UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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KFORCE INC.
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2020 | Proxy Statement |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
You are cordially invited to attend the 2020 Annual Meeting of Kforce Inc. Shareholders (the Annual Meeting) that will be held on Tuesday, April 28, 2020 at 1001 East Palm Avenue, Tampa, Florida 33605, commencing at 8:00 a.m., eastern time.
We are holding this meeting to:
1. | Elect two Class II directors to hold office for a three-year term expiring in 2023; |
2. | Ratify the appointment of Deloitte & Touche LLP as Kforce’s independent registered public accountants for 2020; |
3. | Conduct an advisory vote on executive compensation; |
4. | Approve the Kforce Inc. 2020 Stock Incentive Plan; and |
5. | Attend to other business properly presented at the meeting. |
Kforce’s Board of Directors (the Board) has selected February 21, 2020 as the record date (the Record Date) for determining shareholders entitled to vote at the meeting.
The proxy statement, proxy card and Kforce’s 2019 Annual Report to Shareholders are being mailed on or about March 20, 2020. Whether or not you plan to attend the annual meeting, we encourage you to vote your shares by using the internet, phone, or by signing, dating and returning the enclosed proxy card.
If you need further assistance, please contact Kforce Investor Relations at (813) 552-5000. Thank you for your continuing support.
BY ORDER OF THE BOARD OF DIRECTORS
David M. Kelly
Corporate Secretary
Tampa, Florida
March 20, 2020
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on April 28, 2020. This proxy statement and our 2019 Annual Report to Shareholders are available at http://investor.kforce.com/investor-relations/financial-information/annual-reports-and-proxy. |
1 Kforce 2020 Proxy Statement
LETTER TO OUR SHAREHOLDERS
At Kforce, our brand promise is to achieve great results through strategic partnerships and knowledge sharing with our clients, candidates and consultants. Our mission is to unite professionals to help them succeed in achieving their goals through lasting personal relationships.
We believe that a dedication to our brand promise and mission will lead to above-market, long-term growth. Our largest business, Technology, grew 6.8% in 2019 and has grown at a compound annual rate of 8.5% over the last ten years. Our demonstrated growth and expected future growth prospects, when coupled with our continued improvements in profitability levels, led to a total shareholder return of more than 80% over the last three years, which was the best in our peer group. We are committed to engaging with our clients, consultants and the community while driving long-term, sustainable performance, providing transparent corporate governance and regularly communicating with our shareholders.
BOARD REFRESHMENT
We believe our directors contribute a depth and variety of experiences and backgrounds that provide significant value to the Board, management and our shareholders. Over the past several years, we have been committed to engaging in board refreshment activities to promote a balance of tenure, diversity, experience and independence across the Board. Consistent with that commitment, over the past five years we added three members to the Board who brought unique perspectives, independence and valuable experiences. Those additions were made knowing some of our longest-tenured directors would eventually step down after long, distinguished careers. To that point, three members of the Board have elected not to stand for re-election this year. We are grateful for their significant contributions to the Firm and our shareholders, and we are committed to continuing our efforts to add directors who contribute to the overall mix of tenure, diversity, experience and independence that will best serve our shareholders in the upcoming years.
SOCIAL RESPONSIBILITY
Our social responsibility efforts reflect our desire to have a positive impact on the communities in which we live and work with a focus on organizations that provide education, human services and community development. The associates in our headquarters and in each of our 50 offices are dedicated to making their communities better places to live and work. This commitment was on display throughout the year and especially during our Annual Day of Giving, an impactful day where 1,400 employees nationwide volunteered in over 65 deserving events in our local communities. We also actively sponsored events throughout the year that further our commitment to social responsibility, including Kforce Kids' STEM Fairs to educate the next generation of innovators, creators and experts and focused events to celebrate our dynamic workforce and diverse culture.
SHAREHOLDER ENGAGEMENT
Our commitment to shareholder engagement is grounded in open, effective and transparent communication. The feedback and perspective we received from our shareholders has and will continue to inform our corporate governance and our executive compensation practices and strategies. We encourage you to learn more about our governance and compensation practices by reading this Proxy Statement and visiting the Investor Relations page on our website at www.kforce.com. We appreciate all of those who participated in our shareholder outreach efforts in 2019 and remain open to and invite your feedback in 2020.
We thank you for your ownership and support of Kforce and for allowing us the privilege of serving you.
 |  |
David L. Dunkel Chairman and Chief Executive Officer | Ralph E. Struzziero Lead Independent Director |
2 Kforce 2020 Proxy Statement
TABLE OF CONTENTS
3 Kforce 2020 Proxy Statement
CORPORATE GOVERNANCE
OUR BOARD OF DIRECTORS
The Board currently consists of five continuing directors, two nominees, and three directors who will step down at the Annual Meeting. The directors are divided into three classes serving staggered three-year terms. The following table sets forth the names, ages (as of February 21, 2020), and certain other information for each of our directors (including those who are nominees for election at the Annual Meeting).
Class | Age | Position | Director Since | Current Term Expires | Expiration of Term for Which Nominated | Independent | Audit Comm | Comp. Comm | Nomin. Comm | Corp. Gov. Comm | Exec. Comm | |
Directors with Terms Expiring at the Annual Meeting and/or Nominees | ||||||||||||
Ann E. Dunwoody | II | 67 | Director | 2016 | 2020 | 2023 | ü |  | | |||
N. John Simmons (1) | III | 64 | Director | 2014 | 2021 | 2023 | ü |  | | |||
Continuing Directors | ||||||||||||
David L. Dunkel | III | 66 | Chairman, CEO Director | 1994 | 2021 | N/A |  | |||||
Mark F. Furlong | III | 62 | Director | 2001 | 2021 | N/A | ü | | | | ||
Randall A. Mehl | I | 52 | Director | 2017 | 2022 | N/A | ü | | | |||
Elaine D. Rosen | I | 67 | Director | 2003 | 2022 | N/A | ü | | | | ||
Ralph E. Struzziero | I | 75 | Director | 2000 | 2022 | N/A | þ | | | |||
Non-Continuing Directors (1) | ||||||||||||
John N. Allred | II | 73 | Director | 1998 | 2020 | N/A | ü | | | | ||
Richard M. Cocchiaro | II | 65 | Director | 1994 | 2020 | N/A | | |||||
A. Gordon Tunstall | II | 76 | Director | 1995 | 2020 | N/A | ü | | | | | |
Legend: | þ | Lead Independent Director | | Chair | | Member | | Financial Expert |
(1) On January 30, 2020, John N. Allred, Richard M. Cocchiaro and A. Gordon Tunstall each informed Kforce that due to his long tenure as a member of the Board and consistent with Kforce’s Board refreshment initiatives, he would not stand for re-election as a Class II Director at the Annual Meeting. Each of these directors’ decision to step down was not the result of any disagreements with the Board, management or the Firm. Although the size of the Board will be reduced from ten to seven directors after the Annual Meeting, the Board is committed to continuing its refreshment activities and its size could change in the future. Because of these directors’ decisions not to stand for re-election, we would have an unbalanced Board (three Class I directors, one Class II director and three Class III directors), which is not permitted under Florida law. Accordingly, to rectify this potential issue, N. John Simmons will resign as a Class III director, effective immediately prior to the Annual Meeting, and is standing for election as a Class II director.
The Class II nominees identified above have been nominated to serve as directors for a three-year term expiring at the 2023 annual meeting of shareholders. All of the nominees are currently directors of Kforce and were previously elected by the shareholders.
BIOGRAPHICAL INFORMATION FOR OUR DIRECTOR NOMINEES
The biographies for each of our director nominees are set forth on the following page, along with a description of the experiences, qualifications, attributes or skills that caused the Nomination Committee and the Board to determine that they should serve as a director of Kforce.
4 Kforce 2020 Proxy Statement
NOMINEES FOR ELECTION, CLASS II DIRECTORS - TERMS EXPIRE IN 2023
Ann E. Dunwoody | |||
 | General (Ret.) Dunwoody was the first woman in U.S. military history to achieve the rank of four-star general. From 2008 until her retirement in 2012, she led and ran the largest global logistics command in the Army comprising 69,000 military and civilian individuals, located in all 50 states and over 140 countries with a budget of $60 billion dollars. General (Ret.) Dunwoody served on the Board of Directors of Republic Services Inc., and L-3 Communications. She currently serves on the Board for Logistics Management Institute, Fidelity Fixed Income Asset Allocation (FIAA) Board of Trustees, and Automattic. She also serves on the Council of Trustees for the Association of the United States Army and the Board of Trustees for the Florida Institute of Technology and she is the president of First 2 Four LLC, a leadership mentoring and strategic advisory services company. She authored “A Higher Standard: Leadership Strategies from the First Female Four Star General”, is a recipient of The Ellis Island Medal of Honor and was West Point’s US Military Academy 2019 recipient of the Thayer Award. General (Ret.) Dunwoody brings to the Board extensive military and management experience, including managing a significant portion of the United States Army’s budget as Commanding General, U.S. Army Materiel Command. General (Ret.) Dunwoody is also certified as an NACD Governance Fellow. She has also served as a member of the Board of Directors on other publicly traded companies and is engaged in numerous charitable and civic activities, which the Board believes allows her to provide valuable and varied perspective. | ||
Director since 2016 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Nomination and Corporate Governance | |
Age | 67 | ||
N. John Simmons | |||
 | Mr. Simmons is the Chief Operating Officer and Chief Financial Officer of DeMert Brands, Inc., a designer, manufacturer and distributor of haircare products. He previously served as the Chief Executive Officer of Growth Advisors, LLC, a provider of C-level advisory services to high-growth companies. He has served on various boards of directors, including Bonds.com Group, Inc. from 2013 to 2014, Loyola University New Orleans Board of Trustees from 2009 to 2015, during which he was Chairman of the Audit Committee and an Executive Committee member; Lifestyle Family Fitness, Inc. from 2001 to 2012; Technology Research Corporation as Chairman of the Compensation Committee from 2010 to 2011 and as Lead Director and Chairman of the Governance and Nominating Committee from 2009 to 2010; Medquist, Inc. as Chairman of the Audit Committee from 2005 to 2007; and SRI Surgical Express, Inc. as Lead Director, then Chairman of the Board from 2001 to 2008. He served as the CEO and President of Lifestyle Family Fitness, Inc. from 2008 to 2012. Mr. Simmons’ prior experience also includes service as President of New Homes Realty, a Florida-based residential real estate company operating in 35 states for two years, President of Quantum Capital Partners, a privately held venture capital firm for 14 years, Vice President and Controller for Eckerd Corporation for three years, Chief Financial Officer of Checkers Drive-In Restaurants for two years and as an audit partner with KPMG Peat Marwick. Mr. Simmons is an Audit Committee financial expert; he has extensive financial, accounting, management and director experience in several different industries. As a result, the Board believes that he brings valuable insight due to his extensive and varied experiences as a chief executive officer, chief financial officer, audit partner and director. | ||
Director since 2014 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Audit and Corporate Governance | |
Age | 64 | ||
PROPOSAL 1. ELECTION OF DIRECTORS
NOMINEES
The Nomination Committee has recommended, and our Board has approved, each of Ann E. Dunwoody and N. John Simmons as nominees for election as Class II directors at the Annual Meeting. If elected, the Class II directors will serve until our 2023 annual meeting of shareholders, and until their successors are duly elected and qualified. Each of the nominees is currently a director of the Firm. For information concerning the nominees, please see the section titled “Biographical Information for our Director Nominees.” Each of the nominees is willing and able to stand for election at the Annual Meeting, and we do not know of any reason why any of the nominees would be unable to serve as a director. If any nominee becomes unable or unwilling to stand for election, the Board may reduce its size or designate a substitute. If a substitute is designated, proxies voting for the original nominee will be cast for the substituted nominee.
VOTE REQUIRED
We use a majority voting standard for uncontested elections. The election of directors at this year’s Annual Meeting is an uncontested election and thus the majority voting standard applies. To be elected, the votes “for” a director must exceed 50% of the votes actually cast with respect to the director’s election. Votes actually cast include votes where the authority to cast a vote for the director’s election is explicitly withheld and excludes abstentions and broker non-votes.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1. |
5 Kforce 2020 Proxy Statement
BIOGRAPHICAL INFORMATION FOR OUR OTHER DIRECTORS
CLASS III DIRECTORS - TERMS EXPIRE IN 2021
David L. Dunkel | |||
 | Mr. Dunkel has served as Kforce’s Chairman, Chief Executive Officer and a director since the Firm’s incorporation in 1994 and possesses a deep and unique understanding of the Firm’s business and operations. The Board believes that this experience, coupled with his extensive knowledge of the staffing industry, provides strong, consistent leadership and allows him to serve as a highly effective bridge between the Board and management. In addition, in his capacity as CEO, Mr. Dunkel frequently meets with shareholders, clients and other Firm stakeholders to communicate our business and strategy and to understand their various perspectives and insights, which he is then able to relay to the full Board for consideration and assessment. | ||
Director since 1994 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Executive (Chair) | |
Age | 66 | ||
Mark F. Furlong | |||
 | Mr. Furlong has served as a director of Heska Corporation, a provider of advanced veterinary diagnostic and specialty products, since March 2019 and of Boston Private Financial Holdings, Inc., a provider of wealth management, trust and private banking services, since September 2016; he has also served as a director of Antares Capital, a provider of financing solutions for middle market, private equity-backed transactions, since December 2015. He served as the President and Chief Executive Officer of BMO Harris Bank, N.A. from July 2011 to June 2015. Mr. Furlong served as a director of BMO Harris Bank, N.A. and BMO Financial Corporation from July 2011 to June 2015. Prior to its acquisition by BMO Harris Bank, N.A. in 2011, he served as Chairman of Marshall & Ilsley Corporation from October 2010, Chief Executive Officer from April 2007 and as President from July 2004. He also served as Chief Financial Officer of Marshall & Ilsley Corporation from April 2001 to October 2004. Mr. Furlong’s prior experience also includes service as an audit partner with Deloitte & Touche LLP. Mr. Furlong is an Audit Committee financial expert. Kforce believes his considerable expertise, including his experience as President and Chief Executive Officer of BMO Harris Bank, N.A., the former Chairman, President and Chief Executive Officer of Marshall & Ilsley Corporation and a former audit partner with Deloitte & Touche LLP, brings unique insight to the Board concerning capital allocation strategies and banking issues, in addition to his overall management and financial expertise. | ||
Director since 2001 | Other Current Public Company Board(s): Boston Private Financial Holdings, Inc. (NASDAQ: BPFH); Heska Corporation (NASDAQ: HSKA) | Kforce Board Committee(s): Audit (Chair); Compensation; and Corporate Governance | |
Age | 62 | ||
CLASS I DIRECTORS - TERMS EXPIRE IN 2022
Randall A. Mehl | |||
 | Mr. Mehl is President and Chief Investment Officer of Stewardship Capital Advisors, LLC, which manages an equity fund focused on making investments in business and technology services. He also currently serves on the Board of Directors of two public companies, Insperity, Inc. and ICF International, Inc., as well as Stowell Associates Inc., a privately held home care agency. He previously served as a Managing Director and a partner with Baird Capital, a middle market private equity group, leading a team focused on the business and technology services sector from 2005 to 2016. From 1996 to 2005, Mr. Mehl was a senior equity research analyst with Robert W. Baird & Company, covering various areas within the broader business and technology services sector, including staffing. Mr. Mehl is an Audit Committee financial expert. Mr. Mehl has also previously served on various boards of directors, including Workforce Insight LLC, Myelin Communications, Vitalyst LLC, MedData, LLC, now a subsidiary of MEDNAX, American Auto Auction, LLC, Accume Partners, Inc, and Harris Research Inc. Mr. Mehl has previously served on the investment committee for several funds, and has expertise analyzing, acquiring and selling businesses. | ||
Director since 2017 | Other Current Public Company Board(s): ICF International, Inc. (NASDAQ: ICFI); Insperity, Inc. (NYSE: NSP) | Kforce Board Committee(s): Audit and Corporate Governance | |
Age | 52 | ||
6 Kforce 2020 Proxy Statement
Elaine D. Rosen | |||
 | Ms. Rosen has served as a director of Assurant, Inc., a provider of specialized insurance and insurance-related products and services since March 2009 and became the non-executive Chair of the Board in November 2010. Ms. Rosen has also served as the Chair of the Board of The Kresge Foundation since January 2007. Ms. Rosen serves as trustee or director of several non-profit organizations, is a past Chair of the Board of Preble Street, a homeless collaborative in Portland, Maine, and has served as a trustee of the Foundation for Maine’s Community Colleges since 2008. Ms. Rosen was a director of the Elmina B. Sewall Foundation from 2008 to 2012 and Downeast Energy Corp., a privately-held company that provides heating products and building supplies, from 2003 until its sale in April 2012. From 1975 to March 2001, Ms. Rosen held a number of positions with Unum Life Insurance Company of America, including President. Ms. Rosen has extensive experience as a senior executive in the insurance industry and as a director of several companies, as well as substantial experience with charitable organizations, particularly as the Chair of one of the largest private foundations in the country. With her background and experience as Chair of the Compensation Committee of Kforce; on the Board of Assurant, Inc., where she currently serves as the non-executive Chair and serves on the compensation committee, she has considerable expertise in, among other things, executive compensation, which is a subject matter that is undergoing dynamic change. | ||
Director since 2003 | Other Current Public Company Board(s): Assurant, Inc. (NYSE: AIZ) | Kforce Board Committee(s): Compensation (Chair); Nomination; and Corporate Governance | |
Age | 67 | ||
Ralph E. Struzziero | |||
 | Since 1995, Mr. Struzziero has operated an independent business consulting practice, providing interim executive-level advisory and professional services to a variety of organizations. In addition, he served as an adjunct professor at the University of Southern Maine from 1997 to 2006. Mr. Struzziero previously served as Chairman (1990-1994) and President (1980-1994) of Romac & Associates, Inc., one of Kforce’s predecessors. Mr. Struzziero is also currently a director of Automobile Club of Southern California, a travel club and property and casualty insurer in California, AAA of Northern New England, a travel club serving Maine, New Hampshire and Vermont, and Auto Club Enterprise, a holding company of these two companies. Mr. Struzziero previously served on the Board of Directors of Prism Medical Ltd., a publicly traded corporation on the TSX Venture Exchange in Canada and manufacturer and distributor of moving and handling equipment for the mobility challenged, from July 2011 until its sale in August 2016, and Downeast Energy Corp., a privately-held company that provides heating products and building supplies, from January 2001 until its sale in April 2012. Mr. Struzziero has extensive experience in the staffing industry. The Board believes this gives Mr. Struzziero, in his capacity as Lead Independent Director, a unique insight among the non-employee directors relating to Kforce’s business and operations. | ||
Director since 2000 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Compensation; and Corporate Governance (Chair) | |
Age | 75 | ||
NON-CONTINUING DIRECTORS - TERM EXPIRES IN 2020
John N. Allred | |||
 | Mr. Allred has served as President of A.R.G., Inc., a provider of temporary and permanent physicians located in the Kansas City area since January 1994. He was a director at Source Services Corporation (Source) prior to its merger with Kforce in 1998 and served in various capacities with Source from 1976 to 1993 including Vice President (1987-1993), Regional Vice President (1983-1987) and Kansas City Branch Manager (1976-1983). | ||
Director since 1998 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Audit; Nomination (Chair); and Corporate Governance | |
Age | 73 | ||
7 Kforce 2020 Proxy Statement
Richard M. Cocchiaro | |||
 | Mr. Cocchiaro served as a Vice Chairman of Kforce from 2004 through his retirement in January 2016, during which time he oversaw Customer First, our customer loyalty program, and served on both Kforce’s internal executive committee and innovation council. Previously, Mr. Cocchiaro served as Vice President of Strategic Accounts for Kforce (2000–2004), Vice President of Strategic Alliances for Kforce.com Interactive (1999) and National Director of Strategic Solutions within Kforce’s emerging technologies group (1994-1999). | ||
Director since 1994 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Executive | |
Age | 65 | ||
A. Gordon Tunstall | |||
 | Mr. Tunstall is the founder, and for more than 30 years has served as President, of Tunstall Consulting, Inc., a provider of strategic consulting and financial planning services. He has also served as a director of Tabula Rasa Healthcare, Inc., a medication risk management and distribution pharmacy, since March 2012. Mr. Tunstall previously served as a director for JLM Industries, Inc., Orthodontics Center of America, Inc., Discount Auto Parts, Inc., Advanced Lighting Technologies Inc., Health Insurance Innovations, Horizon Medical Products Inc., and L.A.T. Sportswear. | ||
Director since 1995 | Other Current Public Company Board(s): None | Kforce Board Committee(s): Nomination; Corporate Governance; and Executive | |
Age | 76 | ||
ROLE OF THE BOARD
The Board’s primary functions are to:
• | oversee management performance on behalf of our shareholders; |
• | advocate on behalf of the long-term interests of our shareholders; |
• | discuss and consider the Firm’s strategic planning and executive succession activities; |
• | review and approve the Firm’s long-term strategic plan developed by management; |
• | be actively involved in the oversight of risk that could affect Kforce; |
• | promote the exercise of sound corporate governance; and |
• | carry out other duties and responsibilities as may be required by state and federal laws, as well as the NASDAQ rules. |
Sound corporate governance is fundamental to the overall success of Kforce. Our key governance documents, including our Corporate Governance Guidelines, are available at http://investor.kforce.com/investor-relations/corporate-governance.
At each regular Board meeting, various operational, strategic, financial and legal compliance areas, business and sector trends, progress against established objectives and risks are reviewed by the Board, in conjunction with management, through management reports and dialogue with executive leadership.
At each Board meeting our Board receives:
• | an executive summary that includes, among other items, a risk factors section; |
• | Kforce’s financial and operational performance, including progress against its objectives; |
• | an update on our continued innovation (both technological and process) efforts; |
• | management’s assessment of the current state of the capital markets and macro-economic environment; |
• | management’s analysis on the current state of the staffing industry and corporate development activities; |
• | a claims, litigation and ethics hotline summary; |
• | a report on the Firm’s Enterprise Risk Management (ERM) program; and |
• | reports on other matters that may arise from time to time, that require reporting to the Board. |
On a monthly basis our Board receives:
• | a description of certain significant events and risk factors, if any, that have occurred in each period; |
• | a financial update from management, including operating trends against expectations; and |
• | any other necessary items requiring the attention of the Board. |
8 Kforce 2020 Proxy Statement
COMPOSITION AND DIVERSITY
The following charts depict certain composition metrics for our Board, excluding the three directors who will step down at the Annual Meeting.
Our Board exhibits a wide range of backgrounds, skills, attributes and experiences. Our directors have served in leadership and management positions across fields such as banking, executive compensation, investment banking, strategic advisory, insurance, government, military and staffing. These fields enable valuable oversight of our business and promote a broad understanding of the markets, products and industries of our client base. Three of our continuing directors qualify as audit committee financial experts, bringing important points of view and skills to the Board. The Nomination Committee periodically reviews the composition of the Board and its committees to ensure a well-functioning mix of diverse backgrounds and expertise.
The Nomination Committee strives to identify directors who will: (1) bring to the Board a variety of skills and backgrounds; (2) bring substantial senior management experience, financial expertise and other skills that would enhance the Board’s effectiveness; and (3) represent the balanced, best interests of our shareholders as a whole and the interests of our stakeholders, as appropriate, rather than special interest groups or constituencies. In selecting individual nominees, the Nomination Committee assesses independence, character and integrity, potential conflicts of interest, experience, diversity and the willingness to devote sufficient time to carrying out the responsibilities of a director. While the Board has not adopted a formal policy on diversity, the Nomination Committee is committed to considering diversity during the director nomination process with the goal of creating a Board that best serves the Company and the interests of its shareholders.
The Nomination Committee has established a thorough director recruitment process by which it, the entire Board, the Firm’s independent directors and key management personnel all play a role in the identification, review, screening and interviewing of director candidates and, as necessary, would consider engaging an independent qualified director search firm. The Committee’s process for identifying and selecting director candidates is designed to ensure each candidate is evaluated for qualifications, independence, potential conflicts and other issues of importance to the Firm and composition of the Board. When identifying candidates, the Nomination Committee takes into account overall board composition. The priorities for recruiting new directors are based on the Firm’s strategic needs and the skills composition of the Board at any given time.
The Committee also understands the importance of Board refreshment for the generation of new ideas and strategies and is committed to the process in a manner that promotes a balance of perspective, experience and continuity. Since 2014, we have been committed to engaging in Board refreshment activities to promote a balance of tenure, experience and independence across our Board. Consistent with that commitment, we have advanced the refreshment and diversity of our Board through the the addition of three new board members in anticipation of our longest-tenured directors’ decisions not to stand for re-election. As a result of these efforts, the Board will have a significantly lower average tenure, a larger percentage of independent directors and greater gender diversity. The Committee continues to target nominees with expertise who it believes will align with and support the Firm’s strategic vision, operations and culture.
LEADERSHIP STRUCTURE
Our current leadership structure includes Mr. Dunkel’s service as both Chairman and Chief Executive Officer of the Firm. This role is coupled with, and balanced by, a lead independent director as well as independent Audit, Compensation, Nomination, and Corporate Governance committees. All continuing directors are independent, with the exception of Mr. Dunkel. The Board believes that this structure has served our shareholders well historically and continues to provide the most effective, efficient and appropriate framework for board oversight and governance.
Mr. Dunkel has served as Kforce’s Chairman, CEO and a director since the Firm’s incorporation in 1994 and as a result he possesses a deep and unique understanding of the Firm’s business and operations. The Board believes that this experience, coupled with his extensive knowledge of the staffing industry, provides strong, consistent leadership and allows him to serve as a highly effective bridge between the Board and management. In addition, in his capacity as CEO, Mr. Dunkel meets with shareholders, clients and other Firm stakeholders to communicate our business and strategy and understands their various perspectives and insights, which he is then able to relay to the full Board for consideration and assessment. Mr. Dunkel’s beneficial ownership of approximately 4.8% of Kforce’s outstanding common stock further aligns his interests with those of our shareholders and the Board continues to believe that his in-depth knowledge and experience places him in the best position to both guide and implement the Board’s direction.
9 Kforce 2020 Proxy Statement
Our Corporate Governance Guidelines recognize the importance of a lead independent director in the absence of an independent Chairman and sets forth specific roles and responsibilities of the lead independent director, including: presiding at executive sessions of the independent directors; serving as a liaison between the independent directors and the Chairman and CEO; and having oversight of CEO hiring, succession and performance. In addition, the chairs and all members of the Board’s Audit, Compensation, Nomination, and Corporate Governance Committees are independent directors. As a result, the oversight of the critical issues within the purview of these committees is entrusted to the independent directors and serves to further uphold effective governance standards.
The Board remains open to, and regularly seeks, shareholder feedback with regard to governance topics such as its leadership structure and considers the feedback provided as part of its assessment process.
COMMITTEES AND MEETINGS
Our Board has established five standing committees consisting of an Audit Committee, Compensation Committee, Nomination Committee, Corporate Governance Committee and Executive Committee. These committees facilitate a more in-depth assessment of certain important areas than can be addressed during a full Board meeting. The Board has determined that the chair and each of the committee members of its Audit, Compensation, Nomination, and Corporate Governance Committees are independent within the meaning of the NASDAQ and SEC Rules. The committee members and independent directors meet regularly in executive session without management. Additional information regarding the composition and responsibilities of each committee is described below. Each Committee has the authority to retain or obtain the advice of legal counsel, accountants, and other advisors. Written charters of each committee are available at http://investor.kforce.com/investor-relations/corporate-governance.
Audit Committee | |
Members: | Roles and Responsibilities of the Committee: |
Mark F. Furlong (Chair) | The Audit Committee oversees the accounting and financial reporting processes of the Firm and the audits of the Firm’s financial statements. In discharging this oversight role, the Audit Committee is empowered to investigate any matter brought to its attention, with full access to all books, records, facilities and personnel of Kforce, and the power to retain outside counsel or other experts. This committee also has the responsibility for selecting, evaluating, compensating, and monitoring the independence and performance of the Firm’s independent auditors, reviewing and approving related party transactions and overseeing the Firm’s internal audit function and ERM program, including cybersecurity risk assessment. At each quarterly meeting, or more frequently as needed, the members of the Audit Committee meet in executive session. The Audit Committee also meets regularly in separate executive sessions with the Firm’s Vice President of Internal Audit, General Counsel, and Deloitte & Touche LLP, our independent registered public accountants. The Board has determined that Messrs. Furlong, Mehl and Simmons are considered an “audit committee financial expert,” as defined by SEC Rules. |
John N. Allred | |
Randall A. Mehl | |
N. John Simmons | |
Number of Meetings: | |
5 | |
Compensation Committee | |
Members: | Roles and Responsibilities of the Committee: |
Elaine D. Rosen (Chair) | The Compensation Committee is responsible for development of the compensation principles to guide the design of the Firm’s executive compensation program. It is also responsible for reviewing and approving the executive compensation and benefits policies and practices of the Firm, approving any new or amended employment agreements for executive management including grants or awards to executive management under the Firm’s long-term incentive program and preparing an annual report on the Firm’s executive compensation policies and practices as required by SEC Rules. In the discharge of its duties, the Compensation Committee also has the authority to select and utilize a compensation consultant to assist in the evaluation of director and executive officer compensation. |
Mark F. Furlong | |
Ralph E. Struzziero | |
Number of Meetings: | |
6 | |
Nomination Committee | |
Members: | Roles and Responsibilities of the Committee: |
John N. Allred (Chair) | The Nomination Committee is responsible for providing assistance to the Board in the selection of director candidates for election. In addition to identifying and recommending candidates for election to the Board, this committee also makes recommendations to the Board regarding the size and composition of the Board, establishes procedures for the nomination process and recommends candidates for election to our Board. The Nomination Committee has the authority to retain a search firm to be used to identify director candidates and to approve the search firm’s fees and other retention terms. The Nomination Committee has not established “minimum qualifications” for director nominees because it is the view of this committee that the establishment of rigid “minimum qualifications” might preclude the consideration of otherwise desirable candidates for election to the Board. The Nomination Committee will consider director candidates recommended by shareholders. Refer to the section titled “Shareholder Communications, Proposals and Other Matters” below. |
Ann E. Dunwoody | |
Elaine D. Rosen | |
A. Gordon Tunstall | |
Number of Meetings: | |
4 | |
10 Kforce 2020 Proxy Statement
Corporate Governance Committee | |
Members: | Roles and Responsibilities of the Committee: |
Ralph E. Struzziero (Chair) | The functions of the Corporate Governance Committee are to: encourage and enhance communication among independent directors; provide a forum for independent directors to meet separately from management; provide leadership and oversight related to ethical standards; and provide a channel for communication with the CEO. The Corporate Governance Committee also coordinates a formal, written annual evaluation of the performance of the Board and each of its committees. Each member of the Board who is independent, within the meaning of these rules, serves on the Corporate Governance Committee. This committee is designed to fulfill the requirements of NASDAQ Rule 5605(b)(2) (i.e., through the meetings of this committee, our “independent” directors (as determined under the NASDAQ Rules) meet at least once annually in executive session without any of our management present). The Firm’s Lead Independent Director serves as the Chair of the Corporate Governance Committee. |
John N. Allred | |
Ann E. Dunwoody | |
Mark F. Furlong | |
Randall A. Mehl | |
Elaine D. Rosen | |
N. John Simmons | |
A. Gordon Tunstall | |
Number of Meetings: | |
4 | |
Executive Committee | |
Members: | Roles and Responsibilities of the Committee: |
David L. Dunkel (Chair) | The Executive Committee has the authority to act in place of the Board on all matters that would otherwise come before the Board, except for such matters that are required by law or by our Articles of Incorporation or Bylaws to be acted upon exclusively by the Board. |
Richard M. Cocchiaro | |
A. Gordon Tunstall | |
Number of Meetings: | |
None | |
During 2019, the Board held four meetings and the five committees of the Board held a total of 19 meetings. Each director attended 100% of the Board meetings and 100% of the committee meetings on which he or she served. Our Corporate Governance Guidelines invite, but do not require, our directors to attend our annual meeting of shareholders.
RISK OVERSIGHT
The Board, as a whole and at the committee level, has an active role in overseeing the management of the Firm’s risks. The Board’s primary mechanism for assessing overall risk to the Firm as well as management’s actions to address and mitigate those risks is a comprehensive, integrated ERM program. The Firm’s ERM program divides risk into four categories: financial risk, operational risk, client risk and legal/human resources risk. The ERM risk assessment process is led by Kforce’s Vice President of Internal Audit, who delivers quarterly risk assessment reports to the Audit Committee. The Audit Committee reviews these reports with members of management and dedicates a portion of its meetings to reviewing and discussing specific areas of risk, focusing on higher risk, greater impact topics in detail. In particular, the Audit Committee engages in periodic reviews of how cybersecurity risk is assessed and mitigated by the company. These reviews include discussions with third party experts that have been engaged by management to perform various cybersecurity testing and assessments. The Audit Committee provides the Board with periodic reports on the Firm’s risks and ERM program findings, including cybersecurity risk and incident issues.
In addition, the Firm’s internal audit function, which reports directly to the Audit Committee, sets forth a comprehensive internal audit plan that is approved by the Audit Committee on an annual basis. This plan is formulated based on internal audit’s assessment of risks within Kforce, which is primarily based on financial asset protection and reporting, data security, and other ERM program findings. The Board also receives monthly updates from management on any changes in significant risk factors.
11 Kforce 2020 Proxy Statement
The individual committees also consider risk within their areas of responsibility as summarized below. The committee chairs provide reports of their activities to the Board at each regular Board meeting including apprising the Board of any significant risks within their areas of responsibility and management’s response to those risks.
Audit | Compensation | Nomination | Corporate Governance | ||||
l | Responsible for the Firm’s risk assessment and ERM program | l | Oversees executive compensation plan design and approval risk | l | Oversees Board refreshment activities including director succession risk | l | Leadership and oversight of ethical standards |
l | Monitors risk relating to the Firm’s financial statements, systems, reporting process and compliance | l | Responsible for preparation and required disclosures regarding compensation practices | l | Establishes procedures for the Board’s nomination process | l | Provides a forum for the Board’s independent directors to meet separately from management |
l | Reviews and approves related party transactions and relationships involving directors and executive officers | l | Responsible for review of the executive compensation and benefits policies and practices of the Firm, including determining whether such policies and practices are reasonably likely to have a material adverse effect on the Firm | l | Recommends candidates for election to the Board | l | Reviews and recommends to the Board any changes to the corporate governance guidelines |
l | Monitors and receives reports on the Firm’s cybersecurity risks and incidents | l | Oversees the evaluation of the Board’s performance and sufficiency of its activities | ||||
CODE OF ETHICS AND GOVERNANCE GUIDELINES
The Board has adopted a Commitment to Integrity, which is applicable to all directors, officers and employees of Kforce, including the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. It is intended to help Firm personnel recognize and deal with ethical issues, deter wrongdoing and provide mechanisms to report potential dishonest or unethical conduct. We require all of our officers and employees to read and acknowledge the Commitment to Integrity. We also provide compliance training for the Commitment to Integrity and require certification of compliance on an annual basis. Our directors, officers and employees are also encouraged to report suspected violations of the Commitment to Integrity through various means, including a toll-free hotline administered by a third party, and they may do so anonymously.
The Firm also has a set of Corporate Governance Guidelines that sets forth the Firm’s corporate governance policies and practices and serves to guide the operation and direction of the Board. These guidelines, together with the charters for the standing committees of the Board and the Commitment to Integrity, are available at http://investor.kforce.com/investor-relations/corporate-governance.
RELATED PARTY TRANSACTIONS, COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Audit Committee is responsible for reviewing and approving all related party transactions that Kforce is required to disclose in accordance with Item 404 of Regulation S-K. While the Board has not adopted a written policy, the Board believes that the Audit Committee’s practices and processes around the review, approval and ratification of transactions with related persons provides adequate evaluations of all potential related party transactions, including considerations on whether the transaction is on terms that are in the best interests of Kforce and our shareholders. The following related party transaction has been reviewed and approved by the Audit Committee.
During 2019, Kevin Oskison, the brother of our Chief Operations Officer, Kye Mitchell, was employed by Kforce as a Tech Strategic Delivery Director and received compensation of approximately $127,000 for employment services provided in 2019. Mr. Oskison has served in this role since January 2016 and has been employed with the Firm since 2009. Ms. Mitchell does not directly supervise or evaluate Mr. Oskison’s performance, nor does she have any input into his compensation.
In 2019, the Firm’s Compensation Committee consisted of Elaine D. Rosen (Chair), Mark F. Furlong and Ralph E. Struzziero. Mr. Struzziero served as the Chairman (1990-1994) and President (1980-1994) of Romac & Associates, Inc., a company acquired by Kforce in 1994. None of the other members of the Compensation Committee is currently or was formerly an officer or an employee of Kforce or its subsidiaries or had any relationship with Kforce requiring disclosure under Item 404 of Regulation S-K. During 2019, none of the Firm’s executive officers served on the board of directors or compensation committee of any entity that had one or more of its executive officers serving on the Board or the Compensation Committee.
12 Kforce 2020 Proxy Statement
COMPENSATION OF DIRECTORS
The following table shows the annual compensation components for the year ended December 31, 2019 and the aggregate outstanding stock awards as of December 31, 2019 for our directors who served on the Board during 2019, except Mr. Dunkel:
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | All Other Compensation ($)(3) | Total ($) | Unvested Restricted Stock (4) | Deferred Restricted Stock Units (4) | ||||||||||
John N. Allred (5) | $ | 107,000 | $ | 100,001 | $ | 2,124 | $ | 209,125 | 2,743 | — | ||||||
Richard M. Cocchiaro (5) | $ | 50,000 | $ | 100,001 | $ | 7,478 | $ | 157,479 | 2,743 | 8,505 | ||||||
Ann E. Dunwoody | $ | 77,000 | $ | 100,001 | $ | 4,993 | $ | 181,994 | 2,743 | 3,846 | ||||||
Mark F. Furlong | $ | 107,000 | $ | 100,001 | $ | 2,124 | $ | 209,125 | 2,743 | — | ||||||
Randall A. Mehl | $ | 77,000 | $ | 100,001 | $ | 4,181 | $ | 181,182 | 2,743 | 3,846 | ||||||
Elaine D. Rosen | $ | 107,000 | $ | 100,001 | $ | 11,519 | $ | 218,520 | 2,743 | 14,197 | ||||||
N. John Simmons | $ | 77,000 | $ | 100,001 | $ | 2,124 | $ | 179,125 | 2,743 | — | ||||||
Ralph E. Struzziero | $ | 92,000 | $ | 100,001 | $ | 11,519 | $ | 203,520 | 2,743 | 14,197 | ||||||
A. Gordon Tunstall (5) | $ | 77,000 | $ | 100,001 | $ | 2,124 | $ | 179,125 | 2,743 | — | ||||||
Former Director - Term Expired at the 2019 Annual Meeting | ||||||||||||||||
Howard W. Sutter (6) | $ | — | $ | — | $ | 582,335 | $ | 582,335 | — | — | ||||||
(1) | Fees earned or paid in cash consisted of: (a) annual retainer for each director of $30,000; (b) annual retainers for each committee chairperson of $15,000; (c) quarterly fees for each quarter of board service of $5,000; and (d) quarterly fees for each quarter of committee service of $3,750 for each of the Audit Committee, Compensation Committee and Nomination Committee and $3,000 for the Corporate Governance Committee. |
(2) | The amounts in this column represent the aggregate grant date fair value in accordance with FASB ASC 718. The amounts for all directors reflect a grant of 2,702 shares of restricted stock with a closing stock price on the April 26, 2019 grant date of $37.01. |
(3) | The amounts reported in this column for all directors, except Mr. Sutter, represent the dollar value of dividend equivalents credited on unvested restricted stock and deferred restricted stock units in the form of additional restricted stock. |
(4) | The beneficial ownership of common shares as of the Record Date for each of our directors is presented below under the heading of “Security Ownership of Certain Beneficial Owners and Management.” |
(5) | On January 30, 2020, John N. Allred, Richard M. Cocchiaro and A. Gordon Tunstall each informed Kforce that due to his long tenure as a member of the Board and consistent with the Board’s refreshment initiatives, they would not stand for re-election as a Class II director at the Annual Meeting. |
(6) | For Mr. Sutter, this compensation includes his employment compensation through his retirement date on August 23, 2019. This amount consisted of: $197,850 in salary; $375,000 in bonus; $8,046 for a retirement gift and related tax gross-up; and $1,439 in dividend equivalents credited on unvested restricted stock (which were subsequently forfeited as they were not vested as of August 23, 2019). Mr. Sutter was not compensated for his service on the Board. |
13 Kforce 2020 Proxy Statement
EXECUTIVE OFFICERS
The ages (as of February 21, 2020) and biographies for each of our executive officers is set forth below.
David L. Dunkel | Age: | 66 | |
Chairman and Chief Executive Officer | Mr. Dunkel has served as Kforce’s Chairman, Chief Executive Officer and a director since its incorporation in 1994. He previously served as President and Chief Executive Officer of Romac-FMA, one of Kforce’s predecessors, for 14 years. | ||
Michael R. Blackman | Age: | 65 | |
Chief Corporate Development Officer | Mr. Blackman has served as Kforce’s Chief Corporate Development Officer since December 2009, prior to which he served as the Firm’s Senior Vice President of Investor Relations from 1999 to 2009 and Director of Selection and Senior Consultant in the healthcare services specialty from 1992 to 1999. | ||
Jeffrey B. Hackman | Age: | 41 | |
Senior Vice President, Finance and Accounting | Mr. Hackman has served as Kforce’s Principal Accounting Officer since October 2015 and as Senior Vice President of Finance and Accounting since March 2015. He is responsible for overseeing Kforce's finance, accounting, SEC reporting, tax, treasury, procurement and real estate functions in addition to investor relations and mergers and acquisitions. He previously served as the Firm’s Chief Accounting Officer and Principal Accounting Officer from February 2009 until September 2013 and as Kforce’s SEC Reporting Director from September 2007 to February 2009. Mr. Hackman served as the Global Chief Accounting Officer of Cunningham Lindsey from September 2013 until he rejoined Kforce in March 2015. Prior to 2007, he was an Audit Senior Manager with Grant Thornton LLP. | ||
David M. Kelly | Age: | 54 | |
Chief Financial Officer | Mr. Kelly has served as Kforce’s Chief Financial Officer since January 2013 and Corporate Secretary since February 2013. Mr. Kelly joined Kforce in 2000 and has served as Senior Vice President of Finance and Accounting from February 2009 to December 2012, Corporate Assistant Secretary from October 2010 to February 2013, Vice President of Finance from January 2005 to February 2009, Chief Accounting Officer from November 2000 to January 2005 and Group Financial Officer from January 2000 to November 2000. Before joining Kforce, Mr. Kelly served in various roles with different companies that included treasury director, vice president, and controller. | ||
Joseph J. Liberatore | Age: | 56 | |
President | Mr. Liberatore has served as Kforce’s President since January 2013. He previously served as Corporate Secretary from February 2007 to February 2013, Chief Financial Officer from October 2004 to December 2012, Executive Vice President from July 2008 to December 2012, Senior Vice President from 2000 to July 2008, Chief Talent Officer from 2001 to 2004 and Chief Sales Officer from September 2000 to August 2001. Mr. Liberatore has served in various other roles in Kforce (and its predecessors) since he joined the Firm in 1988. | ||
Kye L. Mitchell | Age: | 50 | |
Chief Operations Officer | Ms. Mitchell has served as Kforce’s Chief Operations Officer since March 2016. Before her appointment as Chief Operations Officer, Ms. Mitchell served as Chief Operations Officer for the East Region from January 2013 to March 2016, Field President from January 2009 through December 2012, Market President from February 2006 to December 2008, and Market Vice President from February 2005 through January 2006. Ms. Mitchell joined Kforce in 2005 when Kforce acquired VistaRMS where she served as President. | ||
Andrew G. Thomas | Age: | 53 | |
Chief Marketing Officer | Mr. Thomas has served as Kforce’s Chief Marketing Officer since July 2018. In his current role, he leads the Firm’s marketing, digital strategy, training and development, human resources, compensation and benefits organizations. Prior to this role, Mr. Thomas was the Firm’s Chief Field Services officer from December 2013 to July 2018. He has also served as the Executive Director of Kforce’s Finance and Accounting product offering where he oversaw strategy, operating model and critical activities, as well as various other roles in Kforce since he joined the Firm in 1997. | ||
14 Kforce 2020 Proxy Statement
PROPOSAL 2. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Our consolidated financial statements for the year ended December 31, 2019, have been audited by Deloitte & Touche LLP, independent auditors. The Audit Committee of the Board has selected Deloitte & Touche LLP, subject to ratification by shareholders, to audit our consolidated financial statements for the year ending December 31, 2020, to provide review services for each of the quarters in the year then ended, and to perform other appropriate services. A representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting to respond to appropriate questions and to make any other statements deemed appropriate.
Deloitte & Touche LLP has audited Kforce’s financial statements since the fiscal year ended December 31, 2000.
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS - FEE INFORMATION
Fee Type | 2019 | 2018 | |||||
Audit Fees (1) | $ | 986,137 | $ | 879,827 | |||
Audit-Related Fees (2) | $ | — | $ | 11,500 | |||
Tax Fees (3) | $ | 56,847 | $ | 35,467 | |||
All Other Fees (4) | $ | 1,895 | $ | 1,895 | |||
(1) | Relates to the annual audit of our financial statements and internal control over financial reporting, the review of our quarterly financial statements and audit services provided in connection with other statutory and regulatory filings. |
(2) | Relates to assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or other filings. |
(3) | Relates to tax advice, tax planning and tax consultation primarily for the divestiture of our Government Solutions (“GS”) segment. |
(4) | Relates to an annual subscription to a Deloitte & Touche LLP research database. |
The Audit Committee considered whether Deloitte & Touche LLP’s provision of the above non-audit services is compatible with maintaining such firm’s independence and satisfied itself as to Deloitte & Touche LLP’s independence.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors to ensure that the provision of such services does not impair the auditor’s independence. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific limit above which separate pre-approval is required. Management periodically reports to the Audit Committee the pre-approved services provided by the independent auditors as well as the fees for the services performed.
During the year ended December 31, 2019, 100% of services were pre-approved by the Audit Committee in accordance with this policy.
VOTE REQUIRED
Approval of this proposal requires the affirmative vote of a majority of the shares entitled to vote on the matter. An abstention is considered as present and entitled to vote and will have the effect of a vote against the proposal. A broker non-vote is considered not entitled to vote and will not affect the voting.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2. |
15 Kforce 2020 Proxy Statement
AUDIT COMMITTEE REPORT
Kforce Inc.’s Audit Committee is composed of four directors, all of whom the Board has determined to be independent within the meaning of the NASDAQ and SEC Rules. The Audit Committee assists the Board in general oversight of Kforce Inc.’s financial accounting and reporting process, system of internal control and audit process.
Kforce Inc.’s management has primary responsibility for Kforce Inc.’s consolidated financial statements and for maintaining effective internal control over financial reporting. Kforce Inc.’s independent auditors, Deloitte & Touche LLP, are responsible for expressing an opinion on Kforce Inc.’s consolidated financial statements as to whether they present fairly, in all material respects, Kforce Inc.’s financial position, results of operations and cash flows, in conformity with GAAP and an opinion on the effectiveness of Kforce’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This opinion is based on their audits.
In this context, the Audit Committee reports as follows:
1. | The Audit Committee has reviewed and discussed the audited consolidated financial statements with Kforce Inc.’s management; |
2. | The Audit Committee has discussed with the independent auditors the matters required to be discussed by PCAOB Standard No. 1301 (Communications with Audit Committees) and the SEC; |
3. | The Audit Committee has received the written disclosures and the letter from the independent auditors required by the applicable requirements of the PCAOB regarding the independent auditor’s communications with the audit committee concerning independence, and has discussed with the independent auditors the independent auditors’ independence; and |
4. | Based on the review and discussion referred to in the above paragraphs, the Audit Committee recommended to the Board that the audited financial statements be included in Kforce Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019, for filing with the SEC. The Audit Committee has also selected Deloitte & Touche LLP, subject to ratification by shareholders, to audit our consolidated financial statements for the year ending December 31, 2020, and to provide review services for each of the quarters in the year ending December 31, 2020. |
Submitted by the Audit Committee,
Mark F. Furlong (Chair)
John N. Allred
Randall A. Mehl
N. John Simmons
The above report shall not be deemed “soliciting material” or “filed” with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into such filings.
16 Kforce 2020 Proxy Statement
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee Report The Compensation Committee of Kforce (the Committee) has reviewed and discussed the Compensation Discussion and Analysis (CD&A) required by Item 402(b) of Regulation S-K with management and based on such review and discussions, the Committee recommended to the Board that the CD&A be included in this Proxy Statement and incorporated into Kforce’s Annual Report on Form 10-K for the year ended December 31, 2019. Submitted by the Compensation Committee Elaine D. Rosen (Chair) ¦ Mark F. Furlong ¦ Ralph E. Struzziero |
The above report shall not be deemed “soliciting material” or “filed” with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into such filings.
EXECUTIVE SUMMARY
The CD&A primarily focuses on the compensation of our Named Executive Officers (NEOs) for the year ended December 31, 2019; these NEOs were:
• | David L. Dunkel, Chairman and Chief Executive Officer |
• | Joseph J. Liberatore, President |
• | David M. Kelly, Chief Financial Officer |
• | Kye L. Mitchell, Chief Operations Officer |
• | Andrew G. Thomas, Chief Marketing Officer |
During 2019, Kforce:
• | Attained 100% of our target revenue and 103% of our target diluted earnings per share (EPS). |
• | Attained maximum performance for our equity long-term incentive (LTI) metric due to our total shareholder return (TSR) over the past three years (January 1, 2017 through December 31, 2019) of 83% ranking 1st amongst our Peer Group of 14 other companies. |
• | Grew our largest business, Tech Flex, in excess of two times the market and made significant strides in improving our profitability through improving associate productivity and exercising better expense discipline. |
• | Completed and made progress on various strategic initiatives including, among others, the completion of a multi-year effort to divest of non-core businesses with the divestiture of our GS segment, entering into a strategic joint venture, implementing a new consultant referral technology and making continued progress on implementing new and upgrading existing technologies that we believe will allow us to more effectively and efficiently serve our clients, consultants and candidates and improve the scalability of our organization. We also improved our client and consultant net promoter scores and made significant progress on reshaping our talent strategies. |
As a result of our overall financial and TSR performance, our Committee approved:
• | Annual incentive payouts based on the performance against our financial metrics (payouts were at target for our revenue metric and slightly above target for our EPS metric) and on individual performance objectives (payouts were above target). |
• | Equity LTI payouts at maximum, based on the 1st place ranking for TSR performance relative to our Peer Group. |
Overall, the Committee believes the compensation levels in 2019 are aligned with the Firm’s performance results.
OUR COMPENSATION PRINCIPLES, COMPONENTS AND PRACTICES
What We Do | What We Don’t Do | ||
þ | Target Annual NEO Compensation at Market Median for Median Performance | ý | Define Market Median by Comparison to Companies Outside of our Primary Sector |
þ | Provide Pay for Performance by Paying Higher Compensation for Above Median Performance and Lower Compensation for Below Median Performance | ý | Set Targets for Incentive Plans that are Easy to Attain |
þ | Ensure Performance-Based Compensation is the Largest Part of Total Compensation | ý | Provide Excessive Perquisites |
þ | Ensure Equity-Based LTI Compensation is a Significant Component of Performance-Based Compensation | ý | Allow Repricing or Cash Buyouts of Previous Equity-Based LTI Grants |
þ | Require Minimum Levels of Share Ownership | ý | Allow Hedging or Pledging of Company Stock or Other Related Activities |
þ | Maintain a Significant Clawback Policy | ý | Create New Excise Tax Gross-ups |
ý | Create New or Materially Amend Executive Employment Agreements with Provisions for Severance Payouts Exceeding 1x Cash Compensation or Change in Control Severance Payouts Exceeding 2x Cash Compensation | ||
17 Kforce 2020 Proxy Statement
Our Executive Compensation Philosophy and Practices
Our executive compensation philosophy is to attract, motivate and retain highly qualified executives who can maximize shareholder value. To carry out this philosophy, we have embraced the following principles intended to guide compensation design and administrative decisions made by the Committee, the Board and management.
Attract and Retain Key Executives | Attracting and retaining key executive talent is critical to the success of a staffing and solutions firm in which people represent the true “assets.” The Committee believes an understanding of competitive market pay levels is essential to hiring and retaining qualified executives able to drive our long-term profitable growth and, consequently, long-term shareholder value. The Committee further believes it is important to be knowledgeable concerning best practices and how comparable organizations compensate their executives. | |
Target Annual NEO Compensation at Market Median | The executive compensation plan is designed to target the total pay level for our NEOs at the median of comparable companies. To effectively accomplish this, the Committee annually reviews compensation data from several independent sources. Our competitive market for executive talent is primarily staffing organizations; however, the Committee also reviews pay data for other professional service and consulting organizations of comparable size and similar business models. | |
Provide Pay for Performance by Paying Higher Compensation for Above Median Performance and Lower Compensation for Below Median Performance | The Committee believes executive compensation should align with our revenue, profitability and TSR performance and provide superior cash and equity compensation opportunities for superior performance. The same is true for below median performance resulting in lower compensation. The Committee also believes the design of our compensation programs provides incentives for our NEOs to exceed targeted performance, which results in significant relative shareholder value creation and creates a positive perception of Kforce in the highly competitive market for executive talent. | |
Ensure Performance-Based Compensation is the Largest Part of Total Compensation | The Committee designs the compensation framework with significant emphasis on performance-based compensation over fixed compensation to motivate our NEOs to drive operational performance without encouraging unreasonable risk. Performance-based compensation at target comprised 77% of target total direct compensation for our CEO and between 67% to 78% for our other NEOs in 2019. | |
Ensure Equity-Based LTI Compensation is a Significant Component of Performance-Based Compensation | The Committee believes equity-based LTI compensation should be a significant component of performance-based compensation to further focus executive efforts on long-term shareholder returns. Target equity LTI ranged from 45% to 63% of target total performance-based compensation for our NEOs in 2019. We believe the opportunity to earn the designated equity LTI performance objectives motivates the achievement of higher relative TSR and driving continued improved shareholder value; it also serves to retain our executives for the long-term, given that our LTI awards have time-based vesting provisions between three and four years. | |
Require Minimum Levels of Share Ownership | The Committee believes our executives should have a personal financial stake in Kforce’s ongoing future success, primarily driven by a desire to match their interests with those of our shareholders. In addition to equity-based LTIs playing a significant role in our executive compensation program, all employees, including the NEOs, are eligible to purchase stock through the Kforce Inc. 2009 Employee Stock Purchase Plan. To further align the interests of executives and long-term shareholders, our Board has adopted formal ownership guidelines, set forth below. | |
Set Challenging Performance Objectives | We work to set difficult but attainable financial growth performance objectives for our NEOs in the context of the annual incentive plan as evidenced by the fact that threshold and target goals and objectives have not been met in every plan year. | |
Consider Tax Deductibility in Compensation Plan Design | The Committee considers all possible tax consequences in the design of our executive compensation programs. Our NEO compensation framework was structured so that our performance-based annual incentive and LTI awards would be deductible under Section 162(m) of the Internal Revenue Code (the Code). The enactment of the 2017 Tax Cuts and Jobs Act (TCJA) resulted in the elimination of performance-based compensation exemptions, except with respect to certain grandfathered arrangements granted prior to November 2, 2017 and up to certain annual levels. As a result, this has limited the tax deductibility of NEO compensation beginning in 2018. Despite the changes to Section 162(m), we expect the structure of our NEO compensation program will continue to include a significant portion of performance-based compensation, which is consistent with our compensation philosophy of linking pay to performance and aligning executive interests with those of our shareholders. | |
18 Kforce 2020 Proxy Statement
The Company’s compensation program has the following features for alignment with best practices:
Minimum Required Share Ownership Guidelines | Our Corporate Governance Guidelines include a stock ownership policy for our directors and executives. The minimum level of holdings for each position is as follows: | |||||
Target Holding Level (Lesser Of) | ||||||
Position | Annual Retainer / Salary | OR | Shares | |||
Director | 3x | 5,000 | ||||
Chief Executive Officer | 5x | 200,000 | ||||
President | 3x | 100,000 | ||||
Chief Financial Officer | 2x | 50,000 | ||||
Chief Operations Officer | 2x | 30,000 | ||||
Other members of Kforce’s Executive Leadership Team | 0.5x | 10,000 | ||||
In accordance with the policy, directors have three years from the effective date of joining the Board, and executives have two years from the effective date of a promotion or salary increase, to attain the ownership level. As of the Record Date, all directors, NEOs and other members of our executive leadership were in compliance with the policy. | ||||||
Clawback Policy | Our Corporate Governance Guidelines include a clawback policy applicable to all executive officers. Accordingly, in the event of a restatement of our financial statements because of a material noncompliance with any financial reporting requirements under the federal securities laws, the Board will, if determined appropriate, recover from current executives any incentive-based compensation paid for any applicable performance periods beginning after March 30, 2012. | |
Equity Plan Features | The Committee believes Kforce’s equity plans are structured to avoid problematic pay practices and features that could be detrimental to shareholder interests. None of our Stock Incentive Plans (as approved by shareholders in 2013, 2016, 2017 and 2019 and pending approval of Proposal 4 in 2020) permit repricing or cash buyouts of underwater options or stock appreciation rights without shareholder approval. The 2017, 2019 and 2020 Plans require a minimum vesting period of one year on all award types. In addition, the 2019 and 2020 Plans require a minimum holding period of one year after exercise of any options and stock appreciation rights for all NEOs; we will also apply this policy to any awards granted outside of this plan. | |
Insider Trading | Our Insider Trading Policy governs the trading in our securities by directors, officers and employees and other persons who have or may have access to material, nonpublic information. The policy has the following restrictions: | ||
s | No trading while in the possession of material, nonpublic information | ||
s | No trading during designated black-out periods | ||
s | No trading without pre-approval (certain insiders) | ||
s | No margin accounts | ||
s | No pledging | ||
s | No hedging (including, but not limited to, prepaid variable forwards, equity swaps, collars and exchange funds) | ||
s | No trading in any interest or position relating to future stock price, such as a puts, calls or short sales | ||
Hedging and Pledging | Our Insider Trading Policy expressly prohibits the Firm’s directors, officers, employees, consultants, contractors and other individuals determined by the Firm as “Insiders”, including any persons living in their household and family members who do not reside with them but whose investment decisions are directed by them or who otherwise confer with them when making investment decisions with respect to Firm securities and any entities controlled by them, from engaging in any hedging transaction related to the Firm’s securities (including, without limitation, prepaid variable forwards, equity swaps, collars and exchange funds) or otherwise trading in any interest or position relating to the future price of the Firm’s securities, such as a put, call or short sale. This Insider Trading Policy similarly prohibits any Firm Insider from holding any of the Firm’s securities in a margin account or otherwise pledging any of the Firm’s securities as collateral unless approved in advance by the Insider Trading Compliance Committee or, in the case of Section 16 insiders, the Compensation Committee of the Board of Directors. | |
19 Kforce 2020 Proxy Statement
Elimination of Excise Tax Gross-Up | In 2009, the Committee resolved to not enter into any new employment agreements, or materially amend any existing employment agreements with its executives that contain excise tax gross-up provisions in the event of a change-in-control event going forward. Since the Committee’s resolution, all new or amended executive employment agreements have excluded excise tax gross-up provisions. As a result, the only remaining employment agreements which continue to include excise tax gross-up provisions are with Messrs. Dunkel and Liberatore; both of these agreements were most recently amended in 2008. | |
Roles and Responsibilities
Role of the Compensation Committee
The Committee, which consists entirely of independent directors, is responsible for development of the compensation principles that guide the design of the Firm’s executive compensation program, inclusive of benefit policies and practices. The Committee has concluded the compensation policies and practices of the Firm do not create risks that are reasonably likely to have a material adverse effect on Kforce.
The Committee makes every effort to maintain its independence and objectivity. The Committee meets in executive session on a quarterly basis for discussions or decisions regarding executive compensation. While the Committee receives input and discusses compensation with the CEO, President and CFO, the ultimate determination regarding the annual compensation of the CEO and other executive officers, including the NEOs, is in the Committee’s sole and absolute discretion.
The Committee is committed to:
• | staying informed of current issues and emerging trends; |
• | ensuring Kforce’s executive compensation program remains aligned with best practices and are in the best interests of the shareholders; and |
• | establishing and maintaining a pay-for-performance executive compensation program consistent with our shareholders’ interests while providing appropriate incentives to our executives. |
Role of the Compensation Consultant
Overall, the independent compensation consultant assists with various items, including evaluating and providing guidance with respect to compliance with the approved compensation framework and alignment with performance; effectiveness of the compensation framework; determination of appropriate benchmarking; and competitiveness of our executive compensation (including salary and annual and long-term incentives) as compared to the market.
The Committee has retained Pay Governance LLC, a national independent consulting firm, to serve as the Committee’s compensation consultant. The Committee assessed Pay Governance’s independence based on various factors and determined Pay Governance’s engagement, and the anticipated services to be provided to the Committee, did not raise any conflicts of interest. Except for the services provided to the Committee, Pay Governance did not provide any other services to the Firm.
Peer Group and Benchmarking
The Committee utilizes a peer group of companies as a source for executive compensation benchmarking data and comparisons to Kforce’s executive compensation levels; for insight into external compensation practices; and for determining specific financial objectives for our performance-based compensation. Additionally, our peer group is used to determine annual equity LTI compensation levels based on our relative TSR performance.
The Committee focuses on selecting peers that are publicly traded professional staffing companies active in recruiting and placing similar skill sets at similar types of clients, including companies we consider to be our direct business competitors. The specialty staffing industry is made up of thousands of companies, most of which are small local firms providing limited service offerings to a relatively small local client base. According to a report published by Staffing Industry Analysts in 2019, Kforce is one of the 10 largest publicly traded specialty staffing firms in the U.S., so the size of our peer companies vary considerably. Therefore, the Committee selects other peers that are similar in terms of size (revenue and market capitalization), but may not be in the staffing industry. We attempt to drive average size comparable to Kforce by balancing a selection of both larger and smaller companies. The primary criteria for selection include customers, revenue footprint, geographical/domestic presence, talent, complexity of operating model and companies with which we compete for executive level talent.
Our Peer Group for 2019 consisted of the following companies:
AMN Healthcare Services, Inc. | Heidrick & Struggles International, Inc. | Resources Connection, Inc. |
ASGN Incorporated | Huron Consulting Group Inc. | Robert Half International Inc. |
Cross Country Healthcare, Inc. | Kelly Services, Inc. | TrueBlue, Inc. |
Computer Task Group, Incorporated | Korn/Ferry International | Volt Information Sciences, Inc. |
The Hackett Group, Inc. | Manpower Group Inc. | |
20 Kforce 2020 Proxy Statement
The following table shows the financial statistics for the Peer Group for 2018, which is the year for which data was used to determine the peer group, and includes our percentile rank among the Peer Group (in thousands, except percentile rank):
Revenue | Market Capitalization | |||||||
25th Percentile | $ | 755,862 | $ | 454,569 | ||||
Median | $ | 1,461,444 | $ | 843,937 | ||||
75th Percentile | $ | 3,174,638 | $ | 2,542,327 | ||||
Kforce Inc. | $ | 1,418,353 | $ | 804,971 | ||||
Percentile Rank | 50 | 50 | ||||||
Consideration of Shareholder Feedback
We believe shareholder feedback helps to strengthen our governance practices and compensation framework. The feedback from both our annual shareholder outreach program, as well as the results of our advisory votes on executive compensation, enhances our understanding of our shareholders’ concerns and areas of focus. We remain committed to open and transparent communication and engagement with our shareholders and take feedback into consideration. Our shareholders are invited to communicate with our directors either individually or as a group by writing to the attention of our Corporate Secretary at Kforce Inc., 1001 East Palm Avenue, Tampa, Florida 33605. Such communications will be delivered directly to our Board.
As an ongoing annual practice, we reach out to our top 25 institutional shareholders (representing more than half of our shares outstanding) to solicit feedback on various topics, including corporate governance practices, Board composition and refreshment and executive compensation, among others. As part of this outreach, we offer conversations with management and with the Compensation Committee Chair and/or other members of the Committee or Board. We have evolved our corporate governance and compensation programs in recent years based on the feedback received during these outreach efforts and through other ongoing communications. For 2019, our annual shareholder outreach efforts did not result in any comments or concerns.
Over the past several years, our “say on pay” proposal has received substantial support from our shareholders. The following shows the percentage of votes (excluding brokers non-votes) cast “for” the advisory vote to approve executive compensation:
The Compensation Committee believes the 2019 voting results reflect our shareholders’ support of our overall NEO compensation framework and indicates approval of executive compensation paid in the context of our performance results.
2019 NAMED EXECUTIVE OFFICER COMPENSATION
Financial and Operational Summary
In 2019, we continued to make progress on our strategic initiatives including, among others, the completion of a multi-year effort to divest of non-core businesses with the divestiture of the GS segment, entering into a strategic joint venture, implementing a new consultant referral technology and making continued progress on implementing new and upgrading existing technologies that we believe will allow us to more effectively and efficiently serve our clients, consultants and candidates and improve the scalability of our organization. We also improved our client and consultant net promoter scores and made significant progress on reshaping our talent strategies. From a financial standpoint, we grew our largest business, Tech Flex, in excess of two times the market and made significant strides in improving our profitability through improving associate productivity and exercising better expense discipline.
During 2019, Kforce completed the sale of our GS segment and as a result, we have reported the GS segment as discontinued operations in the 2019 Annual Report for all periods presented. Our revenue and EPS performance objectives and payout levels for 2019 contemplated this and were set based on continuing operations only. Additionally, in constructing the EPS metrics for 2019, the Board considered the expected effect of using the proceeds from the sale of the GS segment to repurchase common stock in the open market. The following tables present our revenue and diluted EPS from continuing operations.
21 Kforce 2020 Proxy Statement
Our 2019 revenue from continuing operations increased 3.3% year over year driven, by our largest business, Tech Flex, which increased 6.8%, as compared to Staffing Industry Analysts’ projected temporary technology staffing growth of 3% for 2019. Our 2019 diluted EPS from continuing operations grew 13.4%, as a result of leverage gained from our top line growth and continued improvements in our operating costs. Our financial performance resulted in target revenue and slightly above target EPS incentive payouts for all NEOs.
The following presents our three-year TSR performance (the metric upon which our equity LTI payouts are based) and our one-year TSR performance versus our Peer Group.
Our three-year TSR performance resulted in 1st place among our Peer Group. Consequently, equity LTI payouts for NEOs were at maximum.
2019 NEO Compensation Components, Results and Determinations
The following section discusses the compensation components and results for our NEOs during 2019. The compensation framework was comprised of base salary and performance-based components, including:
• | Annual incentive compensation, which was based on certain financial metrics and, to a lesser extent, individual accomplishments and management business objectives (MBO). |
• | For 2019, the Committee provided for an additional one-time cash MBO potential for Messrs. Dunkel and Liberatore, which was based on the successful sale of our GS segment (the GS MBO), which was fundamental to the completion of a multi-year strategic objective to divest of non-core businesses. |
• | Equity LTI compensation, which was based on Kforce’s TSR performance over a three-year measurement period relative to our pre-determined peer group. |
The Committee emphasizes the use of variable performance-based compensation over fixed compensation to effectively motivate our NEOs to drive operational performance. The following charts show fixed compensation (equal to salary) and the performance-based compensation components, each as a percentage of total direct compensation (TDC) for the CEO and for the other NEOs in the aggregate for 2019. We define TDC as the amount of total compensation derived from salary, annual incentives, the GS MBO and equity LTI.
22 Kforce 2020 Proxy Statement
2019 COMPENSATION AT TARGET |
(1) The GS MBO in the “All Other NEOs” chart applies only to Mr. Liberatore. | |
The charts below summarize the actual outcomes for 2019, which represent:
• | Payment of slightly above target annual incentive levels, driven by performance against our financial metrics and individual performance objectives for 2019. |
• | Payment of the GS MBO for Messrs. Dunkel and Liberatore as a result of the successful sale of the GS segment. |
• | Grant of equity LTIs at maximum due to achieving 1st place for three-year TSR performance relative to our Peer Group for 2019. |
2019 ACTUAL COMPENSATION PAYOUTS |
(1) The GS MBO in the “All Other NEOs” chart applies only to Mr. Liberatore. | |
We discuss each pay program separately below in more detail.
Salary
It is generally the Committee’s desire to target salaries at the market median, but only provide periodic increases when warranted, rather than annual increases. None of the NEOs received increases during 2019 because their respective salaries were at competitive market median rates. The following table shows each NEO’s salary for 2019:
Name | Salary | ||
David L. Dunkel | $ | 875,000 | |
Joseph J. Liberatore | $ | 660,000 | |
David M. Kelly | $ | 480,000 | |
Kye L. Mitchell | $ | 480,000 | |
Andrew G. Thomas | $ | 350,000 | |
23 Kforce 2020 Proxy Statement
Annual Incentive Compensation
Annual incentive compensation for 2019 was targeted at the median of our Peer Group. Actual payout levels of the annual incentive awards may be above or below target based on actual performance. In addition, our annual incentive awards require minimum performance thresholds for any payout to occur for specific performance measures and objectives. We believe the annual incentive effectively motivates our NEOs to drive operational performance without encouraging unreasonable risk. The Committee believes the achievement of year-over-year revenue and diluted EPS growth goals, when combined with other individual objectives, will result in sustainable long-term shareholder value creation.
The annual incentive compensation for our NEOs consisted of the following performance-based components:
1. | A financial metric incentive (the Financial Performance Incentive). The 2019 Financial Performance Incentive represented 80% (50% for Mr. Thomas) of the total target incentive award and required achievement of annual year-over-year revenue growth and year-over-year diluted EPS growth performance goals. Revenue growth and EPS growth incentives continue to be the metrics that we believe demonstrate our annual progression towards generating long-term shareholder value and align to our commitment of improving our levels of profitability as we grow revenues. |
2. | An objectives-based incentive for individual accomplishments and management business objectives (the MBO Incentive). The MBO Incentive represented 20% (50% for Mr. Thomas) of the total target incentive award. |
Each component is calculated as follows: [(Salary) x (Target Annual Incentive Percentage) x (Target Annual Incentive Allocation Percentage) x (Payout Percentage of Target)].
The Target Annual Incentive Percentages used to calculate the 2019 annual incentive awards were selected to align target pay to market median compensation for market median performance. The Target Annual Incentive Percentage and Allocation across each component is shown below.
2019 Target Annual Incentive | 2019 Target Annual Incentive Allocations | |||||||||||||||||||
Name | Salary | % | $ | Revenue (40%; 25% for Mr. Thomas) | EPS (40%; 25% for Mr. Thomas) | MBO (20%; 50% for Mr. Thomas) | ||||||||||||||
David L. Dunkel | $ | 875,000 | 100 | % | $ | 875,000 | $ | 350,000 | $ | 350,000 | $ | 175,000 | ||||||||
Joseph J. Liberatore | $ | 660,000 | 90 | % | $ | 594,000 | $ | 237,600 | $ | 237,600 | $ | 118,800 | ||||||||
David M. Kelly | $ | 480,000 | 90 | % | $ | 432,000 | $ | 172,800 | $ | 172,800 | $ | 86,400 | ||||||||
Kye L. Mitchell | $ | 480,000 | 90 | % | $ | 432,000 | $ | 172,800 | $ | 172,800 | $ | 86,400 | ||||||||
Andrew G. Thomas | $ | 350,000 | 90 | % | $ | 315,000 | $ | 78,750 | $ | 78,750 | $ | 157,500 | ||||||||
The following table provides the potential Financial Performance Incentive payout ranges as determined by the Committee, based on revenue growth and diluted EPS growth. The Committee determines the objectives for revenue and diluted EPS growth based on average market growth rates in the staffing industry and also considers average expectations amongst our Peer Group. The establishment of the Financial Performance Incentive for 2019 excluded the results of our GS segment.
Total revenue and diluted EPS amounts and the related year-over-year growth rates that fall between the noted Threshold, Target and Maximum performance levels in the table below are interpolated. In constructing the EPS metrics for 2019, the Board considered the expected effect of using the proceeds from the sale of the GS segment to repurchase common stock in the open market.
Revenue (in millions) | Year-over-Year Growth | Payout % of Target | Diluted EPS | Year-over-Year Growth | Payout % of Target | |||
Threshold | $1,316 | 1% | 25% | $2.12 | 5% | 25% | ||
Target | $1,343 | 3% | 100% | $2.23 | 10% | 100% | ||
Maximum | $1,409 | 8% | 200% | $2.48 | 23% | 200% | ||
For 2019, Kforce had revenue of $1,347 million and diluted EPS of $2.29, therefore attaining 100% of target revenue and 103% of target diluted EPS. As a result, overall payments for the Financial Performance Incentive were slightly above target.
For purposes of the MBO Incentive, the Committee considers each individual’s accomplishments based on management business objectives and overall operational performance. As with the Financial Performance Incentive goals, the Committee strives to set the individual goals at levels intended to effectively motivate superior operational performance without encouraging unreasonable risk.
24 Kforce 2020 Proxy Statement
Our executive leadership team’s 2019 MBO metrics were focused around our strategic objectives of achieving above-market revenue growth, making prudent technology and other investments to enhance the efficiency and effectiveness of our operating model and significantly improving profitability levels. In 2019, the NEOs drove the progress on our strategic initiatives including, among others, the completion of a multi-year effort to divest of non-core businesses with the divestiture of the GS segment, entering into a strategic joint venture, implementing a new consultant referral technology and making continued progress on implementing new and upgrading existing technologies that we believe will allow us to more effectively and efficiently serve our clients, consultants and candidates and improve the scalability of our organization. We also improved our client and consultant net promoter scores and made significant progress on reshaping our talent strategies. From a financial standpoint, we grew our largest business, Tech Flex, in excess of two times the market and made significant strides in improving our profitability through improving associate productivity and exercising better expense discipline.
The annual incentives earned in 2019 for each NEO is shown in the table below:
2019 Attainment as a % of Target | 2019 Incentive Payouts | ||||||||||||||||||||
Name | Target Annual Incentive | Revenue (40%; 25% for Mr. Thomas) | EPS (40%; 25% for Mr. Thomas) | MBO (20%; 50% for Mr. Thomas) | Revenue | EPS | MBO | Total | |||||||||||||
David L. Dunkel | $ | 875,000 | 100% | 120% | 135% | $ | 350,000 | $ | 420,000 | $ | 236,250 | $ | 1,006,250 | ||||||||
Joseph J. Liberatore | $ | 594,000 | 100% | 120% | 135% | $ | 237,600 | $ | 285,120 | $ | 160,380 | $ | 683,100 | ||||||||
David M. Kelly | $ | 432,000 | 100% | 120% | 135% | $ | 172,800 | $ | 207,360 | $ | 116,640 | $ | 496,800 | ||||||||
Kye L. Mitchell | $ | 432,000 | 100% | 120% | 135% | $ | 172,800 | $ | 207,360 | $ | 116,640 | $ | 496,800 | ||||||||
Andrew G. Thomas | $ | 315,000 | 100% | 120% | 140% | $ | 78,750 | $ | 94,500 | $ | 220,500 | $ | 393,750 | ||||||||
Transaction-Related Bonus for GS Divestiture
In addition to the MBO Incentive related to progressing our operational and strategic objectives as a component of the annual incentive compensation for 2019 (discussed above), the Committee approved an additional one-time cash MBO bonus potential for Messrs. Dunkel and Liberatore based upon the successful completion of the sale of our GS segment. This additional MBO potential was contemplated during the Committee's compensation plan structure discussions for the 2019 NEO compensation plan and disclosed in our 2019 Proxy Statement within the section entitled "2019 NEO Compensation Plan Changes". Kforce successfully completed the sale of the GS segment during 2019, and as such, the Committee approved the GS MBO of $750,000 and $300,000 for Messrs. Dunkel and Liberatore, respectively. This approval was also disclosed in a Form 8-K filed with the SEC on May 1, 2019. If the minimum performance threshold of consummating the sale had not been attained, there would have been no payout.
Equity Long-Term Incentive
Our equity LTI awards are 100% performance based and LTI performance objectives are set to align executive and shareholder interests. Actual payout levels for the equity LTI may be above or below target based on actual performance and require minimum performance thresholds for any payout to occur. Equity LTI awards for performance relative to our Peer Group are awarded by the Committee in the form of a restricted stock grant that has a four-year time-based vesting period, except for the CEO, which has a three-year time-based vesting period taking into account age, tenure and significant equity holdings that the Committee believes provides an appropriate long-term retention incentive.
The equity LTI compensation was based on relative TSR performance over a three-year measurement period relative to our Peer Group. The following table shows the dollar value of the equity LTI grant for each of the NEOs at threshold, target and max based on our relative TSR rank versus our Peer Group of 14 companies for 2019:
Peer Group Relative TSR Rank: | 14/15 | 13 | 8 | 1 | ||||||||
Name | Below Threshold | Threshold | Target | Max | ||||||||
David L. Dunkel | $ | — | $ | 700,000 | $ | 1,350,000 | $ | 2,625,000 | ||||
Joseph J. Liberatore | $ | — | $ | 700,000 | $ | 1,400,000 | $ | 2,550,000 | ||||
David M. Kelly | $ | — | $ | 575,000 | $ | 725,000 | $ | 1,345,000 | ||||
Kye L. Mitchell | $ | — | $ | 525,000 | $ | 650,000 | $ | 1,312,500 | ||||
Andrew G. Thomas | $ | — | $ | 300,000 | $ | 400,000 | $ | 625,000 | ||||
The table below illustrates the key performance results and resulting grant information for the 2019 equity LTI awards.
Measurement Period | TSR Performance | Peer Group Relative TSR Rank | Grant Date of Restricted Stock Award | Grant Date Closing Stock Price |
2017-2019 | 83% | 1st | December 31, 2019 | $39.70 |
25 Kforce 2020 Proxy Statement
The table below illustrates the equity LTI awards, including the number of shares and the grant date fair value. Having made equity grants based upon attainment of performance criteria, the Committee believes the restricted stock awards’ additional time-based vesting requirements further aligns compensation with our long-term performance and our shareholders’ interests, and also acts as a significant retention vehicle for these executives.
Name | # of Shares | Grant Date Fair Value | |||||
David L. Dunkel | 66,121 | $ | 2,625,004 | ||||
Joseph J. Liberatore | 64,232 | $ | 2,550,010 | ||||
David M. Kelly | 33,879 | $ | 1,344,996 | ||||
Kye L. Mitchell | 33,060 | $ | 1,312,482 | ||||
Andrew G. Thomas | 15,743 | $ | 624,997 | ||||
CEO Pay Ratio
We calculated the ratio of our CEO’s total annual compensation to the median of the total annual compensation of our other employees under applicable SEC rules, using a reasonable estimate. As of December 31, 2019, Kforce employed approximately 2,300 associates and we had approximately 10,600 consultants on assignment providing flexible staffing services and solutions to our clients. Approximately 90% of the consultants are employed directly by Kforce with the remainder consisting of qualified independent contractors. In order to determine our median employee, we compiled a list of all employees from our payroll records including all full-time, part-time, temporary and seasonal employees who were employed as of December 31, 2019, which included our consultants that were directly employed by Kforce as of that date, but did not include the independent contractors. We examined all wages as reportable on Form W-2 for 2019 for these individuals, excluding our CEO. We annualized the compensation for any full-time and part-time employees that were not employed by us for all of 2019. However, it is important to note that our consultants work on temporary assignments of different types and durations, and since these employees are considered temporary per our interpretation of the SEC guidelines, we did not annualize their compensation; therefore, our employee population included a majority of individuals that did not have a full year of compensation due to the short-term nature of their assignments.
Mr. Dunkel had $7,060,801 in total annual compensation for 2019, as reflected in the Summary Compensation Table (SCT) included in this Proxy Statement. Our median employee, one of our consultants, had total annual compensation of $37,906 for 2019, which was calculated on the same basis as Mr. Dunkel’s compensation for the purposes of the SCT. As a result, we estimate Mr. Dunkel’s total compensation for 2019 was approximately 186 times that of our median employee. Given the different methodologies that various companies will use to determine an estimate of their CEO pay ratio, and given the uniqueness of our temporary employee population, we do not believe that this estimated ratio should be used as a basis for comparison with other companies.
Other Compensation Practices, Policies and Information
The following benefit plans and other items discussed below are available to our NEOs. The Committee considers the benefits expected to be received under the plans described below when determining overall compensation for our executives.
Kforce Inc. Supplemental Executive Retirement Plan | During 2006, Kforce adopted a Supplemental Executive Retirement Plan (SERP) for all NEOs. Of the current NEOs, only Messrs. Dunkel and Liberatore participate in the SERP. The Committee previously decided to not allow any additional participants into the SERP. The primary goals of the SERP are to create an additional wealth accumulation opportunity, restore lost qualified pension benefits due to government limitations and retain our covered executive officers. The SERP will be funded entirely by Kforce, and benefits are taxable to the executive officer upon receipt and deductible by Kforce when paid. Benefits payable under the SERP upon the occurrence of a qualifying distribution event, as defined, are targeted at 45% of the covered executive officers’ average salary and annual incentive, as defined, from the three years in which the covered executive officer earned the highest salary and annual incentive during the last 10 years of employment, which is subject to adjustment for retirement prior to the normal retirement age and the participant’s vesting percentage. Benefits under the SERP are based on the lump sum present value but may be paid over the life of the covered executive officer or 10-year annuity, as elected by the covered executive officer upon commencement of participation in the SERP. Both participants are fully vested in accordance with the plan provisions. Normal retirement age under the SERP is defined as age 65. Certain conditions allow for early retirement as early as age 55. The benefits under the SERP are reduced for a participant who has not either reached age 62 and 10 years of service or age 55 and 25 years of service with a percentage reduction up to the normal retirement age. On each anniversary of the effective date, each NEO is credited with a year of service. The NEOs were not credited with any years of service prior to December 31, 2006, the effective date of the plan. The Committee believes the SERP provides significant retention benefits for the participants. |
26 Kforce 2020 Proxy Statement
Kforce Nonqualified Deferred Compensation Plan | Kforce maintains a nonqualified deferred compensation plan in which eligible management and highly compensated key employees, as defined by IRS regulations, may elect to defer all or part of their compensation to later years. Amounts deferred are indexed to investment options selected by the eligible employees and the increase or decrease in value is based upon the performance of the selected investments. Eligible employees are permitted to change investment options and scheduled distributions annually. Kforce has insured the lives of certain participants in the deferred compensation plan to assist in the funding of the deferred compensation liability. Employer matching contributions to the nonqualified deferred compensation plan are discretionary and are funded annually, as approved by the Board. |
Employment, Severance and Change in Control Agreements | Kforce has employment agreements with each of its NEOs, which provide for severance payments under certain termination circumstances, including termination following a change in control, as defined in the employment agreements. The Committee has determined it is in Kforce’s and its shareholders’ best interests to recognize the contributions of and retain the NEOs. The specific amounts the NEOs would receive under the employment agreements are described in the “Potential Payments Upon Termination or Change in Control” section below. The Committee believes the employment agreements are an essential component of the executive compensation program and are helpful in attracting and retaining executive talent in a competitive market. The Committee periodically reviews the benefits provided under the employment agreements to determine that they continue to serve Kforce’s interests in providing significant retention benefits to these key executives, are consistent with market practice and are reasonable. In 2009, the Committee resolved to not enter into any new employment agreements, or materially amend any existing employment agreements with its executives, that contain excise tax gross-up provisions going forward. At this time, only Messrs. Dunkel and Liberatore have excise tax gross-up provisions in their existing employment agreements. In 2017, the Committee resolved to not enter into any new employment agreements or materially amend any existing employment agreements with its executives that contain provisions for severance payments that exceed 1x cash compensation or change in control severance payments that exceed 2x cash compensation. |
Perquisites and Other Personal Benefits | Kforce does not provide perquisites or other personal benefits to its NEOs. |
Equity Method Investment Management Incentive Unit Awards | To incentivize certain Kforce executives that were critical in the inception of our 50% noncontrolling ownership in a newly formed joint venture, WorkLLama, LLC, the board of managers of WorkLLama granted management incentive units in WorkLLama (“MIUs”) to certain NEOs on November 19, 2019; the awards were also approved by our Board. The MIUs were fully vested on the grant date and provide a limited non-voting ownership interest in WorkLLama that entitles the holder to a distribution on the holder’s vested MIUs with respect to a liquidating distribution, provided that certain participation thresholds (as defined in the holder’s unit grant agreement) have been met. The vested MIUs are subject to certain forfeiture conditions. The grant date fair value of the MIUs for Messers. Dunkel, Liberatore, Kelly and Thomas were $11,693, $11,693, $5,847 and $1,169, respectively. The grant date fair value for the MIUs of $0.023 per share was determined in accordance with FASB ASC 718 using the options pricing methodology. |
27 Kforce 2020 Proxy Statement
EXECUTIVE COMPENSATION TABLES
SUMMARY COMPENSATION TABLE
For Fiscal Years Ended December 31, 2019, 2018 and 2017
Name and Principal Position | Year | Salary | Stock Awards (1) | Non-Equity Incentive Plan Compensation (2) | Change in Pension Value and Nonqualified Deferred Compensation Earnings (3) | All Other Compensation (4) | Total | ||||||||||||
David L. Dunkel | 2019 | $ | 875,000 | $ | 2,625,004 | $ | 1,756,250 | $ | 1,686,114 | $ | 118,433 | $ | 7,060,801 | ||||||
Chief Executive Officer | 2018 | $ | 875,000 | $ | 1,499,991 | $ | 1,158,500 | $ | 653,336 | $ | 102,435 | $ | 4,289,262 | ||||||
2017 | $ | 800,000 | $ | 750,001 | $ | 435,200 | $ | 1,005,233 | $ | 88,518 | $ | 3,078,952 | |||||||
Joseph J. Liberatore | 2019 | $ | 660,000 | $ | 2,550,010 | $ | 983,100 | $ | 1,366,903 | $ | 106,492 | $ | 5,666,505 | ||||||
President | 2018 | $ | 660,000 | $ | 1,200,005 | $ | 786,456 | $ | 37,547 | $ | 98,012 | $ | 2,782,020 | ||||||
2017 | $ | 600,000 | $ | 900,011 | $ | 293,760 | $ | 656,799 | $ | 92,056 | $ | 2,542,626 | |||||||
David M. Kelly | 2019 | $ | 480,000 | $ | 1,344,996 | $ | 496,800 | $ | — | $ | 75,709 | $ | 2,397,505 | ||||||
Chief Financial Officer | 2018 | $ | 480,000 | $ | 987,492 | $ | 537,408 | $ | — | $ | 65,239 | $ | 2,070,139 | ||||||
2017 | $ | 480,000 | $ | 725,003 | $ | 235,008 | $ | — | $ | 54,998 | $ | 1,495,009 | |||||||
Kye L. Mitchell | 2019 | $ | 480,000 | $ | 1,312,482 | $ | 496,800 | $ | — | $ | 71,842 | $ | 2,361,124 | ||||||
Chief Operations Officer | 2018 | $ | 480,000 | $ | 949,986 | $ | 537,408 | $ | — | $ | 61,482 | $ | 2,028,876 | ||||||
2017 | $ | 480,000 | $ | 650,011 | $ | 235,008 | $ | — | $ | 231,677 | $ | 1,596,696 | |||||||
Andrew G. Thomas | 2019 | $ | 350,000 | $ | 624,997 | $ | 393,750 | $ | — | $ | 37,779 | $ | 1,406,526 | ||||||
Chief Marketing Officer | 2018 | $ | 350,000 | $ | 470,015 | $ | 313,160 | $ | — | $ | 31,459 | $ | 1,164,634 | ||||||
(1) | The amounts in this column represent the aggregate grant date fair value in accordance with FASB ASC 718. |
(2) | Represents annual incentive compensation earned by the NEOs. For Messrs. Dunkel and Liberatore, this also includes $750,000 and $300,000, respectively, related to a one-time MBO earned as a result of the successful completion of the sale of our GS segment. |
(3) | For Messrs. Dunkel and Liberatore, the amounts in this column represent the aggregate change in the accumulated benefit obligation for the SERP using the same measurement dates used for reporting Kforce’s consolidated financial statements for fiscal years 2019, 2018 and 2017. There were no changes made to the plan during the year and no increases to the benefits provided to the NEOs. |
(4) | The “All Other Compensation” column for 2019 includes: |
Name | Dividends (a) | Defined Contribution Plans (b) | Total | ||||||
David L. Dunkel | $ | 118,433 | $ | — | $ | 118,433 | |||
Joseph J. Liberatore | $ | 106,492 | $ | — | $ | 106,492 | |||
David M. Kelly | $ | 73,809 | $ | 1,900 | $ | 75,709 | |||
Kye L. Mitchell | $ | 69,942 | $ | 1,900 | $ | 71,842 | |||
Andrew G. Thomas | $ | 37,779 | $ | — | $ | 37,779 | |||
(a) | This column reflects the value of dividend equivalents issued on unvested restricted stock in the form of additional shares of restricted stock. |
(b) | This column reflects the value of employer matching contributions attributable to our defined contribution 401(k) plan. |
28 Kforce 2020 Proxy Statement
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
At Fiscal Year Ended December 31, 2019
Restricted Stock Awards | |||||||
Name | Unvested Shares | Market Value of Unvested Shares ($)(1) | |||||
David L. Dunkel | 66,121 | (2) | $ | 2,625,004 | |||
33,005 | (3) | $ | 1,310,299 | ||||
10,289 | (4) | $ | 408,473 | ||||
30,732 | (5) | $ | 1,220,060 | ||||
16,722 | (6) | $ | 663,863 | ||||
Joseph J. Liberatore | 64,232 | (2) | $ | 2,550,010 | |||
29,705 | (3) | $ | 1,179,289 | ||||
22,218 | (4) | $ | 882,055 | ||||
24,572 | (5) | $ | 975,508 | ||||
13,329 | (6) | $ | 529,161 | ||||
David M. Kelly | 33,879 | (2) | $ | 1,344,996 | |||
24,443 | (3) | $ | 970,387 | ||||
17,898 | (4) | $ | 710,551 | ||||
14,956 | (5) | $ | 593,753 | ||||
6,996 | (6) | $ | 277,741 | ||||
Kye L. Mitchell | 33,060 | (2) | $ | 1,312,482 | |||
23,514 | (3) | $ | 933,506 | ||||
16,048 | (4) | $ | 637,106 | ||||
13,802 | (5) | $ | 547,939 | ||||
6,996 | (6) | $ | 277,741 | ||||
Andrew G. Thomas | 15,743 | (2) | $ | 624,997 | |||
11,635 | (3) | $ | 461,910 | ||||
9,876 | (4) | $ | 392,077 | ||||
7,635 | (5) | $ | 303,110 | ||||
3,340 | (6) | $ | 132,598 | ||||
2,542 | (7) | $ | 100,917 | ||||
(1) | This column represents a market value of $39.70 per share, which is the closing stock price on December 31, 2019. |
(2) | With respect to the restricted stock granted to Mr. Dunkel on December 31, 2019, 33% of the total shares granted vest on: December 27, 2020, 2021 and 2022. With respect to the restricted stock granted to Messrs. Liberatore, Kelly and Thomas and Ms. Mitchell on December 31, 2019, 25% of the total shares granted vest on: December 27, 2020, 2021, 2022 and 2023. |
(3) | With respect to the restricted stock granted to Mr. Dunkel on December 31, 2018, and the additional shares granted due to Kforce’s quarterly dividends, 33% of the total shares granted vest(ed) on: December 27, 2019, 2020 and 2021. With respect to the restricted stock granted to Messrs. Liberatore, Kelly and Thomas and Ms. Mitchell on December 31, 2018, and the additional shares granted due to Kforce’s quarterly dividends, 25% of the total shares granted vest(ed) on: December 27, 2019, 2020, 2021 and 2022. |
(4) | With respect to the restricted stock granted to Mr. Dunkel on December 31, 2017, and the additional shares granted due to Kforce’s quarterly dividends, 33% of the total shares granted vest(ed) on: December 27, 2018, 2019 and 2020. With respect to the restricted stock granted to Messrs. Liberatore, Kelly and Thomas and Ms. Mitchell on December 31, 2017, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest(ed) on: December 27, 2018, 2019, 2020, 2021 and 2022. |
(5) | With respect to the restricted stock granted to Messrs. Dunkel, Liberatore, Kelly and Thomas and Ms. Mitchell on December 31, 2016, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest(ed) on: December 31, 2017 and December 27, 2018, 2019, 2020 and 2021. |
(6) | With respect to the restricted stock granted to Messrs. Dunkel, Liberatore, Kelly and Thomas and Ms. Mitchell on January 4, 2016, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest(ed) on: January 4, 2017, December 31, 2017 and December 27, 2018, 2019 and 2020. |
(7) | With respect to the restricted stock granted to Mr. Thomas on October 14, 2013, and the additional shares granted due to Kforce’s quarterly dividends, 20% of the total shares granted vest(ed) on: October 14, 2019, 2020, 2021, 2022 and 2023. |
29 Kforce 2020 Proxy Statement
GRANTS OF PLAN-BASED AWARDS
For Fiscal Year Ended December 31, 2019
Name | Type of Award | Approval Date | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | All Other Stock Awards No. of Shares of Stock | Grant Date Fair Value | |||||||||||
Threshold ($) | Target ($) | Maximum ($) | |||||||||||||||
David L. Dunkel | Annual Incentive (1) | 2/1/2019 | 12/31/2019 | $ | 218,750 | $ | 875,000 | $ | 1,750,000 | — | $ | — | |||||
One-Time MBO (2) | 2/1/2019 | 4/25/2019 | $ | — | $ | 750,000 | $ | 750,000 | — | $ | — | ||||||
Equity LTI (3) | — | 12/31/2019 | $ | — | $ | — | $ | — | 66,121 | $ | 2,625,004 | ||||||
Joseph J. Liberatore | Annual Incentive (1) | 2/1/2019 | 12/31/2019 | $ | 148,500 | $ | 594,000 | $ | 1,188,000 | — | $ | — | |||||
One-Time MBO (2) | 2/1/2019 | 4/25/2019 | $ | — | $ | 300,000 | $ | 300,000 | — | $ | — | ||||||
Equity LTI (3) | — | 12/31/2019 | $ | — | $ | — | $ | — | 64,232 | $ | 2,550,010 | ||||||
David M. Kelly | Annual Incentive (1) | 2/1/2019 | 12/31/2019 | $ | 108,000 | $ | 432,000 | $ | 864,000 | — | $ | — | |||||
Equity LTI (3) | — | 12/31/2019 | $ | — | $ | — | $ | — | 33,879 | $ | 1,344,996 | ||||||
Kye L. Mitchell | Annual Incentive (1) | 2/1/2019 | 12/31/2019 | $ | 108,000 | $ | 432,000 | $ | 864,000 | — | $ | — | |||||
Equity LTI (3) | — | 12/31/2019 | $ | — | $ | — | $ | — | 33,060 | $ | 1,312,482 | ||||||
Andrew G. Thomas | Annual Incentive (1) | 2/1/2019 | 12/31/2019 | $ | 78,750 | $ | 315,000 | $ | 630,000 | — | $ | — | |||||
Equity LTI (3) | — | 12/31/2019 | $ | — | $ | — | $ | — | 15,743 | $ | 624,997 | ||||||
(1) | These amounts represent the estimated payouts under the 2019 annual incentive compensation plan. The threshold, as defined in Item 402(d) of Regulation S-K, represents the minimum amount payable upon attaining minimum performance thresholds established by the Committee each year. If the minimum performance thresholds are not attained, there would be no payout. The maximum payout is 200% of the target multiplier for all components of the 2019 annual incentive compensation plan. Actual payments for annual incentive compensation earned during 2019 are listed in the “Non-Equity Incentive Plan Compensation” column of the SCT. |
(2) | These amounts represent the potential payouts upon attaining a performance threshold established by the Committee based on the successful sale of our GS segment. |
(3) | The equity LTI awards granted in the form of restricted stock under the 2019 Stock Incentive Plan on December 31, 2019 have a four-year vesting period with 25% of the award vesting annually, except for Mr. Dunkel’s award, which has a three-year vesting period with 33% of the award vesting annually. Restricted stock awards contain the right to forfeitable dividends in the form of additional shares of restricted stock at the same rate as the cash dividend on common stock and containing the same vesting provisions as the underlying award. The fair market value of restricted stock is determined based on the closing stock price of Kforce’s common stock at the date of grant. The stock price and grant date fair value for the December 31, 2019 awards was $39.70. The aggregate grant date fair value of the awards is included within the amounts presented in the “Stock Awards” column of the SCT. |
OPTION EXERCISES AND STOCK VESTED
For Fiscal Year Ended December 31, 2019
Stock Awards | |||||||
Name | Number of Shares Acquired on Vesting | Value Realized on Vesting (1) | |||||
David L. Dunkel | 75,762 | $ | 3,024,419 | ||||
Joseph J. Liberatore | 63,409 | $ | 2,478,104 | ||||
David M. Kelly | 43,441 | $ | 1,674,548 | ||||
Kye L. Mitchell | 41,940 | $ | 1,614,628 | ||||
Andrew G. Thomas | 18,331 | $ | 729,979 | ||||
(1) | The value realized for Kforce restricted stock vesting represents the market value of Kforce common stock at the time of vesting multiplied by the number of shares vested. |
30 Kforce 2020 Proxy Statement
PENSION BENEFITS
For Fiscal Year Ended December 31, 2019
Name | Plan Name | Number of Years Credited Service (#)(1) | Present Value of Accumulated Benefit ($)(2) | Payments During Last Fiscal Year ($) | |||||||||
David L. Dunkel | Supplemental Executive Retirement Plan | 13 | $ | 13,713,443 | $ | — | |||||||
Joseph J. Liberatore | Supplemental Executive Retirement Plan | 13 | $ | 4,366,333 | $ | — | |||||||
(1) | On each anniversary of the effective date, each NEO is credited with a year of service. The NEOs were not credited with any years of service prior to December 31, 2006, which is the effective date of the plan. |
(2) | Represents the actuarial present value of the accumulated benefit obligation computed as of the same pension plan measurement date used for financial reporting purposes with respect to Kforce’s consolidated financial statements for fiscal year 2019. For a discussion of the assumptions used, refer to Note 12, Employee Benefit Plans, to Kforce’s Consolidated Financial Statements, included in our Annual Report on Form 10-K for fiscal year 2019. |
NONQUALIFIED DEFERRED COMPENSATION
For Fiscal Year Ended December 31, 2019
Name | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(3) | |||||||||||||||
David L. Dunkel | $ | — | $ | — | $ | 67,516 | $ | — | $ | 264,708 | ||||||||||
Joseph J. Liberatore | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
David M. Kelly | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Kye L. Mitchell | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Andrew G. Thomas | $ | — | $ | — | $ | 143,466 | $ | — | $ | 543,158 | ||||||||||
(1) | None of our NEOs participated in Kforce’s nonqualified deferred compensation plan during 2019. |
(2) | The aggregate earnings for 2019 represents appreciation or depreciation in the market value of the respective accounts’ holdings and interest and dividends generated thereon. These amounts were not reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the SCT for 2019 as there were no above-market or preferential earnings generated. |
(3) | The aggregate balance include amounts related to employer contributions made by Kforce that were previously reported in the SCTs for prior years. |
31 Kforce 2020 Proxy Statement
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
This section describes amounts that would have been payable to the NEOs for various service termination or change in control (CIC) scenarios on December 31, 2019. In 2009, the Committee resolved to not enter into any new employment agreements or materially amend any existing employment agreements with its executives that contain excise tax gross-up provisions going forward. In 2017, the Committee resolved to not enter into any new employment agreements or materially amend any existing employment agreements with its executives that contain provisions for severance payments that exceed 1x cash compensation or change in control severance payments that exceed 2x cash compensation.
The employment agreements for each NEO have been publicly filed and condition the receipt of certain severance and CIC benefits based on confidentiality and client and employee non-solicitation provisions, as specified in those agreements; the typical length of the non-solicitation restrictions is two years. In addition, the Firm’s standard severance and release agreements condition the receipt of severance benefits on continuing to honor these restrictions; these severance agreements also include standard non-disparagement clauses.
Employment Agreement Severance Based on Termination By Employer For Cause or By Employee Without Good Reason
Pursuant to the provisions of each NEO’s respective employment agreement and of the SERP, upon a termination either by the employer for cause or by the employee without good reason, the NEOs would be eligible to receive all earned and accrued salary, annual incentive and employee benefits such as paid-time off, as of the termination date and would also have the ability to exercise, if necessary, all plan-based awards that were vested as of the termination date. Under this scenario, none of the NEOs would be eligible for a severance payment or accelerated vesting of any unvested equity awards. As a result, a column for this scenario has been omitted from the table below.
Employment Agreement Severance Based on Termination By Employer Without Cause or By Employee For Good Reason
Pursuant to the provisions of each NEO’s respective employment agreement, upon a termination by the employer without cause or by the employee for good reason, the NEO would be eligible for a severance payment. For Messrs. Dunkel and Liberatore, the severance is calculated using a factor (2.99 for Mr. Dunkel and 2.00 for Mr. Liberatore) and applying it to the sum of their salaries on the date of termination plus the average of their cash bonuses over a period of time (three years for Mr. Dunkel and two years for Mr. Liberatore). For Messrs. Kelly and Thomas and Ms. Mitchell, the severance is calculated as the sum of their salaries on the date of termination plus (1) the average of their cash bonuses over a period of two years and (2) the lesser of the average value of any stock, restricted stock, stock appreciation rights or alternative LTI over a period of two years, or $200,000.
Employment Agreement Severance Based on Termination By Employer Without Cause or By Employee For Good Reason - Following a Change in Control
Pursuant to the provisions of each NEO’s respective employment agreement, upon a termination by the employer without cause or by the employee for good reason following a CIC, the NEO would be eligible for a severance payment, calculated differently from the scenario directly above. For Messrs. Dunkel and Liberatore, the severance is calculated using a factor of 2.99 and applying it to the sum of their salaries on the date of termination plus the average of their cash bonuses and the value of any stock, restricted stock or stock options over a period of three years. For Messrs. Kelly and Thomas and Ms. Mitchell, the severance is calculated using a factor of 2.00 and applying it to the sum of their salaries on the date of termination plus (1) the average of their cash bonuses over a period of two years and (2) the average value of any stock, restricted stock, stock appreciation rights or alternative LTI over a period of two years.
Pursuant to the provisions of each NEO’s respective employment agreement, upon a termination by the employer without cause or by the employee for good reason following a CIC, the NEO would be eligible for a continuation of health care benefits. For Messrs. Dunkel and Liberatore, the benefits shall continue for a period of 3 years and for Messrs. Kelly and Thomas and Ms. Mitchell, the benefits shall continue for a period of 2 years after the termination date.
Pursuant to the terms of all of the NEOs’ outstanding restricted stock award agreements, the remaining unvested restricted stock would immediately vest upon a CIC.
Pursuant to the provisions of the SERP, Messrs. Dunkel and Liberatore are credited with up to 10 years of additional cumulative years of service upon a CIC.
Change in Control
Pursuant to the provisions of each NEO’s respective employment agreement, there would be no severance payment subsequent to a CIC in the absence of a termination.
Pursuant to the terms of all of the NEOs’ outstanding restricted stock award agreements, the remaining unvested restricted stock would immediately vest upon a CIC.
32 Kforce 2020 Proxy Statement
Death or Disability
Pursuant to the provisions of each NEO’s respective employment agreement, none of the NEOs would be eligible for a severance payment upon death or disability.
Each of the respective employment agreements for our NEOs provides for a continuation of salary and health care benefits under certain situations. Upon death, the NEO’s beneficiary would continue to receive the NEO’s salary and benefits for a period of time (2.99 years for Messrs. Dunkel and Liberatore and one year for Messrs. Kelly and Thomas and Ms. Mitchell). Upon disability, the NEO’s salary and benefits would be continued until the earlier of (1) death, (2) the NEO’s 65th birthday or (3) 2.99 years for Messrs. Dunkel and Liberatore and 2 years for Messrs. Kelly and Thomas and Ms. Mitchell.
Pursuant to the terms of all of the NEOs’ outstanding restricted stock award agreements, all unvested restricted stock would immediately vest upon death or disability.
Pursuant to the provisions of the SERP, upon termination due to disability, Messrs. Dunkel and Liberatore would be entitled to a continuation of crediting of additional years of cumulative service for a period of 2.99 years. Upon death or disability, Messrs. Dunkel and Liberatore are entitled to continuation of base salary pursuant to their employment agreements. If this benefit is less than the benefit otherwise payable under the SERP, the SERP benefit is net of the related benefit under their employment agreements.
Retirement
Pursuant to the provisions of each NEO’s respective employment agreement, none of the NEOs would be eligible for a severance payment upon retirement.
Pursuant to the terms of all of the NEOs’ outstanding restricted stock award agreements, there would be no accelerated vesting of any unvested equity awards.
Pursuant to the provisions of the SERP, certain conditions allow for early retirement as early as age 55 and vesting under the plan is defined as 100% upon a participant’s attainment of age 55 and 10 years of service. Since the SERP was adopted on December 31, 2006, Messrs. Dunkel and Liberatore have both attained the years of service requirement. The benefits under the SERP are reduced for a participant that has not reached age 62 with 10 years of service or age 55 with 25 years of service with a percentage reduction up to the normal retirement age. At December 31, 2019, Mr. Dunkel has attained the requirements for an unreduced retirement benefit under the plan and Mr. Liberatore has attained the requirements for a reduced retirement benefit under the plan, both of which would be paid following a six-month period after retirement.
Potential Payments
The table on the following page displays the amounts that would have been payable to the NEOs for various service termination or CIC scenarios on December 31, 2019. The amounts that would actually be payable to the NEOs, if employment termination or a CIC were to occur in the future, would be different than those set forth in the table below, which are calculated under the assumption that the event occurred on December 31, 2019 and based on the closing price of Kforce’s common stock on the last trading day of the year. We note that such payments are contingent upon various factors in place at the time of the occurrence of the assumed event, including, but not limited to: each executive’s current salary rate, annual incentive bonus awards and annual equity LTIs; the amount and type of unvested equity and other incentive awards held by the executive; the trading price of Kforce’s common stock; the cost of providing employee benefits; the executive’s elections of employee benefits; the executive’s age and/or years of service with Kforce; the date of termination; the circumstances of the termination; and the executive’s historical salary, bonuses and equity LTIs.
33 Kforce 2020 Proxy Statement
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
At Fiscal Year Ended December 31, 2019
Name | Retirement | Termination By Employer Without Cause or By Employee For Good Reason | Following CIC - Termination By Employer Without Cause or By Employee For Good Reason | CIC - No Termination | Death | Disability | |||||||||||||||||
David L. Dunkel | |||||||||||||||||||||||
Severance payment (1) | $ | — | $ | 5,955,034 | $ | 12,618,019 | $ | — | $ | — | $ | — | |||||||||||
Equity-based compensation (2) | — | — | 6,227,699 | 6,227,699 | 6,227,699 | 6,227,699 | |||||||||||||||||
Continuation of base salary (3) | — | — | — | — | 2,502,893 | — | |||||||||||||||||
Continuation of health benefits (4) | — | — | 8,698 | — | 8,698 | — | |||||||||||||||||
SERP (5) | 13,081,249 | — | 13,081,249 | — | 10,578,356 | 13,081,249 | |||||||||||||||||
Total | $ | 13,081,249 | $ | 5,955,034 | $ | 31,935,665 | $ | 6,227,699 | $ | 19,317,646 | $ | 19,308,948 | |||||||||||
Joseph J. Liberatore | |||||||||||||||||||||||
Severance payment (1) | $ | — | $ | 3,089,556 | $ | 9,253,413 | $ | — | $ | — | $ | — | |||||||||||
Equity-based compensation (2) | — | — | 6,116,023 | 6,116,023 | 6,116,023 | 6,116,023 | |||||||||||||||||
Continuation of base salary (3) | — | — | — | — | 1,887,896 | 1,887,896 | |||||||||||||||||
Continuation of health benefits (4) | — | — | 17,699 | — | 17,699 | 17,699 | |||||||||||||||||
SERP (5) | 3,581,555 | — | 5,785,687 | — | 1,693,659 | 1,693,659 | |||||||||||||||||
Total | $ | 3,581,555 | $ | 3,089,556 | $ | 21,172,822 | $ | 6,116,023 | $ | 9,715,277 | $ | 9,715,277 | |||||||||||
David M. Kelly | |||||||||||||||||||||||
Severance payment (1) | $ | — | $ | 1,197,104 | $ | 4,326,696 | $ | — | $ | — | $ | — | |||||||||||
Equity-based compensation (2) | — | — | 3,897,428 | 3,897,428 | 3,897,428 | 3,897,428 | |||||||||||||||||
Continuation of base salary (3) | — | — | — | — | 471,656 | 928,249 | |||||||||||||||||
Continuation of health benefits (4) | — | — | 11,960 | — | 6,062 | 11,960 | |||||||||||||||||
Total | $ | — | $ | 1,197,104 | $ | 8,236,084 | $ | 3,897,428 | $ | 4,375,146 | $ | 4,837,637 | |||||||||||
Kye L. Mitchell | |||||||||||||||||||||||
Severance payment (1) | $ | — | $ | 1,197,104 | $ | 4,256,676 | $ | — | $ | — | $ | — | |||||||||||
Equity-based compensation (2) | — | — | 3,708,774 | 3,708,774 | 3,708,774 | 3,708,774 | |||||||||||||||||
Continuation of base salary (3) | — | — | — | — | 471,656 | 928,249 | |||||||||||||||||
Continuation of health benefits (4) | — | — | 18,247 | — | 9,249 | 18,247 | |||||||||||||||||
Total | $ | — | $ | 1,197,104 | $ | 7,983,697 | $ | 3,708,774 | $ | 4,189,679 | $ | 4,655,270 | |||||||||||
Andrew G. Thomas | |||||||||||||||||||||||
Severance payment (1) | $ | — | $ | 903,455 | $ | 2,501,922 | $ | — | $ | — | $ | — | |||||||||||
Equity-based compensation (2) | — | — | 2,015,609 | 2,015,609 | 2,015,609 | 2,015,609 | |||||||||||||||||
Continuation of base salary (3) | — | — | — | — | 343,916 | 676,848 | |||||||||||||||||
Continuation of health benefits (4) | — | — | 5,878 | — | 2,979 | 5,878 | |||||||||||||||||
Total | $ | — | $ | 903,455 | $ | 4,523,409 | $ | 2,015,609 | $ | 2,362,504 | $ | 2,698,335 | |||||||||||
(1) | If any payment or distribution by Kforce to Messrs. Dunkel or Liberatore is determined to be subject to the excise tax imposed under Section 4999 of the Code, Messrs. Dunkel or Liberatore would be entitled to receive from Kforce a payment in an amount sufficient to place them in the same after-tax financial position that they would have been if they had not incurred any excise tax. The severance amount in the event of a CIC for Mr. Dunkel includes $1.8 million of excise tax gross-up, while the amount for Mr. Liberatore does not include any excise tax gross-up because the calculation resulted in no excise tax amount. Employment agreements with Messrs. Kelly and Thomas and Ms. Mitchell do not contain excise tax gross-up provisions and, thus, no amounts were included in the tables above. |
(2) | The amounts represent the number of applicable unvested restricted stock shares on December 31, 2019, multiplied by $39.70, which was Kforce’s closing stock price on that date. |
(3) | For purposes of the Disability scenario, we have used 2.99 years for Mr. Liberatore and 2.00 years for Messrs. Kelly and Thomas and Ms. Mitchell as these are deemed to be the most probable outcomes if a disability occurred on December 31, 2019, given their current ages, while Mr. Dunkel’s amount is zero due to his current age. The annual payment amounts have been discounted at a rate of 3.25%, which is the lump sum conversion rate that was utilized for the SERP benefit at December 31, 2019. |
(4) | These amounts represent the value of Kforce’s portion of the health care benefits provided to each respective NEO consistent with those benefits received as of December 31, 2019. For purposes of the Disability scenario, Mr. Dunkel’s portion is zero due to his current age. The annual benefit amounts have been discounted at a rate of 2.75%, which is the discount rate that was utilized for the SERP benefit at December 31, 2019. |
(5) | These amounts represent the lump sum present value of the future monthly vested benefit as determined pursuant to the SERP, using a lump sum conversion rate of 3.25%. Upon death or disability, Messrs. Dunkel and Liberatore are entitled to continuation of base salary pursuant to their employment agreements and if this benefit is less than the benefit otherwise payable under the SERP, the SERP benefit disclosed is net of the related benefit under their employment agreements. |
34 Kforce 2020 Proxy Statement
PROPOSAL 3. ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Act requires that we provide our shareholders with the opportunity to vote to approve, on a non-binding advisory basis, the compensation of our NEOs, as disclosed in this proxy statement.
As described in the CD&A above, Kforce’s executive compensation program is designed to attract, motivate and retain our NEOs who are able to maximize shareholder value in an industry where we believe people represent the true “assets” of Kforce. Our Board believes that executive compensation levels are commensurate with Kforce’s performance and shareholder return, promote a pay-for-performance philosophy and are strongly aligned with the interests of our shareholders.
We are asking our shareholders to indicate their support for our executive compensation. This proposal, commonly known as a “Say On Pay” proposal, is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this proxy statement in accordance with the SEC’s compensation disclosure rules.
This advisory vote on executive compensation is not binding, however, the Board and Compensation Committee value the opinions expressed by our shareholders and will consider the outcome of the vote when making future decisions on our executive compensation.
Accordingly, we ask our shareholders to vote on the following resolution at the Annual Meeting:
“RESOLVED, that the compensation paid to Kforce’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”
VOTE REQUIRED
Approval of this proposal requires the affirmative vote of a majority of the shares entitled to vote on the matter. An abstention is considered as present and entitled to vote and will have the effect of a vote against the proposal. A broker non-vote is considered not entitled to vote and will not affect the voting.
THE BOARD UNANIMOUSLY RECOMMENDS AN ADVISORY VOTE FOR PROPOSAL 3. |
35 Kforce 2020 Proxy Statement
PROPOSAL 4. APPROVAL OF THE KFORCE INC. 2020 STOCK INCENTIVE PLAN
Since the completion of its Initial Public Offering in August 1995, Kforce has had a series of key employee equity incentive plans, with the most recent being the Kforce Inc. 2019 Stock Incentive Plan (the 2019 SIP). These plans were designed to provide an additional incentive to and for the retention of executives, employees and directors that we believe are key to the success of Kforce, especially given that we consider our people to be the true “assets” of Kforce. The Board believes these plans have been effective in providing such incentive and retention benefits. The Board also believes that for Kforce to continue to attract and retain outstanding individuals, it must continue to have incentive plans of these types in place. The remaining shares available for grant under the 2019 SIP are limited and will not satisfy Kforce’s needs over the next two to three years.
CURRENT AWARDS OUTSTANDING
Set forth below is selected data for the 2019 SIP as of February 21, 2020 (in thousands):
Award Type | Shares Outstanding | ||
Restricted stock outstanding (unvested) | 1,163 | ||
Stock options outstanding | None | ||
Shares remaining for grant under the 2019 SIP (1) | |||