UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under §240.14a-12 |
CINTAS CORPORATION | ||||
(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Payment of Filing Fee (Check the appropriate box): |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(2) | Aggregate number of securities to which transaction applies: |
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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(4) | Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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6800 Cintas Boulevard
Cincinnati, Ohio 45262
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Dear Shareholder:
We invite you to attend our Annual Meeting of Shareholders on October 16, 2012, at 10:00 a.m. Eastern Daylight Time at Cintas' Headquarters, 6800 Cintas Boulevard, Cincinnati, Ohio.
This booklet includes notice of the meeting and the proxy statement. The proxy statement tells you more about the agenda and procedures for the meeting. It also describes how the Board of Directors operates and gives personal information about our director nominees.
Shareholders entitled to vote at this Annual Meeting are those of record as of the close of business on August 20, 2012. Please note that only shareholders of record or holders of valid proxies from such shareholders may attend or vote at the meeting. Since seating will be limited, we ask shareholders to call 1-866-246-8277 to make a reservation for the meeting. When making your reservation, please give your full name, company name and address. If you do not make a reservation, you may not be provided entry into the meeting due to limited space.
Upon arrival at the Annual Meeting, shareholders may be asked for a form of personal identification and proof of stock ownership. This can be in the form of a brokerage statement or proxy card. Based on this proof of ownership and the reservation system noted above, an admission ticket will be given to the shareholder at the meeting. No cameras, recording equipment, electronic devices, cellular telephones, large bags, briefcases or packages will be permitted in the meeting.
We are once again pleased to take advantage of U.S. Securities and Exchange Commission rules that allow companies to furnish their proxy materials over the Internet. As a result, we are mailing to most of our shareholders a Notice of Internet Availability of Proxy Materials (the "Notice") instead of a paper copy of this proxy statement, the accompanying proxy card and our 2012 Annual Report on Form 10-K. The Notice contains instructions on how to access and review those documents over the Internet and vote online, as well as how shareholders can elect to receive paper copies of the proxy statement, proxy card and 2012 Annual Report free of charge. We believe that this process will allow us to provide our shareholders with the information they need in a timely manner, while reducing the environmental impact and lowering the costs of printing and distributing our proxy materials. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice.
Whether or not you plan to attend the meeting, please complete and return your proxy card or vote by telephone or via the Internet by following the instructions on your proxy card.
Sincerely,
Robert
J. Kohlhepp
Chairman of the Board
September 6, 2012
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS OF CINTAS CORPORATION
Time: | 10:00 a.m., Eastern Daylight Time | |
Date: |
October 16, 2012 |
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Place: |
Cintas Corporate Headquarters 6800 Cintas Boulevard Cincinnati, Ohio |
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Purpose: |
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To elect as directors the nine nominees named in the attached proxy materials; |
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To approve, on an advisory basis, named executive officer compensation; |
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To ratify Ernst & Young LLP as our independent registered public accounting firm for fiscal 2013; and |
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To conduct other business if properly raised. |
Only shareholders of record on August 20, 2012, are entitled to notice of and to vote at, or attend, the meeting or any adjournment thereof. The approximate mailing date of the Notice of Internet Availability of Proxy Materials is September 6, 2012.
The vote of each shareholder is important. You can vote your shares by completing and returning the proxy card sent to you. Shareholders can also vote their shares over the Internet or by telephone by following the voting instructions on the proxy card.
Thomas
E. Frooman
Vice President and Secretary General Counsel
September 6, 2012
Important Notice Regarding the Availability of
Proxy Materials for the Shareholder Meeting To Be Held on October 16, 2012
The
Notice, 2012 Proxy Statement, 2012 Annual Report and
Form of Proxy are available at http://www.cintas.com
Cintas makes available, free of charge on its website, all of its filings that are made electronically with the Securities and Exchange Commission ("SEC"), including Forms 10-K, 10-Q and 8-K. These filings are also available on the SEC's website (www.sec.gov). To access these filings, go to our website (www.cintas.com) and click on the "Financial Reports" tab at the right under the "Company and Careers Investors" page. Copies of Cintas' Annual Report on Form 10-K for the fiscal year ended May 31, 2012, including financial statements and schedules thereto, filed with the SEC, are also available without charge to shareholders upon written request addressed to:
Thomas
E. Frooman
Vice President and Secretary General Counsel
6800 Cintas Boulevard
P.O. Box 625737
Cincinnati, Ohio 45262-5737
Cintas Corporation
6800 Cintas Boulevard
Cincinnati, Ohio 45262
PROXY
STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 16, 2012
This proxy statement and accompanying proxy, mailed or provided online, is furnished in connection with the solicitation by the Board of Directors (the "Board") of Cintas Corporation, a Washington corporation ("we" or "Cintas" or "the Company"), of proxies to be used at the annual meeting of shareholders of Cintas to be held on October 16, 2012, which we refer to as the Annual Meeting, and at any adjournment or postponement thereof. Cintas will bear the costs of this solicitation. The Notice Regarding the Availability of Proxy Materials and, for those shareholders who requested paper copies, this proxy statement and accompanying proxy, were first mailed to our shareholders on or about September 6, 2012.
Who may vote
Shareholders of Cintas, recorded in our stock register on August 20, 2012, may vote at the meeting. As of that date, Cintas had 126,680,890 shares of common stock outstanding. Each share is entitled to one vote on each matter submitted to the shareholders at the Annual Meeting.
How to vote
You may vote in person at the meeting or by proxy. You may also vote by Internet or telephone using one of the methods described in the proxy card. We recommend you vote by proxy, Internet or telephone even if you plan to attend the meeting. If you vote by Internet or telephone, please do not return the proxy card. If voting by mail, please complete, sign and date your proxy card enclosed with these proxy materials. If desired, you can change your vote at the meeting.
How proxies work
Cintas' Board is asking for your proxy. Giving us your proxy means you authorize us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none of our director nominees. You may also vote for or against the other proposals or abstain from voting.
All proxies properly signed will, unless a different choice is indicated, be voted "FOR" the election of all nominees proposed by the Nominating and Corporate Governance Committee, "FOR" the resolution approving the compensation of our named executive officers and "FOR" the ratification of Ernst & Young LLP as our independent registered public accounting firm for fiscal 2013.
You may receive more than one proxy or voting card depending on how you hold your shares. Shares registered in your name are covered by one card. If you hold shares through someone else, such as a stockbroker or bank, you may get material from them asking how you want to vote. Specifically, if your shares are held in the name of your stockbroker or bank and you wish to vote in person at the meeting, you should request your stockbroker or bank to issue you a proxy covering your shares.
If any other matters come before the meeting or any postponement or adjournment, each proxy will be voted in the discretion of the individuals named as proxies on the card.
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Revoking a proxy
You may revoke your proxy at any time before the vote is taken by submitting a new proxy with a later date, by voting via the Internet or by telephone at a later time, by voting in person at the meeting or by notifying Cintas' Secretary in writing at the address under "Questions?" on page 39.
Quorum
In order to carry on the business of the meeting, we must have a quorum. This means at least a majority of the outstanding shares eligible to vote must be represented at the meeting, either by proxy or in person.
Votes needed
The nine nominees receiving the most votes will be elected as members of the Board subject to a resignation policy in our Bylaws that applies to any nominee who does not receive a majority of the votes cast. See "Election of Directors" on page 3. Approval of Proposals 2 and 3 requires the affirmative vote of the majority of the votes cast on each proposal. Approval of all other matters considered at the meeting, including postponement or adjournment, will require the affirmative vote of a majority of the votes cast.
Abstentions (including abstentions with respect to one or more nominees) and broker nonvotes count for quorum purposes, but not for voting purposes. Broker nonvotes occur when a broker returns a proxy, but does not have authority to vote on a particular proposal.
Banks or brokers holding shares for beneficial owners must vote those shares as instructed. If the bank or broker has not received instructions from you, the beneficial owner, the bank or broker generally has discretionary voting power only with respect to the ratification of appointment of the independent registered public accounting firm. A bank or broker does not have discretion to cast votes with respect to Proposal 1 or Proposal 2 unless it has received voting instructions from the beneficial owner of the shares. It is therefore important that you provide instructions to your bank or broker if your shares are held by such a bank or broker so that your votes with respect to these Proposals are counted. Abstentions and broker nonvotes will have no effect on Proposals 1, 2 and 3.
Attending in person
Only shareholders, their proxy holders and Cintas' guests, each of which must be properly registered as described in the Notice, may attend the meeting.
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ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
The Nominating and Corporate Governance Committee of the Board has nominated for election the following individuals, namely: Gerald S. Adolph, John F. Barrett, Melanie W. Barstad, Richard T. Farmer, Scott D. Farmer, James J. Johnson, Robert J. Kohlhepp, Joseph Scaminace and Ronald W. Tysoe. Proxies solicited by the Board will be voted for the election of these nominees if no direction is given. All directors elected at the Annual Meeting will be elected to hold office until the next annual meeting, with each director to serve until such director's successor is elected and qualified or until such director's earlier resignation or removal. In voting to elect directors, shareholders are not entitled to cumulate their votes. Pursuant to Cintas' retirement policy, David C. Phillips will be retiring immediately following the Annual Meeting.
In accordance with NASDAQ Stock Market, LLC ("NASDAQ") rules, our Board affirmatively determines the independence of each director and nominee for election as a director in accordance with the elements of independence set forth in the NASDAQ listing standards and rules promulgated under the Securities Exchange Act of 1934. Cintas' director independence standards, incorporated in the Corporate Governance Guidelines, are available on our website at www.cintas.com, under Company and Careers Investors Corporate Governance. Based on these standards, the Board determined that each of the following nonemployee directors or director nominees is independent: Gerald S. Adolph, John F. Barrett, Melanie W. Barstad, James J. Johnson, David C. Phillips, Joseph Scaminace and Ronald W. Tysoe. Our Audit, Compensation and Nominating and Corporate Governance Committees are composed solely of independent directors. All directors are elected for one-year terms. Information on each of our nominees is given below.
An uncontested election is one in which the number of nominees does not exceed the number of directors to be elected. In an uncontested election, like this election, our Bylaws require that any nominee who does not receive a majority of the votes cast with respect to such nominee must promptly offer his or her resignation to the Board. The Nominating and Corporate Governance Committee will take the matter under advisement and make a recommendation to the Board on whether to accept or reject the resignation or whether other action should be taken. The Board has 90 days following certification of the shareholder vote to consider the offer of resignation. Within such 90 day period, the Board will promptly disclose publicly its decision whether to accept the director's resignation offer.
If a director nominee becomes unavailable before the election, your proxy card authorizes us to vote for a replacement nominee if the Board names one.
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The Board recommends you vote FOR each of the following nominees: |
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Gerald S. Adolph(1)(2) 58 |
Gerald S. Adolph was elected a Director of Cintas in 2006. He is the Chairman of the Compensation Committee. Mr. Adolph has been a Senior Vice President with Booz & Company, a consulting firm, since 1999. Mr. Adolph has held numerous leadership positions at Booz & Company, including Worldwide Chemicals Practice Leader, Worldwide Consumer and Health Practice Leader and Global Mergers and Restructuring Practice Leader. He also served on the Booz Allen Hamilton board of directors from 1994 to 1997. The Board believes that Mr. Adolph's consulting experience, giving him insight into various corporate governance and business management issues, as well as his status as an independent director, make his service on the Board integral to Cintas. |
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John F. Barrett(2)(4) 63 |
John F. Barrett was appointed a Director of Cintas in 2011 and is recommended as a Director nominee by the Nominating and Corporate Governance Committee. Mr. Barrett has been the Chairman, President and Chief Executive Officer of Western & Southern Financial Group, a Cincinnati-based diversified family of financial services companies, since 2002. Mr. Barrett is also a Director of Convergys Corporation. He served as a director of The Fifth Third Bancorp and its subsidiary, The Fifth Third Bank from 1988 to 2009, and The Andersons, Inc. from 1992 to 2008. The Board believes that Mr. Barrett's principal executive officer experience and service as a director of other publicly-traded companies, which have provided him with a deep understanding of business matters, his broad financial acumen and his status as an independent director, makes his service on the Board valuable to Cintas. | |
Melanie W. Barstad(1)(2) 59 |
Melanie W. Barstad was elected a Director of Cintas in 2011. Ms. Barstad was with the Johnson & Johnson Family of Companies, a diversified global provider of consumer products, prescription medicines and medical devices, for 23 years, retiring in 2009 as President of Women's Health in the Medical Device and Diagnostics Division. She served as a management board member on numerous Johnson & Johnson operating company boards including Johnson & Johnson Health Care Systems, Ethicon Endo Surgery and Johnson & Johnson Medical from 1997 to 2009. Ms. Barstad also served as co-chair of the Johnson & Johnson Women's Leadership Initiative. The Board believes that Ms. Barstad's experience running complex, enterprise-wide global businesses as a line executive and as a management board member and her status as an independent director makes her service on the Board valuable to Cintas. |
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Richard T. Farmer 77 |
Richard T. Farmer is the founder of Cintas and has served as Chairman Emeritus of the Board since 2009. He served as Chairman of the Board of Cintas and its predecessor companies from 1968 to 2009. Prior to the founding of Cintas, Mr. Farmer worked with his family owned company, which Cintas acquired in the early 1970s. Prior to August 1, 1995, Mr. Farmer also served as Cintas' Chief Executive Officer. The Board believes that Mr. Farmer, as the founder of Cintas, possesses unparalleled experience in, and insight into, all aspects of Cintas' business, which he is able to contribute to the Board through his position as Chairman Emeritus of the Board. |
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Scott D. Farmer(3) 53 |
Scott D. Farmer joined Cintas in 1981. He has held the positions of Vice President National Account Division, Vice President Marketing and Merchandising, Rental Division Group Vice President and Chief Operating Officer. In 1994, he was elected to the Board. He was elected Chief Executive Officer in July 2003. The Board believes that Mr. Farmer's breadth of knowledge and experience in the areas of marketing, business development and corporate strategy, as well as his familiarity with all aspects of Cintas' business, renders his service on the Board extremely beneficial to Cintas. |
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James J. Johnson(2)(4) 65 |
James J. Johnson was elected a Director of Cintas in 2009. Mr. Johnson was with the Procter & Gamble Company, a manufacturer and marketer of consumer products, for 35 years, retiring in June 2008 as Chief Legal Officer. The Board believes that Mr. Johnson's experience with the myriad of legal issues surrounding a publicly-traded company and his status as an independent director renders his service on the Board invaluable to Cintas. | |
Robert J. Kohlhepp(3) 68 |
Robert J. Kohlhepp has been a Director of Cintas since 1979. He has been employed by Cintas since 1967 serving in various executive capacities including Vice President Finance, Executive Vice President, President, Chief Executive Officer and Vice Chairman of the Board. He was elected Chairman of the Board in 2009. He is also a Director of Parker Hannifin Corporation. He served as a director of Eagle Hospitality Properties Trust, Inc. from 2004 until 2008. The Board believes that Mr. Kohlhepp's long-time service to Cintas, much of which has been in an executive capacity, has given him significant experience with capital management and allocation and public company financial statement preparation, uniquely qualifying him to serve as the Chairman of the Board. |
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Joseph Scaminace(1)(2) 59 |
Joseph Scaminace was elected a Director of Cintas in 2010. Mr. Scaminace has been Chairman, President and CEO of OM Group, Inc. ("OMG"), a specialty chemicals company, since 2005. Prior to joining OMG, Mr. Scaminace was the President and Chief Operating Officer of The Sherwin-Williams Company, a paint and coatings company where he had worked in various capacities since 1983. He is a member of the Board of Trustees of The Cleveland Clinic. Mr. Scaminace is also a Director of Parker Hannifin Corporation. The Board believes that Mr. Scaminace's principal executive officer experience and service as a director of another publicly-traded company, which have provided him insight into high-level corporate governance and executive compensation matters, as well as his independent director status, make him an integral member of Cintas' Board. |
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Ronald W. Tysoe(2)(4) 59 |
Ronald W. Tysoe was elected a Director of Cintas in 2008. He is the Chairman of the Audit Committee. Mr. Tysoe served as Senior Advisor of Perella Weinberg Partners LP, a financial services firm, from October 2006 until his retirement in September 2007. He served as Vice Chairman of Federated Department Stores, Inc. (now known as Macy's Inc.), a clothing and home furnishings company, from April 1990 to October 2006. Mr. Tysoe is also a Director of Canadian Imperial Bank of Commerce, Scripps Networks Interactive, Inc., Pzena Investment Management, Inc. and Taubman Centers, Inc. He served as a director of Macy's Inc. from 1988 until 2005, Ohio Casualty Corporation from 2006 until 2007 and NRDC Acquisition Corp. (now known as Retail Opportunity Investments Corp.) from 2007 until 2009. The Board believes that Mr. Tysoe's service as a Vice Chairman of another publicly-traded company, his independent director status and the fact that he is an "audit committee financial expert" under SEC guidelines, given his understanding of accounting and financial reporting, disclosures and controls, make his Board service extremely beneficial to Cintas. |
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Richard T. Farmer is the father of Scott D. Farmer.
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Cintas is a Washington corporation and, therefore, governed by the corporate laws of Washington. Since its stock is publicly traded on the NASDAQ Global Select Market and it files reports with the SEC, it is also subject to the rules of NASDAQ as well as various provisions of federal securities laws and the Sarbanes-Oxley Act of 2002 ("SOX").
Governance of the corporation is placed in the hands of the directors who, in turn, elect officers to manage the business operations. The Board oversees the management of Cintas on your behalf. It reviews Cintas' long-term strategic plans and exercises direct decision making authority in all major decisions, such as significant acquisitions and the declaration of dividends. The Board also reviews financial and internal controls and management succession plans.
During fiscal 2012, the Board met on four occasions. In addition, the independent directors met in executive session on four occasions during fiscal 2012 without the presence of management directors. The Lead Director presided over each session.
Cintas expects all directors to attend all Board and shareholder meetings. All of the then presiding directors attended the 2011 Annual Meeting of Shareholders. Each of Cintas' directors attended all meetings of the Board and committees of which they were a member during fiscal 2012.
Shareholders may communicate with the full Board or individual directors on matters concerning Cintas by mail or through our website. Such communication should be sent to the attention of the Secretary. Interested persons may communicate directly and confidentially with our non-management directors by writing to Thomas E. Frooman, 6800 Cintas Boulevard, P.O. Box 625737, Cincinnati, Ohio 45262-5737. However, any such communications that are considered to be improper for submission to the intended recipients will not be provided to the directors. Examples of communications that would be considered improper for submission include, without limitation, customer complaints, solicitations, communications that do not relate, directly or indirectly, to Cintas' business or communications that relate to improper or irrelevant topics. In addition, please note that the Secretary will not forward communications that are spam, junk mail or mass mailings, resumes and other forms of job inquiries, surveys and business solicitations or advertisements.
The Board has adopted the Cintas Code of Conduct and Business Ethics applicable to officers, directors and employees. A copy of the Cintas Code of Conduct and Business Ethics is available on our website, www.cintas.com, under Company and Careers Investors Corporate Governance. Cintas intends to post on its website within four business days after approval any amendments or waivers to the Code of Conduct and Business Ethics.
The Directors have organized themselves into the committees described below to help carry out Board responsibilities. In particular, Board committees work on key issues in greater detail than would be possible at full Board meetings. Each committee reviews the results of its meetings with the full Board.
The Executive Committee is composed of David C. Phillips (Chairman), Scott D. Farmer and Robert J. Kohlhepp. It acts for the Board as required between Board meetings. This Committee had no meetings in fiscal 2012, but took several actions in writing.
Each of the Nominating and Corporate Governance Committee, Audit Committee and Compensation Committee is composed entirely of nonemployee directors each of whom meets the relevant independence requirements established by NASDAQ and SOX that apply to their particular assignments.
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Board Leadership Structure
The Board is responsible for evaluating and determining Cintas' leadership structure. Currently, two separate individuals serve in the capacities of Chairman and Chief Executive Officer ("CEO"). Mr. Robert J. Kohlhepp was elected our Chairman of the Board in 2009 and Mr. Scott D. Farmer has been our CEO since 2003. Mr. Kohlhepp has been employed by Cintas since 1967, serving in various executive capacities including Vice President Finance, Executive Vice President, President, Chief Executive Officer and Vice Chairman of the Board. As Chairman, Mr. Kohlhepp is responsible for presiding over all meetings of the Board and shareholders, setting agendas for Board meetings and providing advice and counsel to Cintas' management regarding Cintas' business and operations. As CEO, Mr. S.D. Farmer is responsible for the general management, oversight, supervision and control of the business and affairs of Cintas, and ensuring that all actions and resolutions of the Board are carried into effect. With their many years of experience with Cintas, Cintas believes that Mr. Kohlhepp and Mr. S.D. Farmer are uniquely qualified to be Cintas' Chairman and CEO, respectively. We believe that this leadership structure is currently the most appropriate for Cintas.
In electing the Chairman and appointing the CEO, the Board considers nominees' knowledge of and experience with Cintas and its corporate culture, general industry experience and other executive skills. Our Board recognizes that, depending on the circumstances, leadership models other than the current model might be appropriate. Our corporate governance guidelines provide that the Board selects the Chairman of the Board in the manner that it determines to be in the best interests of Cintas' shareholders.
The Board considers it to be useful and appropriate to designate a nonemployee director to serve in a lead capacity to preside over meetings of independent directors, coordinate the activities of the other nonemployee directors, act as liaison among other directors, preside at Board meetings in the absence of the Chairman and to perform such other duties and responsibilities as the Board may determine. The Board has designated David C. Phillips as the Lead Director.
The Board's Role in Risk Oversight
The entire Board, rather than a separate board committee, oversees Cintas' risk management process. Cintas relies on a comprehensive enterprise risk management ("ERM") process to aggregate, monitor, measure and manage risks. The ERM approach is designed to enable the Board to establish a mutual understanding with management of the effectiveness of Cintas' risk management practices and capabilities, to review Cintas' risk exposure and to elevate certain key risks for discussion at the Board level as appropriate.
Our senior leadership is responsible for identifying, assessing and managing the company's exposure to risk, and we have established a risk committee which is responsible for overseeing and monitoring our risk strategy and chartering risk mitigation related actions. The risk committee is chaired by the CEO and has broad-based functional representation including senior management from Cintas' corporate audit, legal, operations, security and finance areas. The CEO is the only member of the Board on the risk committee.
The risk committee meets quarterly. At its meetings, the risk committee discusses risks to Cintas' business (operational, financial and legal), the potential impact to the business and the probability of occurrence in order to determine the best solution and identify the need for resource allocation. This process includes evaluating management's preparedness to respond to the risk if realized.
One risk committee meeting annually focuses on ERM and is attended by the Chairman of the Board. The risk profiles and current and future mitigating actions are discussed and refined during subsequent meetings with senior management, the CEO and the Chairman. Thereafter, the risk committee presents a comprehensive report to the Board in an interactive session during which the Board has the opportunity to further discuss the risk committee's assessments and conclusions.
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Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for nominating persons for election as directors at each annual shareholders' meeting, making recommendations for filling any Board vacancies that may arise between meetings due to resignation or other factors and developing and recommending to the Board corporate governance policies and guidelines for Cintas. Cintas does not have a formal policy regarding diversity in determining director nominees. However, in nominating directors, the Nominating and Corporate Governance Committee takes into account, among other factors which it may deem appropriate, the judgment, skill, diversity, business experience and needs of the Board as its function relates to the business of Cintas. The Nominating and Corporate Governance Committee will consider nominees recommended by security holders in written correspondence directed to the Secretary of Cintas. The Nominating and Corporate Governance Committee evaluates the qualifications of candidates properly submitted by shareholders on the same basis as those of other director candidates. However, in no event shall any nomination made by a shareholder be binding on Cintas unless it is made in strict accordance with Cintas' Bylaws as they may be amended from time to time. A copy of the Nominating and Corporate Governance Committee Charter is available on our website, www.cintas.com, under Company and Careers Investors Corporate Governance.
Committee members: David C. Phillips (Chairman), Gerald S. Adolph, John F. Barrett, Melanie W. Barstad, James J. Johnson, Joseph Scaminace and Ronald W. Tysoe.
Meetings last year: Three
Audit Committee
The Audit Committee is governed by a written charter adopted by the Board. A copy of the Audit Committee Charter is available on our website, www.cintas.com, under Company and Careers Investors Corporate Governance. Ronald W. Tysoe and David C. Phillips have been designated as Audit Committee financial experts by the Board and the Board has determined that such individuals satisfy the expertise and audit committee independence standards required by NASDAQ and the SEC.
The Audit Committee is solely responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm. The Audit Committee also evaluates information received from the independent registered public accounting firm and management to determine whether the registered public accounting firm is independent of management. The independent registered public accounting firm reports directly to the Audit Committee.
The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by Cintas concerning accounting, internal accounting controls or auditing matters and has established procedures for the confidential and anonymous submission by employees of any concerns they may have regarding questionable accounting, auditing or financial matters.
The Audit Committee approves all audit and nonaudit services performed for Cintas by its independent registered public accounting firm prior to the time that those services are commenced. The Chairman also has the authority to approve these services between regularly scheduled meetings. In this event, the Chairman reports approvals made by him to the full Committee at each of its meetings. For these purposes, the Committee, or its Chairman, is provided with information as to the nature, extent and purpose of each proposed service, as well as the approximate time frame and proposed cost arrangements for that service.
Committee members: Ronald W. Tysoe (Chairman), John F. Barrett, James J. Johnson and David C. Phillips.
Meetings last year: Ten (Seven of which were telephonic meetings.)
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The Audit Committee oversees Cintas' financial reporting process on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. As part of the oversight processes, the Audit Committee regularly meets with management of Cintas, Cintas' independent registered public accounting firm and Cintas' Director of Internal Audit. The Audit Committee regularly meets with each of these groups separately in closed sessions. Throughout the year, the Audit Committee had full access to management, the independent registered public accounting firm and internal auditors for Cintas. To fulfill its responsibilities, the Audit Committee did, among other things, the following:
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financial reporting and reviewed an attestation report from the independent registered public accounting firm regarding the effectiveness of internal controls over financial reporting; and
RESPECTFULLY SUBMITTED BY THE MEMBERS OF THE AUDIT COMMITTEE, Ronald W. Tysoe (Chairman), John F. Barrett, James J. Johnson and David C. Phillips
The Audit Committee appointed Ernst & Young LLP as the independent registered public accounting firm to audit the fiscal 2012 financial statements.
Fees billed for services in fiscal 2012 and fiscal 2011 are as follows:
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Fiscal 2012 | Fiscal 2011 | |||||
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Audit Fees |
$ | 799,500 | $ | 780,500 | |||
Audit Related Fees(1) |
$ | 152,575 | $ | 189,419 | |||
Tax Fees(2) |
$ | 374,696 | $ | 387,979 | |||
All Other Fees(3) |
$ | 0 | $ | 27,084 |
All of the fees above were pre-approved by the Audit Committee. None of these fees were approved by the Audit Committee after services were rendered pursuant to the de minimis exception established by the SEC.
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Compensation Committee
The Compensation Committee is governed by a written charter adopted by the Board. A copy of the Compensation Committee Charter is available on our website, www.cintas.com, under Company and Careers Investors Corporate Governance. In discharging the responsibilities of the Board relating to compensation of Cintas' CEO and other senior executive officers, the purposes of the Compensation Committee are, among others, (i) to review and approve the compensation of Cintas' CEO and other senior executive officers, (ii) to oversee the compensation policies and programs of Cintas, including adopting, administering and approving Cintas' incentive compensation and stock plans and awards and amendments to the plans or awards and performing such duties and responsibilities under the terms of any executive compensation plan, incentive-compensation plan or equity-based plan and (iii) to oversee management succession planning. The Compensation Committee has the authority to delegate any of its responsibilities to subcommittees as the Compensation Committee may deem appropriate in its sole discretion. In fiscal 2012, the Committee believes it reviewed the necessary resources available to survey the compensation practices of Cintas' peers and keep abreast of compensation developments in the marketplace. During the fiscal year ended May 31, 2012, Cintas engaged outside compensation consultants to assist with executive compensation performance metrics. This information was presented to the Compensation Committee for their review.
Cintas' executive compensation policies are designed to support the corporate objective of maximizing the long-term value of Cintas for its shareholders and employee-partners. To achieve this objective, the Committee believes it is important to provide competitive levels of compensation to attract and retain the most qualified employees, to recognize individuals who exceed expectations and to closely link executive compensation with corporate performance. Cintas, with the Compensation Committee's oversight, uses short and long-term incentive and equity compensation plans to ensure company objectives are achieved.
The Compensation Committee processes and procedures for the consideration and determination of executive and director compensation are discussed in the section entitled "Executive Compensation".
Committee members: Gerald S. Adolph (Chairman), Melanie W. Barstad and Joseph Scaminace.
Meetings last year: Three
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee, listed above, has ever been an officer or employee of Cintas, nor have they been an executive officer of another entity at which one of our executive officers serves on the Board. No executive officer of Cintas serves as a director or as a member of a committee of any company of which any of Cintas' nonemployee directors are executive officers.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on the review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in Cintas' Proxy Statement and Annual Report on Form 10-K for the fiscal year ended May 31, 2012.
Committee Members: Gerald S. Adolph (Chairman), Melanie W. Barstad and Joseph Scaminace.
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Compensation Discussion and Analysis
This section discusses and analyzes the compensation awarded to, earned by, or paid to the executive officers set forth in the Fiscal 2012 Summary Compensation Table of this proxy statement (collectively, the named executive officers). It also discusses the principles underlying our policies and decisions.
Overview of Compensation Program
The Compensation Committee oversees the compensation programs of Cintas, with particular attention to the compensation for its CEO and the other executive officers. It is the responsibility of the Committee to review and approve or, as the case may be, recommend to the Board for approval, changes to Cintas' compensation policies and benefit plans, to administer Cintas' stock plans including recommending and approving stock-based awards to executive officers, and to otherwise ensure that Cintas' compensation philosophy is consistent with the best interests of Cintas and its shareholders and is properly implemented and monitored. Generally, the types of compensation and benefits provided to all executive officers are similar.
The day-to-day administration of savings plans, profit sharing plans, stock plans, health, welfare and paid-time-off plans and policies applicable to salaried employees in general are handled by Cintas' human resources, finance and legal department employees. The responsibility for certain fundamental changes outside the day-to-day requirements necessary to maintain these plans and policies belongs to the Committee.
Compensation Philosophy and Objectives
The primary focus of our executive compensation program is to support the corporate objective of maximizing the long-term value for our shareholders and employee-partners. We also strive to provide a competitive level of total compensation to all of our employee-partners, including the executive officers, that attracts and retains talented and experienced individuals and that motivates them to contribute to Cintas' short-term and long-term success.
Our incentive compensation program is designed to reward both individual and team performance, measured by overall Cintas results and individual achievement. The Executive Incentive Plan for fiscal 2012 applies to all of our executive officers. The incentive compensation arrangement for our CEO, Mr. Scott D. Farmer, was based on Cintas' earnings per share ("EPS"), growth in sales and other performance goals selected by the Committee. The incentive compensation arrangement for our President and Chief Operating Officer, Mr. J. Phillip Holloman, was based on Cintas' EPS, growth in sales for operations within his responsibility, growth in net income for operations within his responsibility and the accomplishment of certain individual goals. The incentive compensation arrangements for our Senior Vice President and Chief Financial Officer, William C. Gale, our Vice President and Secretary General Counsel, Mr. Thomas E. Frooman and our Vice President and Treasurer, Mr. J. Michael Hansen were based on Cintas' EPS and achievement of certain individual goals.
Compensation Decision-Making Process
The Compensation Committee determines the compensation for the executive officers based on recommendations made by management as discussed below. Annually, the Committee reviews a market analysis of executive compensation plans. The analysis looks at companies in Cintas' industry as well as comparably sized companies (with respect to revenue) that we consider to be Cintas' peer group (G&K Services, Inc., Unifirst Corporation, Iron Mountain Incorporated, Convergys Corporation, Robert Half International Inc., Leggett & Platt, Incorporated, Chiquita Brands International, Inc., Kelly Services, Inc., Unisys Corporation and Ecolab Inc.). The Committee benchmarks base salary, annual cash
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incentives, long-term compensation and other compensation. Our analysis shows that our named executive officers' target compensation is less than the total compensation of respective named executive officers of the majority of the companies in the peer group identified above.
Based on the market analysis and individual performance, the Chairman of the Board makes a recommendation to the Committee on the CEO's base salary and annual cash incentive target for the upcoming fiscal year. The CEO makes a recommendation to the Committee for the base salaries and annual cash incentive targets for the upcoming fiscal year for other executive officers.
In October 2011, and at various meetings held during the remainder of fiscal 2012, the Board reviewed the results of our 2011 "say-on-pay" and "say-on-frequency" votes, the results of which were we received over 92% approval of our named executive officers' compensation and our shareholders recommended that we hold annual say-on-pay votes. Based on these results, the Board determined that we will conduct say-on-pay votes on an annual basis until the next say-on-frequency vote is held. In addition, after taking into consideration the strong support for our executive compensation program reflected in the 2011 say-on-pay results, the Compensation Committee decided to continue to apply the same philosophy, compensation objectives and governing principles as it used for fiscal 2011 when making subsequent decisions or adopting subsequent policies regarding named executive officer compensation. The Committee believes the voting results demonstrate significant support for our named executive officer pay program and did not make any changes to the fiscal 2012 program in response to the 2011 say-on-pay results. The Compensation Committee has, however, continued to monitor the voting policies of our shareholders and their advisors since last year and will continue to take those voting policies into account when considering changes to our executive compensation program.
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Key Elements of Compensation
The table below summarizes the key fiscal 2012 compensation program elements for our named executive officers:
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Element |
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Form of Compensation |
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Purpose |
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Base Salaries | Cash | Provides competitive, fixed compensation to attract and retain exceptional executive talent | ||||||||||
Annual Cash Incentives | Cash | Provides a variable financial incentive to achieve corporate and individual operating goals | ||||||||||
Long-Term Equity Incentives | Non-qualified stock options and restricted stock | Encourages named executive officers to build and maintain a long-term equity ownership position in Cintas so that their interests are aligned with our shareholders | ||||||||||
Health, Retirement and Other Benefits | Eligibility to participate in benefit plans generally available to our employee-partners, including Partners' Plan contributions, health, life insurance and disability plans, deferred compensation plan, and certain perquisites | Benefit plans are part of a broad-based employee benefits program. The deferred compensation plan and perquisites provide competitive benefits to our named executive officers |
We believe that each element of our compensation program plays a substantial role in maximizing long-term value for our shareholders and employee-partners because of the significant emphasis on pay-for-performance principles. Generally, approximately 50% of a named executive officer's total compensation is based on Cintas' results and the attainment of individual goals. As a result, Cintas' performance has a significant effect on the amount of compensation realized by the executive officers.
Each of these elements of pay is described and analyzed in more detail below.
Base Salaries
The Compensation Committee annually reviews the base salaries of our executive officers. The Committee also reviews an executive officer's base salary whenever there is a change in that executive officer's job responsibilities.
The factors that influence base salary decisions are level and scope of responsibility, salary offered by comparably sized companies, overall performance of the individual and overall performance of Cintas.
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The following are the fiscal 2012 base salaries that were approved by the Committee for our named executive officers:
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Officer |
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Fiscal 2012 Base Salary |
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% Increase Over the Prior Year |
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Scott D. Farmer | $ | 769,153 | 3.0 | % | ||||||||||
William C. Gale | $ | 468,918 | 3.0 | % | ||||||||||
Thomas E. Frooman | $ | 432,317 | 3.0 | % | ||||||||||
J. Michael Hansen | $ | 271,920 | 3.0 | % | ||||||||||
J. Phillip Holloman | $ | 562,277 | 3.0 | % |
Annual Cash Incentives
The Compensation Committee strongly believes that variable annual cash incentives provide a direct financial incentive for executive officers to achieve corporate and individual operating goals. At the beginning of each fiscal year, the Committee establishes an annual cash incentive target for each named executive officer based on certain financial and non-financial goals.
The performance components and targets were derived from the operating plans for Cintas for fiscal 2012 and represent goals for that year that the Committee believed would be challenging for Cintas, yet achievable if senior and operating management met or surpassed their business unit goals and objectives.
The Committee anticipates that similar performance components and targets will be utilized in fiscal 2013 because these objectives are important and Cintas continues to make progress on these objectives. However, the Committee reserves the right to determine on an ongoing basis the performance components and targets it will use in developing the performance-based portion of the named executive officers' compensation.
For fiscal 2012, the Committee approved a total compensation plan for Mr. S. D. Farmer. The aggregate amount of Mr. S. D. Farmer's annual cash incentive for fiscal 2012 is comprised of the financial objectives of fiscal 2012 Cintas EPS, fiscal 2012 sales growth and certain non-financial goals. The EPS and sales growth goals were established with reference to the operating plans for Cintas for fiscal 2012. The EPS goals for all participants were identical. The percentage of the target annual cash incentive related to the fiscal 2012 Cintas EPS, the growth of fiscal 2012 sales and the non-financial goals relating to employee diversity, global expansion, safety, capital expenditures and inventory were 37.5%, 37.5% and 25%, respectively. The Executive Incentive Plan provided that if Cintas met the targeted EPS, sales growth and the other non-financial goals, Mr. S. D. Farmer would receive a target annual cash incentive of $494,565. Based upon the overall achievement of these objectives, Mr. S. D. Farmer could earn 0% up to a maximum of 200% of the target annual cash incentive.
Under the Executive Incentive Plan, annual cash incentive calculations for achievement of financial goals are based on actual results, subject to adjustment at the discretion of the Compensation Committee to exclude items that are not operational, such as accounting principle changes or revenue from an acquisition that was not in the business plan.
The annual cash incentive payout percentage multiplier for each component of Mr. S. D. Farmer's target annual cash incentive is provided in the following tables (for each named executive officer, annual cash incentive payouts are interpolated on a straight-line basis for achievement between the levels of achievement established for the financial components of the annual cash incentives):
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EPS Component Level of Achievement |
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EPS Goals |
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Annual Cash Incentive Payout |
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Below Threshold | <$1.92 | 0 | % | |||||||||
Threshold | $1.92 | 25 | % | |||||||||
Target | $2.06 | 100 | % | |||||||||
Maximum | $2.26 | 200 | % |
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Sales Growth Component Level of Achievement |
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Sales Growth Goals (% Growth Over Fiscal 2011) |
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Annual Cash Incentive Payout |
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Below Threshold | <6.55% | 0 | % | |||||||||
Threshold | 6.55% | 25 | % | |||||||||
Target | 8.05% | 100 | % | |||||||||
Maximum | 11.05% | 200 | % |
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Individual Performance Component Level of Achievement |
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Annual Cash Incentive Payout |
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Does Not Meet Goals | 0 | % | ||||||
Meets Most Goals | 50 | % | ||||||
Meets Goals | 100 | % | ||||||
Exceeds Goals | 150 | % | ||||||
Outstanding Achievement | 200 | % |
The Grants of Plan-Based Awards for Fiscal 2012 table outlines estimated possible payouts under this non-equity incentive plan award. Based on Cintas' EPS and sales growth for fiscal 2012, Mr. S. D. Farmer received an annual cash incentive award of $523,930. Fiscal 2012 EPS was $2.27 per diluted share and fiscal 2012 sales growth was 7.7%. Mr. S. D. Farmer received $123,641 based on the performance of the non-financial goals outlined above. His individual performance level was "Meets Goals". Mr. S. D. Farmer's total fiscal 2012 annual cash incentive award was $647,571.
For fiscal 2012, the Committee approved a total compensation plan for Mr. Holloman. The aggregate amount of Mr. Holloman's annual cash incentive for fiscal 2012 is comprised of the financial objectives of fiscal 2012 Cintas EPS, fiscal 2012 sales growth for operations within his responsibility, fiscal 2012 net income growth for the operations within his responsibility and the accomplishment of certain non-financial goals. The sales growth and net income goals were established with reference to the operating plans for operations within Mr. Holloman's responsibility for fiscal 2012. The percentage of the target annual cash incentive related to fiscal 2012 Cintas EPS, the growth of fiscal 2012 sales for operations within his responsibility, the fiscal 2012 net income growth for operations within Mr. Holloman's responsibility and the non-financial goals relating to employee diversity, safety, capital expenditures, accounts receivables, and inventory are 30%, 30%, 15% and 25%, respectively. The Executive Incentive Plan provided that if Cintas met the targeted EPS as well as sales growth and net income for operations within his responsibility and the other non-financial goals, Mr. Holloman would receive a target annual cash incentive of $328,600. Based upon the overall achievement of these objectives, Mr. Holloman could earn 0% up to a maximum of 200% of the target annual cash incentive.
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The annual cash incentive payout percentage multiplier for each financial component of Mr. Holloman's target annual cash incentive is provided in the following tables:
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EPS Component Level of Achievement |
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EPS Goals |
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Annual Cash Incentive Payout |
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Below Threshold | <$1.92 | 0 | % | |||||||||
Threshold | $1.92 | 50 | % | |||||||||
Target | $2.06 | 100 | % | |||||||||
Maximum | $2.26 | 200 | % |
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Sales Growth Component Level of Achievement |
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Sales Growth Goals (% Growth Over Fiscal 2011) |
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Annual Cash Incentive Payout |
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Below Threshold | <6.4 | % | 0 | % | ||||||||
Threshold | 6.4 | % | 50 | % | ||||||||
Target | 6.9 | % | 100 | % | ||||||||
Maximum | 9.9 | % | 200 | % |
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Net Income Component Level of Achievement |
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Net Income Goals |
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Annual Cash Incentive Payout |
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Below Threshold | <12.2 | % | 0 | % | ||||||||
Threshold | 12.2 | % | 50 | % | ||||||||
Target | 12.7 | % | 100 | % | ||||||||
Maximum | 14.2 | % | 200 | % |
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Individual Performance Component Level of Achievement |
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Annual Cash Incentive Payout |
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Does Not Meet Goals | 0 | % | ||||||
Meets Most Goals | 50 | % | ||||||
Meets Goals | 100 | % | ||||||
Exceeds Goals | 150 | % | ||||||
Outstanding Achievement | 200 | % |
The Grants of Plan-Based Awards for Fiscal 2012 table outlines estimated possible payouts under this non-equity incentive plan award. Based on Cintas' EPS, sales growth for operations within his responsibility for fiscal 2012 and net income growth for operations within his responsibility for fiscal 2012, Mr. Holloman received an annual cash incentive award of $259,923 for these components. Mr. Holloman received $82,150 based on the performance of the non-financial goals outlined above. His individual performance level was "Meets Goals". Mr. Holloman's total fiscal 2012 annual cash incentive award was $342,073.
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For fiscal 2012, the Committee approved total compensation plans for Mr. Gale, Mr. Frooman and Mr. Hansen. The aggregate amount of annual cash incentive for fiscal 2012 for Mr. Gale, Mr. Frooman and Mr. Hansen is comprised of the sum of that named executive officer's incentive for the Cintas EPS component and the individual performance component (consisting of a subjective performance evaluation rather than performance against specified individual performance goals). Based upon overall performance, the eligible named executive officers could earn 0% up to a maximum of 200% of the annual cash incentive target.
The following table sets forth the annual cash incentive targets and performance criteria that were reviewed and approved by the Committee:
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Annual Cash Incentive Target |
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EPS Component |
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Individual Performance Component |
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William C. Gale | $ | 201,983 | 50 | % | 50 | % | |||||||||||
Thomas E. Frooman | $ | 204,713 | 50 | % | 50 | % | |||||||||||
J. Michael Hansen | $ | 71,020 | 50 | % | 50 | % |
The annual cash incentive payout percentage multiplier for each component is provided in the following tables:
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EPS Component Level of Achievement |
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EPS Goals |
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Annual Cash Incentive Payout |
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Below Threshold | <$1.92 | 0 | % | |||||||||
Threshold | $1.92 | 50 | % | |||||||||
Target | $2.06 | 100 | % | |||||||||
Maximum | $2.26 | 200 | % |
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Individual Performance Component Level of Achievement |
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Annual Cash Incentive Payout |
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Does Not Meet Goals | 0 | % | ||||||
Meets Most Goals | 50 | % | ||||||
Meets Goals | 100 | % | ||||||
Exceeds Goals | 150 | % | ||||||
Outstanding Achievement | 200 | % |
The Grants of Plan-Based Awards for Fiscal 2012 table outlines estimated possible payouts under these non-equity incentive plan awards. As presented to and approved by the Committee, the actual annual cash incentive payments earned for fiscal 2012 as reflected in the Fiscal 2012 Summary Compensation Table are as follows: Mr. Gale earned a fiscal 2012 annual cash incentive award of $353,470. His individual performance level was "Exceeds Goals" and Cintas' EPS was "Maximum". Mr. Frooman earned a fiscal 2012 annual cash incentive award of $332,659. His individual performance level was in between "Meets Goals" and "Exceeds Goals" and Cintas' EPS was "Maximum". Mr. Hansen earned a fiscal 2012 annual cash incentive award of $124,285. His individual performance level was "Exceeds Goals" and Cintas' EPS was "Maximum".
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Long-Term Equity Incentives
Long-term equity incentive compensation is comprised of non-qualified stock options and restricted stock. With respect to the named executive officers, these awards are made pursuant to the criteria outlined in the Executive Incentive Plan. The purpose of such awards is to incentivize named executive officers to profitably grow Cintas' long-term business objectives and encourage named executive officers to build and maintain a long-term equity ownership position in Cintas so that their interests are aligned with those of our shareholders.
Under the Executive Incentive Plan, the amount of equity awards eligible for Mr. S. D. Farmer is based on a target level of Cintas' EPS and a target level of Cintas' sales growth, and Mr. Farmer receives 75% of his award value in stock options and 25% of his award value in restricted stock.
Under the Executive Incentive Plan, the amount of equity awards eligible for Mr. Holloman is based on a target level of Cintas' EPS, sales growth for operations within his responsibility and net income growth for operations within his responsibility, and Mr. Holloman receives 100% of his award value in restricted stock because he is over the age of 55.
Under the Executive Incentive Plan, the amount of equity awards eligible for Mr. Gale, Mr. Frooman and Mr. Hansen is based on a target level of Cintas' EPS and individual achievement. Mr. Frooman and Mr. Hansen receive 75% of their award value in stock options and 25% of their award value in restricted stock, while Mr. Gale receives 100% of his award in restricted stock because he is over the age of 55.
The tables below provide more detail with respect to the award percentage multiplier tied to each milestone level of achievement:
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EPS Component Level of Achievement |
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EPS Goals |
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Equity Award % |
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Below Threshold | <$1.92 | 0 | % | |||||||||
Threshold | $1.92 | 50 | % | |||||||||
Target | $2.06 | 100 | % | |||||||||
Maximum | $2.26 | 200 | % |
The sales growth component for Mr. S. D. Farmer is identical to the table shown previously under the Annual Cash Incentives section. Both the sales growth and net income components for Mr. Holloman are identical to the tables shown previously under the Annual Cash Incentives section.
The individual performance components for Mr. Gale, Mr. Frooman and Mr. Hansen were established in light of the operating plans for Cintas for fiscal 2012:
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Individual Performance Component Level of Achievement |
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Equity Award % |
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Does Not Meet Goals | 0 | % | ||||||
Meets Most Goals | 50 | % | ||||||
Meets Goals | 100 | % | ||||||
Exceeds Goals | 150 | % | ||||||
Outstanding Achievement | 200 | % |
For fiscal 2012, the Committee determined that equity awards made under the Executive Incentive Plan would be based on an established target for Mr. Gale, Mr. Frooman and Mr. Hansen. The factors that
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influence the setting of targets are level of responsibility, market compensation analyses and overall performance of the individual. The Committee reviewed and approved the targets at the beginning of the fiscal year, and the award was granted based upon that named executive officer's performance compared to the targets outlined above.
Non-Qualified Stock Options
On July 23, 2012, Mr. S. D. Farmer was awarded 136,093 non-qualified stock options based on Cintas' fiscal 2012 EPS and sales growth. On July 18, 2012, Mr. Frooman and Mr. Hansen were awarded 26,975 and 9,625 non-qualified stock options, respectively, based on Cintas' fiscal 2012 EPS and their individual performance level, as outlined under the Annual Cash Incentives section. In accordance with the 2005 Equity Compensation Plan, stock options are not granted to individuals age 55 or older, but instead, any stock option awards that would have been awarded are awarded as shares of restricted stock. As Mr. Gale and Mr. Holloman are over the age of 55, they did not receive any non-qualified stock options, but received shares of restricted stock instead.
As dictated by the 2005 Equity Compensation Plan, stock option awards have an exercise price equal to the closing stock price on the date of the award. As a result, stock options awarded to the named executive officers increase in value only if the market price of the common stock increases. Stock options vest at a rate of 33% per year, beginning on the third anniversary of the date of grant and ending on the fifth anniversary of the date of grant.
Restricted Stock
On July 23, 2012, Mr. S. D. Farmer was awarded 49,033 shares of restricted stock based on Cintas' fiscal 2012 EPS and sales growth. On July 18, 2012, Mr. Holloman was awarded 27,597 shares of restricted stock based on Cintas' fiscal 2012 EPS, fiscal 2012 sales for operations within his responsibility and fiscal 2012 net income for operations with his responsibility and Mr. Gale, Mr. Frooman and Mr. Hansen were awarded 29,692, 8,937 and 3,150 shares of restricted stock, respectively, based on Cintas' fiscal 2012 EPS and their individual performance level, as outlined under the Annual Cash Incentives section.
Restricted stock vests three years from the date of grant.
Health, Retirement and Other Benefits
Cintas' benefits program includes retirement plans and group insurance plans. The objective of our group insurance plans is to provide our executive officers with reasonable and competitive levels of protection from events which could interrupt the executive officer's employment and/or income received as an active employee.
The retirement plans offered to executive officers include Cintas' Partners' Plan and the Deferred Compensation Plan. The Partners' Plan is a noncontributory employee stock ownership plan and profit sharing plan with a 401(k) savings feature which covers substantially all employees. The Deferred Compensation Plan is discussed in more detail in the Nonqualified Deferred Compensation for Fiscal 2012 table of this proxy statement, and its accompanying narrative and footnotes.
Executive perquisites are kept by the Committee to a minimal level and do not play a significant role in executive compensation. These benefits and their incremental cost to Cintas are described in the Fiscal 2012 Summary Compensation Table and its footnotes. The Committee believes these perquisites to be reasonable, comparable with peer companies and consistent with Cintas' overall compensation practices.
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Stock Ownership Guidelines
The Compensation Committee believes that Cintas' named executive officers should own particular amounts of shares of stock to align their long-term objective of managing Cintas with the interests of Cintas' shareholders. The Compensation Committee has adopted a stock ownership requirement for the named executive officers. Each named executive officer is required to maintain a minimum equity stake in Cintas stock based on his job position. The following table shows the stock ownership requirements for the named executive officers:
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Officer |
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Minimum Ownership Requirement (Multiple of Base Salary) |
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Chief Executive Officer | 6x | |||||||
Chief Financial Officer | 3x | |||||||
President and Chief Operating Officer | 3x | |||||||
Vice President and Secretary, General Counsel | 3x | |||||||
Vice President and Treasurer | 2x |
The guidelines are assessed annually and are determined based on the current market practice and utilizing the respective named executive officer's base salary and closing stock price on the last day of the fiscal year. The named executive officers are notified about their ownership requirements annually. With the exception of the CEO, all named executive officers must come into compliance within five years from the effective date of these requirements, which was July 2010. All newly hired or promoted named executive officers will have seven years from the time of hiring or promotion to achieve the minimum ownership requirement.
For purposes of these requirements, stock ownership includes: (i) stock held outright by the named executive officer (or his spouse or dependents); (ii) stock held beneficially through the Cintas Partners' Plan; (iii) stock held in an individual brokerage account; and (iv) stock obtained through stock option exercise. Failure to meet or to show sustained progress toward meeting the ownership requirements may result in a reduction in future annual and/or long-term cash incentive payouts in the form of stock. Exceptions to these stock ownership requirements may be made at the discretion of the Compensation Committee if compliance would create a severe hardship.
Change in Control Agreements
Cintas has no policy regarding change in control agreements. For a further discussion on this topic, please see the section titled "Potential Payments Upon Termination, Retirement or Change of Control" of this proxy statement.
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code places a limit of $1 million on the amount of compensation we may deduct in any one year with respect to certain named executive officers. There is an exception to the $1 million limitation for performance-based compensation meeting certain requirements. The Committee believes that all compensation paid to the named executive officers for fiscal year 2012 is properly deductible under Section 162(m).
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Recovery of Prior Awards
The Committee has adopted a claw-back policy, which provides that in the event of an accounting restatement due to material noncompliance with financial reporting requirement under the U.S. federal securities laws, the Committee has the right to use reasonable efforts to recover from any of our current or former officers who received incentive based compensation (including annual cash incentives, non-qualified stock options or restricted stock) during the three-year period preceding the date on which Cintas is required to prepare an accounting restatement any excess incentive based compensation awarded as a result of the misstatement. This policy applies to incentive based compensation granted after June 1, 2011. This claw-back policy is intended to be interpreted in a manner consistent with any applicable rules or regulations adopted by the SEC or the NASDAQ Stock Market as contemplated by Section 10D of the Securities Exchange Act of 1934 and any other applicable law and shall otherwise be interpreted in the best business judgment of the Committee.
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FISCAL 2012 SUMMARY COMPENSATION TABLE
The following table provides information regarding the compensation earned by our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers during fiscal 2012, 2011 and 2010. These individuals are collectively referred to as our named executive officers.
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Fiscal Year |
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Salary ($) |
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Bonus(1) ($) |
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Stock Awards(2) ($) |
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Option Awards(2) ($) |
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Non-Equity Incentive Plan Compensation(3) ($) |
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All Other Compensation(4) ($) |
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Total ($) |
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Scott D. Farmer |
2012 | 769,153 | | 1,842,170 | 1,647,528 | 647,571 | 123,766 | 5,030,188 | |||||||||||||||||||||||||||||||||||
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Chief Executive Officer |
2011 | 746,750 | | 2,344,561 | 751,957 | 684,000 | 83,040 | 4,610,308 | |||||||||||||||||||||||||||||||||||
|
and Director |
2010 | 725,000 | | 295,874 | 166,359 | 482,000 | 61,946 | 1,731,179 | |||||||||||||||||||||||||||||||||||
|
William C. Gale |
2012 | 468,918 | | 1,125,624 | | 353,470 | 65,328 | 2,013,340 | |||||||||||||||||||||||||||||||||||
|
Senior Vice President and |
2011 | 455,260 | | 705,817 | | 294,150 | 47,216 | 1,502,443 | |||||||||||||||||||||||||||||||||||
|
Chief Financial Officer |
2010 | 442,000 | | 149,897 | | 227,150 | 43,549 | 862,596 | |||||||||||||||||||||||||||||||||||
|
Thomas E. Frooman |
2012 | 432,317 | | 338,802 | 326,557 | 332,659 | 54,965 | 1,485,300 | |||||||||||||||||||||||||||||||||||
|
Vice President and |
2011 | 419,725 | | 230,715 | 159,996 | 298,125 | 46,113 | 1,154,674 | |||||||||||||||||||||||||||||||||||
|
Secretary General |
2010 | 407,500 | | 99,198 | 92,920 | 304,750 | 44,361 | 948,729 | |||||||||||||||||||||||||||||||||||
|
Counsel |
|||||||||||||||||||||||||||||||||||||||||||
|
J. Michael Hansen |
2012 | 271,920 | | 119,417 | 116,519 | 124,285 | 32,829 | 664,970 | |||||||||||||||||||||||||||||||||||
|
Vice President and |
2011 | 264,000 | | 131,976 | 105,470 | 79,500 | 23,611 | 604,557 | |||||||||||||||||||||||||||||||||||
|
Treasurer |
2010 | 240,000 | | 42,269 | 21,566 | | 24,856 | 328,691 | |||||||||||||||||||||||||||||||||||
|
J. Phillip Holloman |
2012 | 562,277 | | 1,046,202 | | 342,073 | 68,452 | 2,019,004 | |||||||||||||||||||||||||||||||||||
|
President and Chief |
2011 | 545,900 | | 1,864,870 | | 357,750 | 47,875 | 2,816,395 | |||||||||||||||||||||||||||||||||||
|
Operating Officer |
2010 | 530,000 | | 118,401 | 110,906 | 234,874 | 23,520 | 1,017,701 |
24
GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2012
The following table sets forth certain information regarding all grants of plan-based awards made to the named executive officers during fiscal 2012:
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards |
|
Estimated Possible Payouts Under Equity Incentive Plan Awards |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
|
Name |
|
Grant Date |
|
Threshold ($) |
|
Target ($) |
|
Maximum ($) |
|
Threshold (#) |
|
Target (#) |
|
Maximum (#) |
|
All Other Stock Awards: Number of Shares of Stock or Units (#) |
|
All Other Option Awards: Number of Securities Underlying Options (#) |
|
Exercise or Base Price of Option Awards(6) ($/sh) |
|
Grant Date Fair Value of Stock and Option Awards ($) |
|
|||||||||||||||||||||||||||||||||||
Scott D. Farmer(1) | 9/21/2011 | 0 | 494,565 | 989,130 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/21/2011 | 0 | 94,400 | 188,800 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/21/2011 | 0 | 31,500 | 63,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7/23/2012 | 136,093 | 37.57 | 1,647,528 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7/23/2012 | 49,033 | 1,842,170 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
William C. Gale(2) | 9/08/2011 | 0 | 201,983 | 403,966 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/08/2011 | (5) | 0 | 16,967 | 33,934 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
7/18/2012 | 29,692 | 1,125,624 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas E. Frooman(2) | 9/07/2011 | 0 | 204,713 | 409,426 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/07/2011 | (4) | 0 | 16,600 | 33,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/07/2011 | (5) | 0 | 5,500 | 11,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
7/18/2012 | 26,975 | 37.91 | 326,557 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7/18/2012 | 8,937 | 338,802 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
J. Michael Hansen(2) | 9/14/2011 | 0 | 71,020 | 142,040 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/14/2011 | (4) | 0 | 5,500 | 11,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/14/2011 | (4) | 0 | 1,800 | 3,600 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
7/18/2012 | 9,625 | 37.91 | 116,519 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7/18/2012 | 3,150 | 119,417 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
J. Phillip Holloman(3) | 9/12/2011 | 0 | 328,600 | 657,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/12/2011 | (5) | 0 | 26,167 | 52,334 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
7/18/2012 | 27,597 | 1,046,202 |
25
26
OUTSTANDING EQUITY AWARDS AT FISCAL 2012 YEAR-END
The following table provides information regarding unexercised stock options and unvested stock awards held by our named executive officers as of May 31, 2012:
|
|||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Option Awards(1) |
|
Stock Awards(2) |
|
||||||||||||||||||||||||||||||||||
|
Name |
|
Grant Date(3) |
|
Number of Securities Underlying Unexercised Options (#) Exercisable |
|
Number of Securities Underlying Unexercised Options (#) Unexercisable |
|
Option Exercise Price ($) |
|
Option Expiration Date |
|
Number of Shares or Units of Stock That Have Not Vested (#) |
|
Market Value of Shares or Units of Stock That Have Not Vested ($) |
|
|||||||||||||||||||||||
Scott D. Farmer | 7/29/2003 | 40,000 | 10,000 | 39.29 | 7/29/2013 | ||||||||||||||||||||||||||||||||||
7/26/2004 | 15,000 | 10,000 | 42.06 | 7/26/2014 | |||||||||||||||||||||||||||||||||||
8/01/2005 | 10,000 | 15,000 | 44.43 | 8/01/2015 | |||||||||||||||||||||||||||||||||||
7/24/2006 | 3,000 | 12,000 | 35.99 | 7/24/2016 | |||||||||||||||||||||||||||||||||||
7/23/2007 | | 7,500 | 38.74 | 7/23/2017 | |||||||||||||||||||||||||||||||||||
7/21/2008 | 3,300 | 6,700 | 27.88 | 7/21/2018 | |||||||||||||||||||||||||||||||||||
7/27/2009 | | 5,000 | 24.41 | 7/27/2019 | |||||||||||||||||||||||||||||||||||
7/26/2010 | | 20,589 | 26.23 | 7/26/2020 | |||||||||||||||||||||||||||||||||||
7/21/2011 | | 94,467 | 34.18 | 7/21/2021 | |||||||||||||||||||||||||||||||||||
7/23/2012 | | 136,093 | 37.57 | 7/23/2022 | |||||||||||||||||||||||||||||||||||
144,232 | 5,322,161 | ||||||||||||||||||||||||||||||||||||||
William C. Gale | 7/22/2002 | 5,000 | | 41.65 | 7/22/2012 | ||||||||||||||||||||||||||||||||||
2/28/2003 | 7,500 | | 33.57 | 2/28/2013 | |||||||||||||||||||||||||||||||||||
7/26/2004 | 9,000 | 6,000 | 42.06 | 7/26/2014 | |||||||||||||||||||||||||||||||||||
8/01/2005 | 7,500 | | 44.43 | 8/01/2015 | |||||||||||||||||||||||||||||||||||
7/17/2006 | 7,500 | | 36.08 | 7/17/2016 | |||||||||||||||||||||||||||||||||||
59,918 | 2,210,974 | ||||||||||||||||||||||||||||||||||||||
Thomas E. Frooman | 7/22/2002 | 15,000 | | 41.65 | 7/22/2012 | ||||||||||||||||||||||||||||||||||
2/28/2003 | 20,000 | | 33.57 | 2/28/2013 | |||||||||||||||||||||||||||||||||||
7/26/2004 | 9,000 | 6,000 | 42.06 | 7/26/2014 | |||||||||||||||||||||||||||||||||||
8/01/2005 | 3,000 | 4,500 | 44.43 | 8/01/2015 | |||||||||||||||||||||||||||||||||||
7/17/2006 | 1,500 | 6,000 | 36.08 | 7/17/2016 | |||||||||||||||||||||||||||||||||||
7/03/2007 | | 6,575 | 39.84 | 7/03/2017 | |||||||||||||||||||||||||||||||||||
7/17/2008 | 2,640 | 5,360 | 27.30 | 7/17/2018 | |||||||||||||||||||||||||||||||||||
7/17/2009 | | 5,650 | 22.61 | 7/17/2019 | |||||||||||||||||||||||||||||||||||
7/22/2010 | | 11,500 | 25.88 | 7/22/2020 | |||||||||||||||||||||||||||||||||||
7/21/2011 | | 20,100 | 34.18 | 7/21/2021 | |||||||||||||||||||||||||||||||||||
7/18/2012 | | 26,975 | 37.91 | 7/18/2022 | |||||||||||||||||||||||||||||||||||
48,321 | 1,783,045 | ||||||||||||||||||||||||||||||||||||||
J. Michael Hansen | 7/22/2002 | 3,000 | | 41.65 | 7/22/2012 | ||||||||||||||||||||||||||||||||||
7/29/2003 | 2,400 | 600 | 39.29 | 7/29/2013 | |||||||||||||||||||||||||||||||||||
5/28/2004 | 800 | 200 | 45.33 | 5/28/2014 | |||||||||||||||||||||||||||||||||||
7/26/2004 | 3,000 | 2,000 | 42.06 | 7/26/2014 | |||||||||||||||||||||||||||||||||||
8/1/2005 | 200 | 300 | 44.43 | 8/1/2015 | |||||||||||||||||||||||||||||||||||
7/17/2006 | 308 | 1,232 | 36.08 | 7/17/2016 | |||||||||||||||||||||||||||||||||||
7/3/2007 | 1,540 | 39.84 | 7/3/2017 | ||||||||||||||||||||||||||||||||||||
7/17/2008 | 798 | 1,622 | 27.30 | 7/17/2018 | |||||||||||||||||||||||||||||||||||
7/17/2009 | 1,540 | 22.61 | 7/17/2019 | ||||||||||||||||||||||||||||||||||||
7/22/2010 | 2,669 | 25.88 | 7/22/2020 | ||||||||||||||||||||||||||||||||||||
7/30/2010 | 5,000 | 26.46 | 7/30/2020 | ||||||||||||||||||||||||||||||||||||
7/21/2011 | 8,250 | 34.18 | 7/21/2021 | ||||||||||||||||||||||||||||||||||||
7/18/2012 | 9,625 | 37.91 | 7/18/2022 | ||||||||||||||||||||||||||||||||||||
17,399 | 642,023 | ||||||||||||||||||||||||||||||||||||||
J. Phillip Holloman | 7/22/2002 | 3,000 | | 41.65 | 7/22/2012 | ||||||||||||||||||||||||||||||||||
3/28/2003 | 7,500 | | 35.02 | 3/28/2013 | |||||||||||||||||||||||||||||||||||
7/29/2003 | 800 | 200 | 39.29 | 7/29/2013 | |||||||||||||||||||||||||||||||||||
7/26/2004 | 4,500 | 3,000 | 42.06 | 7/26/2014 | |||||||||||||||||||||||||||||||||||
8/01/2005 | 6,000 | 9,000 | 44.43 | 8/01/2015 | |||||||||||||||||||||||||||||||||||
7/17/2006 | 1,413 | 4,237 | 36.08 | 7/17/2016 | |||||||||||||||||||||||||||||||||||
7/03/2007 | | 7,500 | 39.84 | 7/03/2017 | |||||||||||||||||||||||||||||||||||
1/31/2008 | | 25,000 | 32.82 | 1/31/2018 | |||||||||||||||||||||||||||||||||||
7/17/2008 | 2,640 | 5,360 | 27.30 | 7/17/2018 | |||||||||||||||||||||||||||||||||||
7/17/2009 | | 3,000 | 22.61 | 7/17/2019 | |||||||||||||||||||||||||||||||||||
7/22/2010 | | 13,726 | 25.88 | 7/22/2020 | |||||||||||||||||||||||||||||||||||
100,874 | 3,722,251 |
27
Age
51 at fiscal year-end 25% per year vesting, beginning fifth anniversary of grant
Age 52 at fiscal year-end 33% per year vesting, beginning fifth anniversary of grant
Age 53 at fiscal year-end 50% per year vesting, beginning fifth anniversary of grant
Age 54 at fiscal year-end 100% per year vesting, beginning fifth anniversary of grant
Age 55 or older at fiscal year-end stock options are never granted. Those amounts are converted to restricted stock awards.
|
|
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Vesting Date |
|
Scott D. Farmer |
|
William C. Gale |
|
Thomas E. Frooman |
|
J. Michael Hansen |
|
J. Phillip Holloman |
|
|||||||||||||||||
7/17/2012 | | 3,784 | 1,900 | 1,491 | 1,000 | ||||||||||||||||||||||||
7/21/2012 | | | 26,901 | 7,891 | | ||||||||||||||||||||||||
7/27/2012 | 5,323 | | | | | ||||||||||||||||||||||||
1/31/2013 | | | | | 5,000 | ||||||||||||||||||||||||
7/22/2013 | | 5,792 | 3,833 | 667 | 4,575 | ||||||||||||||||||||||||
7/26/2013 | 54,280 | | | | 35,000 | ||||||||||||||||||||||||
7/30/2013 | | | | 1,500 | | ||||||||||||||||||||||||
7/21/2014 | 35,596 | 20,650 | 6,750 | 2,700 | 27,702 | ||||||||||||||||||||||||
7/18/2015 | | 29,692 | 8,937 | 3,150 | 27,597 | ||||||||||||||||||||||||
7/23/2015 | 49,033 | | | | |
28
OPTION EXERCISES AND STOCK VESTED FOR FISCAL 2012
The following table lists the number of shares acquired and the value realized as a result of option exercises by the named executive officers in fiscal 2012 and the value of any restricted stock awards that vested in fiscal 2012:
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Option Awards |
|
Stock Awards |
|
||||||||||||||||||
|
Name |
|
Number of Shares Acquired on Exercise (#) |
|
Value Realized on Exercise ($) |
|
Number of Shares Acquired on Vesting (#) |
|
Value Realized on Vesting(1) ($) |
|
||||||||||||||
Scott D. Farmer | | | 7,220 | 246,780 | ||||||||||||||||||||
William C. Gale | | | 39,442 | 1,331,383 | ||||||||||||||||||||
Thomas E. Frooman | | | 2,700 | 83,862 | ||||||||||||||||||||
J. Michael Hansen | | | 605 | 18,791 | ||||||||||||||||||||
J. Phillip Holloman | | | 2,700 | 83,862 |
29
NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL 2012
Our named executive officers are eligible to participate in a Deferred Compensation Plan. This Deferred Compensation Plan permits a group of highly compensated employees of Cintas to defer the receipt of current year compensation which they have earned during the year. This Deferred Compensation Plan is intended to assist Cintas in the retaining and attracting of individuals of exceptional ability.
Our named executive officers may elect to defer up to 75% of their base salary and up to 90% of their earned annual cash incentive awards. Amounts deferred are credited to the named executive officer's account under the Deferred Compensation Plan and are fully vested.
Future payments are distributed in a lump sum or in annual installments, based on the choice of the named executive officer. If the form of payment selected provides for subsequent payments, subsequent payments will be made on the anniversary of the initial payment. All amounts are payable in a lump sum if the named executive officer terminates employment prior to meeting the definition of retirement; should they meet the definition of retirement, the balance will be distributed as elected. All distribution decisions and payments under the Deferred Compensation Plan are subject to compliance with Section 409A of the Internal Revenue Code.
While deferred, amounts are credited with "earnings" as they were invested as the named executive officers chose in one or more investment options available under the Deferred Compensation Plan. The named executive officers' accounts under the Deferred Compensation Plan will be adjusted from time to time, up or down, depending upon performance of the investment options chosen.
The following table provides information relating to the activity in the Deferred Compensation Plan accounts of the named executive officers during fiscal 2012 and the aggregate balance of the accounts as of May 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Name |
|
Executive Contributions in Fiscal 2012(1) ($) |
|
Aggregate Earnings in Fiscal 2012(2) ($) |
|
Aggregate Withdrawals/ Distributions ($) |
|
Aggregate Balance at May 31, 2012(3) ($) |
|
||||||||||||||
Scott D. Farmer | | (36,556 | ) | | 683,819 | |||||||||||||||||||
William C. Gale | | | | | ||||||||||||||||||||
Thomas E. Frooman | 73,010 | (11,236 | ) | (81,471 | ) | 91,237 | ||||||||||||||||||
J. Michael Hansen | 38,633 | (16,164 | ) | | 161,594 | |||||||||||||||||||
J. Phillip Holloman | 63,867 | (21,921 | ) | | 265,793 |
30
POTENTIAL PAYMENTS UPON TERMINATION, RETIREMENT OR CHANGE OF CONTROL
Payments Made Upon Termination
Regardless of the manner in which an executive officer's employment terminates, except for a "for cause" termination, he is entitled to receive amounts earned during his term of employment. Such amounts include:
In addition, if Cintas elects to terminate an executive officer, he will receive four weeks' written notice or four weeks of base salary instead of notice. Generally, Cintas makes no payments to executives terminated for cause. Cintas has no policy regarding severance payments.
Payments Made Upon Retirement
In the event of the retirement of an executive officer, he is entitled to receive amounts earned during his term of employment. Such amounts include:
Cintas has no policy regarding retirement arrangements.
Payments Made Upon Death or Disability
In the event of the death or disability of an executive officer, in addition to the benefits listed under the heading "Payments Made Upon Retirement" above for the Cintas Partners' Plan and Deferred Compensation Plan, the named executive officer will receive benefits under Cintas' disability plan or payments under Cintas' life insurance plan, as appropriate. Outstanding equity awards will immediately vest in accordance with the 2005 Equity Compensation Plan. These payments are generally available to all employees.
Payments Made Upon a Change of Control
Cintas has no policy regarding payments made upon a change of control.
31
NONEMPLOYEE DIRECTOR COMPENSATION FOR FISCAL 2012
For fiscal 2012, Directors who are not employees of Cintas received a $44,000 cash annual retainer, payable quarterly, plus an additional $3,025 for each meeting attended. Directors received $1,513 for each telephonic meeting attended. Committee members also received $1,320 for each Committee meeting attended and $660 for each telephonic Committee meeting attended. Committee Chairmen (other than the Audit Committee Chairman) received an additional fee of $5,500. The Audit Committee Chairman received an additional fee of $8,800. Directors are also reimbursed for reasonable out-of-pocket travel expenses incurred in connection with attendance at Board or Committee meetings. Directors who are employees of Cintas are not separately compensated for serving as Directors.
For fiscal 2012, directors also received upon annual election or appointment to the Board restricted stock valued at approximately $41,000 based on the closing market price of Cintas stock on the date preceding the grant and options to purchase Cintas stock valued at approximately $41,000 based on the fair value of these options estimated at the date preceding the grant using a Black-Scholes option-pricing model. The value of the grants is prorated for Directors appointed to the Board in the middle of the year. With the exception of Mr. Barrett, each nonemployee Director was therefore granted 1,421 shares of restricted stock and an option to purchase 3,943 shares of Cintas stock at an exercise price equal to the closing market price on the date of grant of October 18, 2011. Mr. Barrett was appointed to the Board on December 2, 2011, and was granted 1,190 of restricted stock and an option to purchase 3,332 shares of Cintas stock at an exercise price equal to the closing market price on the date of grant. The restricted stock awards vest 100% after three years from the date of grant. The stock options vest 25% per year, beginning on the first anniversary of the grant.
Nonemployee directors may choose to defer all or part of these fees into Cintas stock equivalents with dividends or into a deferred account that earns interest at a rate equal to one-year U.S. treasury bills, determined as of the preceding December 31, increased by 100 basis points. Deferred fees are payable either in a lump sum or in 12 to 120 monthly installments beginning in the month selected by the Director, but in no case later than the first month after the Director leaves the Board.
The following table details fiscal 2012 compensation paid to nonemployee directors:
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Name |
|
Fees Earned or Paid in Cash(1) ($) |
|
Stock Awards(2) ($) |
|
Option Awards(2) ($) |
|
Total ($) |
|
||||||||||||||
|
Gerald S. Adolph |
68,200 | 41,564 | 40,314 | 150,078 | |||||||||||||||||||
|
John F. Barrett |
32,010 | 36,117 | 42,689 | 110,816 | |||||||||||||||||||
|
Melanie W. Barstad |
46,035 | 41,564 | 40,314 | 127,913 | |||||||||||||||||||
|
James J. Johnson |
69,960 |