignments which is consistent with the Company’s standard KBR Relocation Policy offered to all employees who receive a relocation package.

(J)

The amounts in this column represent costs for executive physicals required by the Company. The Company believes the health of its leadership impacts how it delivers for the organization. Taking a proactive approach to health and wellness with a focus on prevention is in alignment with the Company’s Zero Harm and Wellness Program initiatives and ensures business stability.

(K)

The amounts in this column represent cost for assistance with Messrs. Bradie’s, Mujib’s, Hill’s and Ibrahim’s tax returns. The tax preparation fee for Mr. Hill relates to service rendered in 2017 for $5,010 and in 2016 for $7,906, which were both paid in 2017.

(L)

The amounts for Mr. Ibrahim in columns D, E, F, H and I relate to his expatriate assignment consistent with the Company’s standard expatriate policies.

(7)

Mr. Sopp became Chief Financial Officer of KBR effective February 28, 2017.