DEFA14A: Deluxe Corp Reaffirms Executive Pay Plan, Cites Growth Targets and CEO Compensation Alignment

Deluxe Corporation reaffirms its executive compensation plan, highlighting year-over-year growth targets and rationale for CEO's long-term equity incentive increase.

Summary

• Deluxe Corporation has issued supplemental information regarding its executive compensation plan, urging shareholders to vote FOR the advisory vote on executive compensation.
• The company emphasizes that the 2023 annual cash incentive plan (AIP) targets required year-over-year growth of the continuing business.
• The rationale for the increase in the CEO's 2023 long-term equity incentive grant is explained, with a commitment that his target compensation will not increase in 2024.
• The Committee structures compensation programs to motivate effective executive performance aligned with shareholder interests.
• The performance metrics for the 2023 AIP were set at a level that required year-over-year growth of the continuing business.
• After reducing 2022 revenue for business exits, the Committee's 2023 revenue target of $2.207 billion reflected a 1% growth goal.
• Actual 2023 revenue performance fell short of the target by $15 million, resulting in a revenue performance payout of 95.6%.
• The Committee set a goal of approximately 1% growth for 2023 EBITDA on a comparable adjusted basis.
• Actual 2023 EBITDA performance achieved was $417 million, reflecting growth of 3% on a comparable adjusted basis, resulting in a performance payout of 117.8%.
• The CEO's long-term incentive opportunity increased following a review of individual and Company performance and market data.
• The CEO's compensation was below the 25th percentile of the peer group, and the Committee believed an increase in equity opportunities would better align him with investor priorities and Company performance.
• The 2023 long-term equity incentive grants include 50% performance stock units (PSUs), which help provide incentives to grow revenue and cash flow and reward stock performance.
• The metrics for the PSUs are weighted equally between three-year cumulative revenue and three-year cumulative free cash flow targets, with final payout results subject to a relative TSR modifier.

Sentiment

Score: 7

Explanation: The document presents a balanced view, highlighting both achievements and areas where performance fell short. The reaffirmation of the executive compensation plan and the commitment to aligning pay with performance are positive signals.

Positives

• The Committee designed the compensation program to ensure that the realized value executives receive is closely aligned with Company performance.
• The Committee generally targets each element of compensation in the median range of the competitive market, adjusted for the Company's size.
• The Committee designs the executive pay mix to ensure that a significant percentage of total direct compensation is performance-based.
• Actual 2023 EBITDA performance achieved was $417 million, reflecting growth of 3% on a comparable adjusted basis, resulting in a performance payout of 117.8%.

Negatives

• Actual 2023 revenue performance fell short of the target by $15 million, and the resulting revenue performance payout was 95.6%.

Risks

• The company's performance metrics are tied to revenue and EBITDA targets, and failure to meet these targets could impact executive compensation and shareholder value.
• The reliance on performance stock units (PSUs) with three-year cumulative targets introduces uncertainty due to the long-term nature of the goals and the potential impact of external factors.
• The company's strategic decisions to exit certain businesses could impact future revenue and profitability.

Future Outlook

The company expects conversions of its Payments payroll and human resources services business customers to other service providers to be completed during 2024.

Management Comments

• The Committee believes these goals were set at a challenging level that would be attainable only as a result of exceptional performance in order to drive the achievement of our shortand long-term objectives.
• The Committee believed an increase in the equity opportunities under the compensation program would better align Mr. McCarthy with investor priorities and Company performance, while promoting retention of our executive leadership.

Industry Context

The document highlights the importance of aligning executive compensation with company performance and shareholder interests, a common theme in corporate governance discussions. The use of peer group comparisons and market data to determine executive pay is also a standard practice.

Comparison to Industry Standards

• The document mentions that the Committee generally targets each element of compensation in the median range of the competitive market, adjusted for the Company's size, which is a common practice among publicly traded companies.
• The document notes that the CEO's compensation was below the 25th percentile of the peer group, suggesting that the company's executive pay practices may be more conservative than some of its competitors.
• The use of performance stock units (PSUs) tied to revenue and free cash flow targets is a common way to incentivize executives to achieve long-term financial goals.

Stakeholder Impact

• Shareholders are encouraged to support the executive compensation plan, which the company believes is aligned with their interests.
• The company's performance and compensation practices could impact employee morale and retention.
• The company's strategic decisions to exit certain businesses could impact customers and suppliers in those areas.

Next Steps

• Shareholders are encouraged to vote FOR the advisory vote on executive compensation.
• The company will continue to monitor and adjust its compensation practices to align with company performance and market trends.
• The company will continue to provide complete disclosure of the specific target levels at the end of the relevant performance period.

Key Dates

Keywords

executive compensation, proxy statement, incentive plan, EBITDA, revenue, performance stock units, long-term incentives, Deluxe Corporation