DEFA14A: Evertec Defends Executive Pay Practices Ahead of Shareholder Vote

Evertec is urging shareholders to approve its executive compensation plan, addressing concerns raised by proxy advisory firms regarding the CEO's retention grant and incentive goal-setting.

Summary

• Evertec is addressing concerns from proxy advisory firms regarding its 2023 executive compensation program.
• The company is encouraging shareholders to vote FOR the advisory vote on executive compensation at the Annual Meeting of Stockholders on May 23, 2024.
• A key point of discussion is the special long-term retention grant of RSUs valued at $6,000,000 to CEO Mr. Schuessler, approved in December 2023, to ensure his continued leadership during the integration of Sinqia S.A.
• The company commits to not granting additional special awards to Mr. Schuessler for the duration of the existing retention award, until December 6, 2027.
• ISS raised concerns about the rigor of the 2023 incentive plan goals, as the adjusted net income (ANI) and adjusted EBITDA targets were set below the prior year's actual results.
• Evertec explains that the lower targets were due to the financial impacts of a transaction with Popular, Inc., which included selling technology assets and a revenue share agreement.
• Evertec's one-year Total Shareholder Return (TSR) for 2023 was 27.15%, outperforming its GICS code and the Russell 3000.
• The company affirms that current FY 24 targets under both the annual incentive plan and long-term incentive plan exceed prior FY 23 target and actual performance.
• ISS significantly adjusted Evertec's peer group, reducing the size from 23 to 14 companies, leading to a 30% reduction in CEO peer compensation year-over-year.
• Evertec believes its long-term incentive design, which includes both absolute financial metrics and a relative stock-based metric, appropriately aligns pay and performance.
• The company's performance-based RSU design links to Adjusted EBITDA and a TSR modifier relative to the Russell 2000 Index.

Sentiment

Score: 6

Explanation: The document is a defensive response to concerns raised about executive compensation. While it highlights positive aspects like TSR performance, the need to address criticisms from proxy advisors suggests underlying issues. The sentiment is neutral to slightly positive, reflecting an attempt to reassure investors.

Positives

• Evertec's historical SOP support level has been high, averaging 97.55% over a 9-year period since 2015.
• The company's 2023 TSR outperformed both its GICS code and the broader market Russell 3000.
• Current FY 24 targets exceed prior FY 23 target and actual performance.
• The company has a long-standing long-term incentive design that balances financial metrics and relative TSR.
• The company is committed to strong governance and pay-for-performance results.

Negatives

• Proxy advisory firms have expressed concerns regarding the 2023 compensation program.
• The adjusted net income (ANI) target for the 2023 short-term incentive plan was set below the prior year's target and actual results.
• ISS significantly adjusted Evertec's peer group, leading to a substantial reduction in CEO peer compensation.
• The transaction with Popular, Inc. negatively impacted 2023 results due to the sale of technology assets and a revenue share agreement.

Risks

• Failure to receive shareholder approval for the executive compensation plan could lead to negative sentiment and potential governance challenges.
• The integration of Sinqia S.A. is critical to the company's future growth and expansion in Latin America, and any issues with the integration could impact performance.
• Changes in peer group selection by proxy advisory firms can significantly impact pay-for-performance assessments.
• Economic conditions and business circumstances could impact the company's ability to achieve its financial targets.

Future Outlook

The company looks forward to continuing to build on the strength of its leadership team and growth initiatives as it expands its product portfolio throughout the Americas.

Management Comments

• Evertec is committed to strong governance and pay-for-performance results.
• The Committee did not take this decision lightly as governance remains at the forefront of its decision-making process.
• We are proud of our performance in 2023 and believe our compensation for 2023 is well aligned with the performance and value delivered to our shareholders.

Industry Context

The document highlights the competitive landscape for executive talent in the technology and financial services industries, emphasizing the need to retain key leaders. It also touches on the importance of M&A activity, as seen with the Sinqia S.A. acquisition, and the need for successful integration to drive future growth.

Comparison to Industry Standards

• The document references the Russell 2000 Index as a benchmark for TSR performance.
• The document mentions that the size of the CEO's retention award was generally aligned with market data for such awards as provided by the Committee's independent outside compensation consultant.
• The document compares Evertec's TSR performance to its four-digit GICS code 4020.
• The document notes that the company's long-term incentive design has remained unchanged since 2017, suggesting a consistent approach to executive compensation.

Stakeholder Impact

• Shareholders are being asked to vote on the executive compensation plan.
• Employees, particularly executives, are impacted by the compensation structure and retention incentives.
• Customers may be indirectly impacted by the company's ability to retain key leadership and execute its growth strategy.

Next Steps

• Shareholders will vote on the advisory vote on executive compensation at the Annual Meeting of Stockholders on May 23, 2024.
• The company will continue to integrate Sinqia S.A. to drive future growth and expansion in Latin America.
• Full disclosure of FY 24 incentive goals and ultimate earnouts will be provided in next year's proxy statement.

Key Dates

Keywords

executive compensation, proxy statement, retention grant, incentive plan, peer group, TSR, EBITDA, governance, shareholders, Evertec