2018 Notice of Annual Meeting

and Proxy Statement

and

Annual Financial Report

 

 

May 23, 2018

10:00 a.m. local time

100 CenturyLink Drive

Monroe, Louisiana

 

 

All references in this proxy statement or related materials to “we,” “us,” “our,” the “Company” or “CenturyLink” refer to CenturyLink, Inc. In addition, each reference to (i) the “Board” refers to our Board of Directors, (ii) our “executives” or “executive officers” refers to our six executive officers listed in the tables beginning on page 3 of this proxy statement, (iii) “meeting” refers to the 2018 annual meeting of our shareholders described further herein, (iv) “named executives,” “named officers,” “named executive officers” or “NEOs” refers to the six current or former executive officers listed in the Summary Compensation Table appearing on page 71 of this proxy statement, (v) “senior officers” refers to our executive officers and a limited number of additional officers whose compensation is determined by the Human Resources and Compensation Committee of our Board, (vi) “legacy officers” or “legacy named officers” refers to officers who commenced service with us prior to the Level 3 Combination, and “newly named executives” refers to named officers who commenced service with us upon completion of the Level 3 Combination, (vii) “Embarq” refers to Embarq Corporation, which we acquired on July 1, 2009, (viii) “Qwest” refers to Qwest Communications International Inc., which we acquired on April 1, 2011, (ix) “Level 3” refers to Level 3 Communications, Inc., prior to the Level 3 Combination on November 1, 2017, and to its successor-in-interest Level 3 Parent, LLC thereafter, (x) “Level 3 Combination” refers to our business combination with Level 3, which was publicly announced on October 31, 2016 and consummated on November 1, 2017 (which we from time to time refer to as the “Closing” or “Closing Date”), and (xi) the “SEC” refers to the U.S. Securities and Exchange Commission. Unless otherwise provided, all information is presented as of the date of this proxy statement.

CenturyLink, Inc.

100 CenturyLink Drive

Monroe, Louisiana 71203

 

 

Notice of 2018 Annual Meeting of Shareholders

 

 

 

TIME AND DATE		10:00 a.m. local time on May 23, 2018
PLACE		Corporate Conference Room CenturyLink Headquarters 100 CenturyLink Drive Monroe, Louisiana
ITEMS OF BUSINESS		(1)   Elect as directors the 13 nominees named in the accompanying proxy statement
		(2)   Ratify the appointment of KPMG LLP as our independent auditor for 2018
		(3)   Approve our 2018 Equity Incentive Plan
		(4)   Conduct a non-binding advisory vote regarding our executive compensation
		(5)   Act upon two separate shareholder proposals if properly presented at the meeting
		(6)   Transact such other business as may properly come before the meeting and any adjournment.
RECORD DATE		You can vote if you were a shareholder of record on April 6, 2018.
PROXY VOTING		Shareholders are invited to attend the meeting in person. Even if you expect to attend, it is important that you vote by telephone or the Internet, or by completing and returning a proxy or voting instruction card.

 

 

Stacey W. Goff

Secretary

April 9, 2018

TABLE OF CONTENTS

 

		Page
GENERAL INFORMATION ABOUT THE ANNUAL MEETING			1
ELECTION OF DIRECTORS			3
CORPORATE GOVERNANCE			10
Governance Guidelines			10
Independence and Tenure			12
Committees of the Board			12
Director Nomination Process			14
Compensation Setting Process			16
Board’s Role in Overseeing Risk Management			16
Board’s Role in Setting Strategy			17
Top Board Leadership Positions and Structure			17
Access to Information			18
RATIFICATION OF THE SELECTION OF THE INDEPENDENT AUDITOR			18
AUDIT COMMITTEE REPORT			19
PROPOSAL TO APPROVE THE CENTURYLINK 2018 EQUITY INCENTIVE PLAN			21
ADVISORY VOTES ON EXECUTIVE COMPENSATION			29
SHAREHOLDER PROPOSALS			29
OWNERSHIP OF OUR SECURITIES			35
Principal Shareholders			35
Executive Officers and Directors			36
COMPENSATION DISCUSSION AND ANALYSIS			38
Executive Summary			39
Our Compensation Philosophy and Linkage to Pay for Performance			42
Our Compensation Program Objectives and Components of Pay			48
Our Policies, Processes and Guidelines Related to Executive Compensation			64
COMPENSATION COMMITTEE REPORT			70
EXECUTIVE COMPENSATION			71
Overview			71
Incentive Compensation and Other Awards			74
Pension Benefits			79
Deferred Compensation			81
Potential Termination Payments			82
Pay Ratio Disclosure			87
DIRECTOR COMPENSATION			88
Overview			88
Cash and Stock Payments			89
Other Benefits			89
Director Stock Ownership Guidelines			90
PERFORMANCE GRAPH			91
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION			92
TRANSACTIONS WITH RELATED PARTIES			92
Recent Transactions			92
Review Procedures			92
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			92
ADDITIONAL INFORMATION ABOUT THE MEETING			92
Quorum			92
Vote Required to Elect Directors			93
Vote Required to Adopt Other Proposals at the Meeting			93
Effect of Abstentions			93

 

i

		Page
Effect of Non-Voting			93
Revocations			93
Voting by Participants in Our Benefit Plans			93
Cost of Proxy Solicitation			94
Other Matters Considered at the Meeting			94
Conduct of the Meeting			94
Postponement or Adjournment of the Meeting			94
OTHER MATTERS			95
Deadlines for Submitting Shareholder Nominations and Proposals for the 2019 Annual Meeting			95
Proxy Materials			95
Annual Financial Report			96
Appendix A — CenturyLink 2018 Equity Incentive Plan			A-1
Appendix B — Annual Financial Report			B-1

 

ii

CenturyLink, Inc.

100 CenturyLink Drive

Monroe, Louisiana 71203

 

 

PROXY STATEMENT

April 9, 2018

 

 

GENERAL INFORMATION ABOUT THE ANNUAL MEETING

Why am I receiving these proxy materials?

Our Board of Directors is soliciting your proxy to vote at our 2018 annual meeting of shareholders because you owned shares of our stock at the close of business on April 6, 2018, the record date for the meeting, and are entitled to vote those shares at the meeting. Our proxy materials are being made available to you on the Internet beginning on or about April 12, 2018. This proxy statement summarizes information regarding matters to be considered at the meeting. For additional information on our proxy materials, see “Other Matters — Proxy Materials” appearing below.

When and where will the meeting be held?

The meeting will be held at 10:00 a.m. local time on Wednesday, May 23, 2018, in the corporate conference room at our corporate headquarters, 100 CenturyLink Drive, Monroe, Louisiana. If you would like directions to the meeting, please see our website, http://ir.centurylink.com . You do not need to attend the meeting to vote your shares.

What matters will be considered at the meeting?

Shareholders will vote on the following matters at the meeting:

 

Item and Page Reference		Board Voting Recommendation		Vote Required for Approval
•  Election of the 13 director nominees named herein (Item 1, Page 3)		For each nominee		Affirmative vote of a majority of the votes cast
•  Ratification of the appointment of KPMG LLP as our independent auditor for 2018 (Item 2, Page 18)		For		Affirmative vote of a majority of the votes cast
•  Approval of our 2018 Equity Incentive Plan, which we refer to below as the “Incentive Plan” (Item 3, Page 21)		For		Affirmative vote of a majority of the votes cast
•  Non-binding advisory vote to approve our executive compensation (Item 4, Page 29)		For		Affirmative vote of a majority of the votes cast
•  A shareholder proposal regarding our lobbying activities, as further described in this proxy statement, if it is properly presented at the meeting (Item 5(a), Page 30)		Against		Affirmative vote of a majority of the votes cast
•  A shareholder proposal regarding our billing practices, as further described in this proxy statement, if it is properly presented at the meeting (Item 5(b), Page 32)		Against		Affirmative vote of a majority of the votes cast

 

1

How many votes may I cast?

You may cast one vote for every share of our common stock or Series L preferred stock that you owned on the record date. Our common stock and Series L preferred stock vote together as a single class on all matters. In this proxy statement, we refer to these shares as our “Common Shares” and “Preferred Shares,” respectively, and as our “Voting Shares,” collectively. As of the record date, we had 1,078,907,371 Common Shares and 7,018 Preferred Shares outstanding.

What is the difference between holding shares as a shareholder of record and as a beneficial owner?

If shares are registered in your name with our transfer agent, Computershare Investor Services L.L.C., you are the “shareholder of record” of those shares and you may directly vote these shares, together with any shares credited to your account if you are a participant in our automatic dividend reinvestment and stock purchase service.

If your shares are held on your behalf in a stock brokerage account or by a bank or other nominee, you are the “beneficial owner” of shares held in “street name.” We have requested that our proxy materials be made available to you by your broker, bank or nominee, who is considered the shareholder of record of those shares.

If I am a shareholder of record, how do I vote?

If you are a shareholder of record, you may vote in person at the meeting or by proxy in any of the following three ways:

 

•

call 1-800-652-8683 and follow the instructions provided;

 

•

log on to the Internet at www.envisionreports.com/ctl and follow the instructions at that site; or

 

•

request a paper copy of our proxy materials and, following receipt thereof, mark, sign and date your proxy card and return it to Computershare.

Please note that you may not vote by telephone or the Internet after 1:00 a.m. Central Time on May 23, 2018.

If I am a beneficial owner of shares held in street name, how do I vote?

As the beneficial owner, you have the right to instruct your broker, bank or nominee how to vote your shares by using any voting instruction card supplied by them or by following their instructions for voting by telephone, the Internet, or in person.

If I am a benefit plan participant, how do I vote?

Please see “Additional Information About the Meeting — Voting by Participants in Our Benefit Plans” appearing below.

Do I need identification to attend the meeting in person?

Yes. Please bring proper identification, together with the Important Notice Regarding Availability of Proxy Materials mailed to you, which will serve as your admission ticket. If your shares are held in street name, please bring acceptable proof of ownership, such as a letter from your broker or an account statement stating or showing that you beneficially owned Voting Shares on the record date.

Where can I find additional information about the conduct of the meeting, voting requirements, and other similar matters relating to the meeting?

Please see “Additional Information About the Meeting” appearing below.

 

2

ELECTION OF DIRECTORS

(Item 1 on Proxy or Voting Instruction Card)

The first proposal for consideration at the meeting is the election of each of the 13 candidates named below as a director for a one-year term expiring at our 2019 annual meeting of shareholders, or until his or her successor is duly elected and qualified.

Acting upon the recommendation of its Nominating and Corporate Governance Committee, the Board has nominated the 13 below-named directors to stand for re-election to one-year terms at the meeting. Unless authority is withheld, all votes attributable to Voting Shares represented by each duly executed and delivered proxy will be cast for the election of each of the 13 below-named nominees. Under our bylaw nominating procedures, these nominees are the only individuals who may be elected at the meeting. If for any reason any such nominee should decline or become unable to stand for election as a director, which we do not anticipate, the persons named as proxies may vote instead for another candidate designated by the Board, without re-soliciting proxies.

For additional information about our director nomination process and agreements under which we are obligated to nominate certain directors at the meeting, see “Corporate Governance — Director Nomination Process.”

As discussed further under “Additional Information About the Meeting — Vote Required to Elect Directors,” to be elected each of the 13 nominees must receive an affirmative vote of a majority of the votes cast.

 

 

Nominees For Election to the Board:

Listed below is information on each of the 13 individuals nominated to stand for election to the Board.

The Board recommends that you vote “FOR” each of the following nominees:

 

		Martha H. Bejar , age 56; a director since January 2016; co-founder and principal of Red Bison Advisory Group LLC, a telecommunications and technology advisory firm founded in early 2014; Chief Executive Officer and director of Unium Inc., a Wi-Fi service provider, from March 2017 to March 2018; Chief Executive Officer and director of Flow Mobile, Inc., a telecommunications company offering rural broadband wireless access services, from January 2012 to December 2015; venture partner at The Prometheus Partners, a business services company, from April 2012 to May 2014; Chairperson and Chief Executive Officer of Wipro Infocrossing Inc., a U.S.-based cloud services affiliate of Wipro Limited, from January 2011 to March 2012; President of Worldwide Sales and Operations at Wipro Technologies Inc., an IT services affiliate of Wipro Limited, from June 2009 to January 2011; Corporate Vice President for the communications sector at Microsoft Corporation, from June 2007 to June 2009; held various positions at Nortel Networks Corporation, a telecommunications and data networking company, from 1997 to 2007, including Regional President and President of North America Sales, Sales Engineering and Sales Operations; currently a director of Mitel Networks Corporation; formerly a director of Polycom, Inc. within the past five years.   Key Qualifications, Experiences and Skills:   •  Executive experience in communications and technology industries   •  Experience as a chief executive officer   •  International business and engineering experience   •  Qualifies as an “audit committee financial expert”   •  Current or former director of other publicly-held companies

 

3

		Virginia Boulet , age 64; a director since 1995; a managing director at Legacy Capital LLC, an investment banking firm based in New Orleans, Louisiana, since March 2014; Special Counsel at Adams and Reese LLP, a law firm, from 2002 to March 2014; prior to then, practiced as a corporate and securities attorney for Phelps Dunbar, L.L.P. from 1992 to 2002 and Jones Walker LLP from 1983 to 1992; an adjunct professor of securities regulation law and merger and acquisition law at Loyola University-New Orleans College of Law since 2004; currently a director of W&T Offshore, Inc.   Key Qualifications, Experiences and Skills:   •  Legal experience representing telecommunications companies and regarding business combinations   •  Director of another publicly-held company
		Peter C. Brown , age 59; a director since 2009; Chairman of Grassmere Partners, LLC, a private investment firm, since July 2009; held several executive level positions, including Chairman of the Board, President and Chief Executive Officer, with AMC Entertainment Inc., a theatrical exhibition company, from 1991 to 2009; founded EPR Properties, a NYSE-listed real estate investment trust formerly known as Entertainment Properties Trust, in 1997 and served as a member of the Board of Trustees until 2003; currently a director of EPR Properties and Cinedigm Corp.   Key Qualifications, Experiences and Skills:   •  Experience as a former chief executive of a publicly-held company   •  Qualifies as an “audit committee financial expert”   •  Director of other publicly-held companies
		General Kevin P. Chilton (USAF, Retired) , age 63; a director since November 2017; served as a director of Level 3 prior to November 2017; an independent consultant since 2011; served as Commander, U.S. Strategic Command, from 2007 through 2011, overseeing operations for the U.S. Department of Defense nuclear, space and cyberspace operations; retired in 2011 from the U.S. Air Force after 34 years of service; served from 2006 to 2007 as Commander of Air Force Space Command, where he was responsible for all Air Force space and nuclear ICBM programs; served as a NASA astronaut from 1987 to 1996, including on three space shuttle flights, and as the Deputy Program Manager for the International Space Station from 1996 to 1998; currently serves as a director of Orbital ATK Corporation; formerly a director of Anadarko Petroleum Corporation, and Aerospace Corporation, a federally-funded research and development center that is sponsored by the U.S. Air Force, within the past five years.   Key Qualifications, Experiences and Skills:   •  Executive and managerial experience in space, cyber and military programs   •  Public policy, regulatory and political experience   •  Governmental contracting experience   •  Qualifies as an “audit committee financial expert”   •  Current or former director of other publicly-held companies

 

4

		Steven T. Clontz , age 67; a director since November 2017; served as a director of Level 3 prior to November 2017; Corporate Advisor to ST Telemedia Pte. Ltd. since January 2018 and Corporate Advisor to Temasek International Advisors Pte. Ltd. since January 2010; served as Senior Executive Vice President (International) of Singapore Technologies Telemedia Pte. Ltd. from January 2010 to December 2017; previously served as chief executive officer of StarHub Limited from 1999 to 2010; served as chief executive officer, president and a director of IPC Information Systems from 1995 through 1998; between 1987 and 1995, worked at BellSouth International, where he held senior executive positions, serving the last three years as president of its Asia-Pacific division; began his career as an engineer with Southern Bell in 1973; currently serves as the non-executive Chairman of StarHub Limited; served as a director of InterDigital, Inc. from 1998 until 2015 and Equinix, Inc. from 2005 until 2013.   Key Qualifications, Experiences and Skills:   •  Experience as a former chief executive of a publicly-held company   •  Executive and engineering experience in the telecommunications industry   •  International business experience   •  Current or former director of other domestic and international publicly-held companies
		T. Michael Glenn , age 62; a director since November 2017; served as a director of Level 3 prior to November 2017; Senior Advisor at Oak Hill Capital Partners since November 2017; served as Executive Vice President of Market Development and Corporate Communications for FedEx Corporation until his retirement in December 2016, where he previously served as a member of the five-person Executive Committee, responsible for planning and executing the corporation’s strategic business activities, and as President and Chief Executive Officer of FedEx Corporate Services, responsible for all marketing, sales and retail operations functions for all FedEx Corporation operating companies; served as Senior Vice President, Worldwide Marketing, Customer Service and Corporate Communications for FedEx Express, where he was responsible for directing all marketing, customer service, employee communications and public relations activities; currently serves as a director of Pentair plc and formerly served as a director of other publicly-traded domestic corporations   Key Qualifications, Experiences and Skills:   •  Executive experience with a multi-national company   •  Marketing strategy, communications and process development experience   •  Current or former director of other publicly-held companies

 

5

		W. Bruce Hanks , age 63; a director since 1992; non-executive Vice Chairman of the Board of Directors of CenturyLink since May 2017 and lead independent director since February 2018; a consultant with Graham, Bordelon, Golson and Gilbert, Inc., an investment management and financial planning company, since 2005; Athletic Director of the University of Louisiana at Monroe from 2001 to 2004; held various executive positions at CenturyLink from 1980 through 2001, most notably Chief Operating Officer, Senior Vice President — Corporate Development and Strategy, Chief Financial Officer, and President — Telecommunications Services; worked as a certified public accountant with Peat, Marwick & Mitchell for three years prior to then; currently an advisory director of IberiaBank Corporation; also served in the past on the executive boards of several telecommunications industry associations and the boards of other publicly-held companies.   Key Qualifications, Experiences and Skills:   •  Prior executive experience with, and historical knowledge of, our Company   •  Former experience as a certified public accountant   •  Qualifies as an “audit committee financial expert”   •  Prior experience as a director of other publicly-held companies
		Mary L. Landrieu , age 62; a director since November 2015; senior policy advisor at Van Ness Feldman, LLP, a Washington D.C.-based law firm, since May 2014; policy advisor at Walton Family Foundation, a philanthropic organization focused on improving K-12 education and supporting economic incentives for sustainable resource management, from 2014 to 2016; U.S. Senator from the State of Louisiana from 1996 to 2014, where she chaired the Senate Committee on Energy and Natural Resources, served on the Senate Committee on Appropriations, chaired the Subcommittees on Homeland Security, Financial Services and General Government, and the District of Columbia, chaired the Senate Committee on Small Business and Entrepreneurship, served on the Senate Committee on Homeland Security and chaired the Subcommittee on Disaster Recovery; Louisiana state treasurer from 1988 to 1996; Louisiana state legislative representative from 1980 to 1988; currently serves on the board of trustees or board of directors of several national organizations promoting education or children’s welfare.   Key Qualifications, Experiences and Skills:   •  Governmental and government relations experience   •  Public policy and governmental finance experience
		Harvey P. Perry , age 73; a director since 1990; non-executive Chairman of the Board of Directors of CenturyLink since May 2017 and, prior to then, non-executive Vice Chairman of the Board of Directors of CenturyLink since 2004; retired from CenturyLink in 2003; joined CenturyLink in 1984, serving as Secretary and General Counsel for approximately 20 years and Executive Vice President and Chief Administrative Officer for almost five years; prior to then, worked as an attorney in private practice for 15 years.   Key Qualifications, Experiences and Skills:   •  Prior executive experience with, and historical knowledge of, our Company   •  Legal experience representing telecommunications companies

 

6

		Glen F. Post, III , age 65; a director since 1985; Chief Executive Officer of CenturyLink since 1992 (1) , and President of CenturyLink between 1990 and November 1, 2017 (except for 2002 to 2009); Chairman of the Board of CenturyLink between 2002 and 2009; Vice Chairman of the Board of CenturyLink between 1993 and 2002; held various other positions at CenturyLink between 1976 and 1993, most notably Treasurer, Chief Financial Officer and Chief Operating Officer.   Key Qualifications, Experiences and Skills:   •  Executive experience in the telecommunications business   •  Experience as our chief executive
		Michael J. Roberts , age 67; a director since 2011; Chief Executive Officer and founder of Westside Holdings LLC, a marketing and brand development company, since 2006; served as President and Chief Operating Officer of McDonald’s Corporation, a foodservice retailer, from 2004 to 2006; served as Chief Executive Officer of McDonald’s USA during 2004 and as President of McDonald’s USA from 2001 to 2004; currently a director of W.W. Grainger, Inc.   Key Qualifications, Experiences and Skills:   •  Experience as a chief executive   •  Marketing and branding expertise   •  Director of another publicly-held company
		Laurie A. Siegel , age 62; a director since 2009; a business and human resources consultant since 2012; retired in September 2012 from Tyco International Ltd., a diversified manufacturing and service company, where she served as Senior Vice President of Human Resources and Internal Communications since 2003; held various positions with Honeywell International Inc. from 1994 to 2002, including Vice President of Human Resources — Specialty Materials; prior to then, was director of global compensation at Avon Products and a principal of Strategic Compensation Associates; currently a director of FactSet Research Systems Inc. and Volt Information Sciences, Inc.   Key Qualifications, Experiences and Skills:   •  Executive experience with a multi-national company   •  Human resources, executive compensation and communications expertise   •  Director of other publicly-held companies

 

(1)	For a discussion of Mr. Post’s retirement effective on the date of the meeting, see “Compensation Discussion and Analysis.”

 

7

		Jeffrey K. Storey , age 57; a director since November 2017; President and Chief Operating Officer of CenturyLink since November 2017 (2) ; served as a director and President and Chief Executive Officer of Level 3 from April 2013 to October 2017 and as President and Chief Operating Officer of Level 3 from December 2008 until April 2013; served between 2006 and 2008 as President, Leucadia Telecommunications Group of Leucadia National Corporation, where he directed and managed Leucadia’s investments in telecommunications companies; prior to that, beginning in October 2002, served as President and Chief Executive Officer of WilTel Communications Group, LLC until its sale to Level 3 in December 2005; prior to that position, served as Chief Operations Officer, Network for Williams Communications, Inc., where he had responsibility for all areas of operations for the company’s communications network, including planning, engineering, field operations, service delivery and network management.   Key Qualifications, Experiences and Skills:   •  Executive experience in the telecommunications business   •  Experience as a chief executive officer of a publicly-held company

Executive Officers Who Are Not Directors:

Listed below is information on each of our executive officers who are not directors. ⁽³⁾ Unless otherwise indicated, each person has been engaged in the principal occupation shown for more than the past five years.

 

		Stacey W. Goff , age 52; Executive Vice President, General Counsel and Secretary since 2009 and, in addition, Chief Administrative Officer since November 1, 2014; served as Senior Vice President, General Counsel and Secretary prior to 2009.
		Aamir Hussain , age 50; Executive Vice President and Chief Technology Officer since October 2014; served as Managing Director and Chief Technology Officer for the Europe division at Liberty Global plc from February 2012 to October 2014; served as Senior Vice President and Chief Technology Officer at Covad Communications from October 2008 to February 2012; prior to then he held leadership and technology design roles throughout his career at TELUS Corporation, Qwest, BellSouth Corporation, Samsung Electronics Co. Ltd. and Motorola Solutions Inc.

 

(2)	For a discussion of proposed changes to Mr. Storey’s role effective on the date of the meeting, see “Compensation Discussion and Analysis.”

(3)	Information on Messrs. Post and Storey appears on pages 7 and 8.

 

8

		Sunit S. Patel , age 56; Executive Vice President and Chief Financial Officer since November 2017; served Level 3 as its Chief Financial Officer since May 2003 and Executive Vice President since March 2008; served as Group Vice President of Level 3 from March 2003 to March 2008; served as Chief Financial Officer of Looking Glass Networks, Inc., a provider of metropolitan fiber optic networks, from April 2000 until March 2003; served as Treasurer of WorldCom Inc. and MCI Worldcom Inc., each long distance telephone service providers, from 1997 to March 2000; served as Treasurer of MFS Communications Company, Inc. from 1994 to 1997.
		Scott A. Trezise , age 49; Executive Vice President – Human Resources since August 2013; served as Senior Vice President – Human Resources for The Shaw Group, Inc. from June 2010 until its acquisition by Chicago Bridge & Iron Company N.V. in February 2013; served as Vice President of Human Resources for Honeywell International Inc. from 2005 to June 2010.

 

 

9

CORPORATE GOVERNANCE

Governance Guidelines

Our Board has adopted corporate governance guidelines, which it reviews at least annually. For information on how you can obtain a complete copy of our guidelines, see “— Access to Information” below.

Among other things, our corporate governance guidelines provide as follows:

Director Qualifications

 

•

The Board of Directors will have a majority of independent directors. The Nominating and Corporate Governance Committee is responsible for reviewing with the Board, on an annual basis, the requisite skills and characteristics of new Board members as well as the composition of the Board as a whole.

 

•

The Board expects directors who change the job or responsibility they held when they were elected to the Board to volunteer to resign from the Board.

 

•

On the terms and subject to the conditions specified in our bylaws, directors will be elected by a majority vote of the shareholders and any incumbent director failing to receive a majority of votes cast must promptly tender his or her resignation to the Board.

 

•

No director may serve on more than two other unaffiliated public company boards, unless this prohibition is waived by the Board.

 

•

No director may be appointed or nominated to a new term if he or she would be age 75 or older at the time of the election or appointment.

 

•

Annually, the Board will determine affirmatively which of our directors are independent for purposes of complying with our corporate governance guidelines and the listing standards of the New York Stock Exchange, or NYSE. A director will not be independent for these purposes unless the Board affirmatively determines that the director does not, either directly or indirectly through the director’s affiliates or associates, have a material commercial, banking, consulting, legal, accounting, charitable, familial or other relationship with the Company or its affiliates, other than as a director.

Director Responsibilities

 

•

The Board periodically reviews our long-term strategic plans and holds strategic planning sessions.

 

•

Directors are required to hold confidential all non-public information obtained due to their directorship position absent the express permission of the Board to disclose such information.

 

•

Unless otherwise determined by the Board, when a management director retires or ceases to be an active employee for any other reason, that director will be considered to have resigned concurrently from the Board.

Chairman; Lead Director

 

•

The Board elects a Chairman from among its members. The Chairman may be a director who also has executive responsibilities, including the CEO (an executive chair), or may be one of the Company’s independent directors (a non-executive chair). The Board believes it is in the best interests of the Company for the Board to remain flexible with respect to whether to elect an executive chair or a non-executive chair so that the Board may provide for succession planning and respond effectively to changes in circumstances.

 

•

The Chairman’s responsibilities include planning for and presiding at meetings of the Board and overseeing the functioning of the Board.

 

10

•

The non-management directors meet in executive session on multiple occasions throughout the year. The lead director’s responsibilities include planning for and presiding at each meeting of the non-management directors. (4)

CEO Evaluation and Management Succession

 

•

The Nominating and Corporate Governance Committee conducts an annual review of the CEO’s performance and provides a report of its findings to the Board.

 

•

The Nominating and Corporate Governance Committee reports periodically to the Board on succession planning.

Recoupment of Compensation

 

•

If the Board or any committee of the Board determines that any bonus, incentive payment, commission, equity award or other compensation awarded to or received by an executive officer was based on any financial or operating result that was impacted by the executive officer’s knowing or intentional fraudulent or illegal conduct, we may recover from the executive officer the compensation the Board or any committee of the Board considers appropriate under the circumstances.

Stock Ownership Guidelines

 

•

We require our executive officers to beneficially own CenturyLink stock equal in market value to specified multiples of their annual base salary. All executive officers have three years from the date they first become subject to a particular ownership level to attain that target.

 

•

We require our outside directors to beneficially own CenturyLink stock equal in market value to five times their annual cash retainer. Outside directors have five years from their election or appointment date to attain that target.

 

•

For any year during which an executive or director does not meet his or her ownership target, the executive or director is required to hold a specified percentage of the CenturyLink stock that the executive or director acquires through our equity compensation programs, excluding shares sold to pay taxes associated with the acquisition thereof.

 

•

The Human Resources and Compensation Committee administers the guidelines, and may modify their terms and grant hardship exceptions in its discretion.

 

•

See “Compensation Discussion and Analysis — Our Policies, Processes and Guidelines Related to Executive Compensation — Stock Ownership Guidelines” for information on the executive ownership multiples and the holding percentages currently in effect.

Standards of Business Conduct and Ethics

 

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All of our directors, officers and employees are required to abide by our long-standing ethics and compliance policies and programs, which include standards of business conduct.

 

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Any waiver of our policies, principles or guidelines relating to business conduct or ethics for executive officers or directors may be made only by the Board or one of its duly authorized committees.

Other

 

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Directors have full access to our officers and employees.

 

•

Like most other NYSE-listed companies, (i) the Board’s principal committees are comprised solely of independent directors, (ii) we provide orientation for new directors, (iii) we maintain a continuing education program for our directors, and (iv) the Board and each committee conducts annual self-reviews.

 

(4)	For related information, see “— Top Board Leadership Positions and Structure.”

 

11

Independence and Tenure

Based on the information made available to it, the Board of Directors has affirmatively determined that all but one of our non-management directors qualifies as an independent director under the standards referred to above under “— Governance Guidelines.” In making these determinations, the Board, with assistance from counsel, evaluated responses to a questionnaire completed by each director regarding relationships and possible conflicts of interest. In its review of director independence, the Board considered all known commercial, banking, consulting, legal, accounting, charitable, familial or other relationships any director may have with us.

In late 2017, we awarded through competitive bidding a telecommunications service agreement to a company owned by the brother of Harvey P. Perry, the Company’s Chairman of the Board. In connection with reviewing this arrangement in early 2018, the Board determined that Mr. Perry did not qualify as an independent director under the Company’s above-cited standards, and named W. Bruce Hanks, the Company’s Vice Chairman of the Board, as lead independent director.

Some of our other directors (excluding Mr. Perry) are employed by or affiliated with companies with which we do business in the ordinary course, either as a service provider, a customer or both. As required under the NYSE listing standards and our corporate governance guidelines, our Board examined the amounts spent by us with those companies and by those companies with us. In all cases the amounts spent under these transactions fell well below the materiality thresholds established in the NYSE listing standards and in our corporate governance guidelines. Consequently, our Board concluded that the amounts spent under these transactions did not create a material relationship with us that would interfere with the exercise of independent judgment by any of these other directors.

As illustrated below, most of our directors are independent, and almost half have served on our Board for three years or less:

 

						INDEPENDENCE																																		TENURE
						10																				3														6												3						4
						Independent																Non-independent																		1-3 yrs												4-9 yrs						10+ yrs

Committees of the Board

During 2017, the Board of Directors held 20 meetings.

During 2017, the Board’s Audit Committee held eight meetings. The Audit Committee is currently composed of four independent directors, all of whom the Board has determined to be audit committee financial experts, as defined under the federal securities laws. The Audit Committee’s functions are described further below under “Audit Committee Report.”

The Board’s Human Resources and Compensation Committee (which in most instances is hereinafter referred to as the “Compensation Committee”) met 11 times during 2017. The Compensation Committee is currently composed of four independent directors, all of whom qualify as “non-employee directors” under Rule 16b-3 promulgated under the Securities Exchange Act of 1934. The Compensation Committee is described further below under “Compensation Discussion and Analysis — Our Policies, Processes and Guidelines Related to Executive Compensation — Our Compensation Decision-Making Process — Role of Compensation Committee.”

The Board’s Nominating and Corporate Governance Committee (which in most instances is hereinafter referred to as the “Nominating Committee”) is currently composed of four independent directors. It met six times during 2017. The Nominating Committee is responsible for, among other things, (i) recommending to the Board nominees to serve as directors and officers, (ii) monitoring the composition and size of the Board and its

 

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committees, (iii) periodically reassessing our corporate governance guidelines described above, (iv) leading the Board in its annual review of the Board’s performance, (v) reviewing shareholder proposals and making recommendations to the Board regarding how to respond, (vi) conducting an intensive annual review of the performance of our Chief Executive Officer, including interviewing each of our other senior officers, and (vii) reporting to the Board on succession planning for executive officers and appointing an interim CEO if the Board does not make such an appointment within 72 hours of the CEO dying or becoming disabled. For information on the director nomination process, see “— Director Nomination Process” below.

The Board maintains a Risk Evaluation Committee, which met four times during 2017. This Committee is described further below under the heading “— Risk Oversight.”

The Board has also established a Pricing Committee, which has authority to approve the terms and conditions under which we offer or sell our securities or borrow money. This committee is comprised of Peter C. Brown, W. Bruce Hanks and Glen F. Post, III.

Each of the committees listed above is composed solely of independent directors (as defined under the standards referred to above under “— Governance Guidelines”), except for the Risk Evaluation Committee, which includes Harvey P. Perry, and the Pricing Committee, which includes Glen F. Post, III.

The table below lists the Board’s standing committees and their membership as of the date of this proxy statement:

 

Director (1)		Audit Committee Member		Human Resources and  Compensation Committee Member		Nominating  and Corporate Governance Committee Member		Risk Evaluation Committee Member		Pricing Committee Member
Martha H. Bejar		✓						✓
Virginia Boulet				✓		Chair
Peter C. Brown		✓						Chair		✓
Kevin P. Chilton (2)		✓						✓
Steven T. Clontz (3)						✓
T. Michael Glenn (4)				✓
W. Bruce Hanks		Chair						✓		✓
Mary L. Landrieu						✓		✓
Harvey P. Perry								✓
Glen F. Post, III										✓
Michael J. Roberts				✓		✓
Laurie A. Siegel				Chair

 

(1)	Jeffrey K. Storey sits on no board committees.

(2)	Kevin P. Chilton joined the Audit Committee and Risk Evaluation Committee on November 1, 2017.

(3)	Steven T. Clontz joined the Nominating and Corporate Governance Committee on November 1, 2017.

(4)	T. Michael Glenn joined the Human Resources and Compensation Committee on November 1, 2017.

 

 

If you would like additional information on the responsibilities of the committees listed above, please refer to the committees’ respective charters, which can be obtained in the manner described below under “— Access to Information.”

During 2017, all of our directors attended at least 75% of the aggregate number of all board meetings and all meetings of board committees on which they served. In addition, each of our directors then in office attended the 2017 annual shareholders’ meeting.

 

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Director Nomination Process

General . Nominations for the election of directors at our annual shareholders’ meetings may be made by the Board (upon the receipt of recommendations of the Nominating Committee) or by any shareholder of record who complies with our bylaws, which are summarized below. For the meeting this year, the Board has nominated the 13 nominees listed above under “Election of Directors” to stand for election as directors, and no shareholders submitted any nominations. For further information on procedures governing the submission of shareholder proposals, see “— Bylaw Requirements” and “Other Matters — Deadlines for Submitting Shareholder Nominations and Proposals for the 2019 Annual Meeting.”

Bylaw Requirements . If timely notice is provided, our bylaws permit shareholders to nominate a director or bring other matters before a shareholders’ meeting. The written notice required to be sent by any shareholder nominating a director must include various information, including, as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is being made, (i) the name and address of such shareholder, any such beneficial owner, and any other parties affiliated, associated or acting in concert therewith, (ii) their beneficial ownership interests in our Voting Shares, including disclosure of arrangements that might cause such person’s voting, investment or economic interests in our Voting Shares to differ from those of our other shareholders, (iii) certain additional information concerning such parties required under the federal proxy rules, (iv) a description of all agreements with respect to the nomination among the nominating shareholder, any beneficial owner, any person acting in concert with them, each proposed nominee and certain other persons, and (v) a representation whether any such person intends to solicit proxies or votes in support of their proposed nominees. With respect to each proposed nominee, the written notice must also, among other things, (i) set forth biographical and other data required under the federal proxy rules and a description of various compensation or other arrangements or relationships between each proposed nominee and the nominating shareholder and its affiliated parties and (ii) furnish both a completed and duly executed questionnaire and a duly executed agreement designed to disclose various aspects of the proposed nominee’s background, qualifications and certain specified arrangements with other persons, as well as to receive the proposed nominee’s commitment to abide by certain specified agreements and undertakings. We may require a proposed nominee to furnish other reasonable information or certifications. Shareholders interested in bringing before a shareholders’ meeting any matter other than a director nomination should consult our bylaws for additional procedures governing such requests. We may disregard any nomination or submission of any other matter that fails to comply with these bylaw procedures.

In addition, our bylaws provide that under certain circumstances a shareholder or group of shareholders may include director candidates that they have nominated in our annual meeting proxy materials. These proxy access provisions of our bylaws provide, among other things, that a shareholder or group of up to ten shareholders seeking to include director candidates in our annual meeting proxy materials must own 3% or more of our outstanding Common Shares continuously for at least the previous three years. The number of shareholder-nominated candidates appearing in any of our annual meeting proxy materials cannot exceed 20% of the number of directors then serving on the Board. If 20% is not a whole number, the maximum number of shareholder-nominated candidates would be the closest whole number below 20%. Based on the current Board size of 13, two is the maximum number of proxy access candidates that we would be required to include in our 2019 proxy materials for the 2019 annual meeting. The nominating shareholder or group of shareholders also must deliver the information required by our bylaws, and each nominee must meet the qualifications required by our bylaws.

Shareholder requests to nominate directors or to bring any other matter before our 2019 annual shareholders’ meeting, whether or not they wish to include their candidate or proposal in our proxy materials, must be received by our Secretary by the deadlines specified in “Other Matters — Deadlines for Submitting Shareholder Nominations and Proposals for the 2019 Annual Meeting.”

The summaries above of the advance notification and proxy access provisions of our bylaws are qualified in their entirety by reference to the full text of Section 5 of Article IV of our bylaws. You may obtain a full copy of our bylaws by reviewing our reports filed with the SEC, by accessing our website at www.centurylink.com, or by contacting our Secretary in the manner specified below under “Other Matters.”

 

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Agreements to Nominate Certain Directors . In connection with the Level 3 Combination, on October 31, 2016 we entered into a Shareholder Rights Agreement with STT Crossing Ltd. (“STT Crossing”), which was Level 3’s principal shareholder as of such date. In early 2018, STT Crossing assigned its rights under this agreement (the “Shareholder Rights Agreement”) to two of its affiliates, Everitt Investments Pte. Ltd and Aranda Investments Pte. Ltd. (the “STT Affiliates”). Pursuant to the Shareholder Rights Agreement, the Nominating and Corporate Governance Committee is currently obligated to nominate the individual designated by the STT Affiliates for election to the Board, subject to (i) the fiduciary duties of the members of that committee, (ii) any applicable regulation or listing requirement of the New York Stock Exchange and (iii) any applicable provisions of any network security agreement between us, STT Crossing and a government agency. Following the execution of the Shareholder Rights Agreement, STT Crossing designated Steven T. Clontz to be added to our Board upon consummation of the Level 3 Combination, and in early 2018 the STT Affiliates selected Mr. Clontz as their designee. The Board is required to recommend that the shareholders vote in favor of the STT Affiliates’ designee and we are required to use all reasonable efforts to cause the individual to be elected as a member of the Board. In making its recommendation to the full Board regarding the nominee for election to our Board at the meeting, the Nominating and Corporate Governance Committee considered, among other things, Mr. Clontz’s extensive experience in the telecommunications industry. For additional information about the Shareholder Rights Agreement, please see the full copy of the agreement that we have filed as an exhibit to our prior SEC reports.

On October 31, 2016, we also agreed pursuant to the terms of our merger agreement with Level 3 to appoint to our Board three members of the Level 3 Board selected by us from any of the Level 3 directors who are unaffiliated with STT Crossing. During 2017, we selected Messrs. Chilton, Glenn and Storey to serve on our Board. Under the merger agreement, we further agreed to cause such appointed directors to be nominated for election to the Board at the first annual meeting following the closing of the combination on November 1, 2017.

Role of Nominating Committee . The Nominating Committee will consider candidates properly and timely nominated by shareholders in accordance with our bylaws. Upon receipt of any such nominations, the Nominating Committee will review the submission for compliance with our bylaws, including determining if the proposed nominee meets the bylaw qualifications for service as a director. These provisions disqualify any person who (i) fails to respond satisfactorily to any inquiry for information to enable us to make certifications required by the Federal Communications Commission under the Anti-Drug Abuse Act of 1988, (ii) has been arrested or convicted of certain specified drug offenses or engaged in actions that could lead to such an arrest or conviction or (iii) fails to furnish any materials or agreements required to be provided by director nominees under our bylaws, or makes false statements or materially misleading statements or omissions in connection therewith.

From time to time, we have added to our Board directors who previously served as directors of companies we acquired. For instance, in connection with acquiring Embarq in 2009, Qwest in 2011 and Level 3 in 2017, we added several new directors to our Board who previously served as directors of those companies, seven of whom are nominees to be re-elected at the meeting. Under the agreements described above under the heading “— Agreements to Nominate Certain Directors,” we agreed to nominate Messrs. Chilton, Clontz, Glenn and Storey to stand for election at the meeting.

Under our corporate governance guidelines, the Nominating Committee assesses director candidates based on their independence, diversity, character, skills and experience in the context of the needs of the Board. Although the guidelines permit the Nominating Committee to adopt additional selection guidelines or criteria, it has chosen not to do so. Instead, the Nominating Committee annually assesses skills and characteristics then required by the Board based on its membership and needs at the time of the assessment. In evaluating the needs of the Board, the Nominating Committee considers the qualifications of incumbent directors and consults with other members of the Board and senior management. In addition, the Nominating Committee seeks candidates committed to representing the interests of all shareholders and not any particular constituency. The Nominating Committee believes this flexible approach enables it to respond to changes caused by director vacancies and industry developments.

 

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In connection with assessing the needs of the Board, the Nominating Committee has sought individuals who possess skill and experience in a diverse range of fields. The Nominating Committee also has sought a mix of individuals from inside and outside of the communications industry. The table above listing biographical data about our directors includes a listing of the key qualifications, experiences and skills that the Nominating Committee and Board reviewed in connection with nominating or re-nominating them for service on the Board. In light of our current business and operations, we believe the following skills and experience are particularly important:

 

•

senior leadership experience

 

•

industry expertise

 

•

financial, accounting or capital markets expertise

 

•

public company board experience

 

•

business combination experience

 

•

engineering, product development or similar technical expertise

 

•

brand marketing expertise

 

•

government, public policy, regulatory or political expertise

 

•

labor or human resources expertise

 

•

international business experience

 

•

legal expertise.

In connection with determining the current composition of the Board, the Nominating Committee has assessed the diverse range of skills and experience of our directors outlined above, coupled with the judgment that each has exhibited and the knowledge of our operations that each has acquired in connection with their service on the Board. Although it does not have a formal diversity policy, the Nominating Committee believes that our directors possess a diverse range of backgrounds, perspectives, skills and experiences.

Although we do not have a history of receiving director nominations from shareholders, the Nominating Committee envisions that it would evaluate any such candidate on the same terms as other proposed nominees, but would place a substantial premium on retaining incumbent directors who are familiar with our management, operations, business, industry, strategies and competitive position, and who have previously demonstrated a proven ability to provide valuable contributions to the Board and CenturyLink.

Compensation Setting Process

The Compensation Committee hires consulting firms to assist it in setting executive and director compensation. In June 2015, the Committee retained Meridian Compensation Partners, LLC, following a nationwide search to replace Hay Group, which advised the Committee for the previous six years. For additional information on the processes used by the Committee to set executive compensation, see “Compensation Discussion and Analysis — Our Policies, Processes and Guidelines Related to Executive Compensation.”

Board’s Role in Overseeing Risk Management

Our Board oversees our Company’s risk management function, which is a coordinated effort among our business units, our senior leadership, our risk management personnel and our internal auditors. Our directors typically discharge their risk oversight responsibilities by having management provide periodic briefing and educational presentations. In some cases, including major new acquisitions, capital expenditures, product development or strategic investments, the full Board participates in risk oversight. In most cases involving

 

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recurring systemic risk, a Board committee is primarily responsible for risk oversight. For several decades, our Board has maintained a Risk Evaluation Committee, which is responsible for assisting management to identify, monitor, and manage recurring risks to our business, properties and employees. The Risk Evaluation Committee regularly monitors our litigation, enterprise risk assessments, network operations, systems integration initiatives, insurance coverages and the status of our labor relations, and is also responsible for overseeing our ethics and compliance program. As part of its risk assessment oversight, the Risk Evaluation Committee receives quarterly reports on cybersecurity, which typically include reports on recent cyber intrusions, mitigation steps taken in response to those intrusions and ongoing cybersecurity initiatives. The Board’s other committees are responsible for overseeing specific risks, particularly the Audit Committee with respect to financial, tax and accounting risks and the Compensation Committee with respect to compensation risks. For a discussion of the Compensation Committee’s risk analysis, see “Compensation Discussion and Analysis — Our Policies, Processes and Guidelines Related to Executive Compensation — Our Compensation Decision-Making Process — Risk Assessment.” The Board regularly receives reports from each of these committees, and periodically receives enterprise risk assessment reports from management.

Board’s Role in Setting Strategy

At most of the Board’s quarterly in-person meetings, at least one of the agenda items involves a review of the strategies to be pursued by the Company as a whole or by one of its lines of business. For most of the past 15 years, the Board has also scheduled a separate off-site multi-day retreat to review industry developments and long-term strategies. From time to time at these meetings or retreats, we invite outside experts or consultants to share their views on issues impacting our strategic options. As discussed further under “Compensation Discussion and Analysis,” our Compensation Committee reviews our strategies annually to ensure that the performance metrics used in our executive compensation programs appropriately incentivize the pursuit of our short and long-term strategic goals.

Top Board Leadership Positions and Structure

Since 2009, the Board has annually elected a non-executive Chairman. In May 2017, the Board elected Harvey P. Perry to this position.

The Board believes that the separation of the Chairman and CEO positions has functioned effectively over the past several years. Separating these positions has allowed our CEO to have primary responsibility for the operational leadership and strategic direction of our business, while allowing our Chairman to lead the Board in its fundamental role of providing guidance to and separate oversight of management. While our bylaws and corporate governance guidelines do not require our Chairman and CEO positions to be separate, the Board believes that delegating responsibilities between our Chairman and our CEO has been the appropriate leadership structure for our Company over the past decade, which have been marked by rapid growth in our operations and a substantial change in our product offerings and our industry. As noted above under “— Independence and Tenure,” the Board named W. Bruce Hanks, the Company’s Vice Chairman of the Board, as lead independent director in early 2018. Prior to then, Mr. Perry performed all duties assigned to the Chairman and lead director. The responsibilities of the Chairman and the lead director are described above under “— Governance Guidelines.”

Our Board periodically reviews its leadership structure and may make such changes in the future as it deems appropriate. The Board believes that its programs for overseeing risk would be effective under a variety of top leadership structures, and, accordingly, this factor has not materially affected its current choice of leadership structure.

As explained further on our website, you may contact either our Chairman, lead independent director or any other director by writing a letter addressed to the Chairman, Lead Independent Director or any other director c/o Post Office Box 5061, Monroe, Louisiana 71211, or by sending an email to boardinquiries@centurylink.com.

 

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Access to Information

The following documents are posted on our website at www.centurylink.com:

 

•

Amended and restated articles of incorporation

 

•

Bylaws

 

•

Corporate governance guidelines

 

•

Charters of our key Board committees

 

•

Corporate ethics and compliance program documents, including the CenturyLink Code of Conduct.

RATIFICATION OF THE SELECTION OF THE INDEPENDENT AUDITOR

(Item 2 on Proxy or Voting Instruction Card)

The Audit Committee of the Board has appointed KPMG LLP as our independent auditor for the fiscal year ending December 31, 2018, and we are submitting that appointment to our shareholders for ratification on an advisory basis at the meeting. Although shareholder ratification of KPMG’s appointment is not legally required, we are submitting this matter to the shareholders, as in the past, as a matter of good corporate practice. In determining whether to reappoint KPMG as our independent auditor, the Audit Committee considered a number of factors, including, among others, the firm’s qualifications, industry expertise, prior performance, control procedures, proposed staffing and the reasonableness of its fees on an absolute basis and as compared with fees paid by comparable companies.

If the shareholders fail to vote on an advisory basis in favor of the appointment, the Audit Committee will reconsider whether to retain KPMG, and may appoint that firm or another without re-submitting the matter to the shareholders. Even if the shareholders ratify the appointment, the Audit Committee may, in its discretion, select a different independent auditor at any time during the year if it determines that such a change would be in the Company’s best interests.

In connection with the audit of the 2018 financial statements, we entered into an engagement letter with KPMG which sets forth the terms by which KPMG will provide audit services to us. Any future disputes between KPMG and us under that letter will be subject to certain specified alternative dispute resolution procedures, none of which are intended to restrict the remedies that our shareholders might independently pursue against KPMG.

The following table lists the aggregate fees and costs billed to us by KPMG and its affiliates for the 2016 and 2017 services identified below:

 

		Amount Billed
		2016				2017
Audit Fees (1)		$	11,316,096			$	12,245,495
Audit-Related Fees (2)			118,178				207,554
Tax Fees (3)			2,079,160				2,121,869
Other			—				—
Total Fees		$	13,513,434			$	14,574,918

 

(1)

Includes the cost of services rendered in connection with (i) auditing our annual consolidated financial statements, (ii) auditing our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, (iii) reviewing our quarterly financial statements, (iv) auditing the financial statements of several of our subsidiaries, (v) reviewing our registration statements and issuing related comfort letters, (vi) statutory audits for certain of our foreign subsidiaries, and (vii) consultations regarding

 

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accounting standards. Additionally, the amounts billed in 2016 and 2017 include $1,891,000 and $702,000, respectively, for services rendered in connection with auditing separate carve-out financial statements related to divestiture-related transactions. Amounts exclude fees paid to KPMG by Level 3 prior to its acquisition by CenturyLink of $5,278,000 and $3,515,000 in 2016 and 2017, respectively.

(2)	Includes the cost of preparing agreed upon procedures reports and providing general accounting consulting services. Amounts exclude fees paid to KPMG by Level 3 prior to its acquisition by CenturyLink of $386,000 and $172,000 in 2016 and 2017, respectively.

(3)

Includes costs associated with (i) general tax planning, consultation and compliance (which were approximately $700,000 in 2016 and $900,000 in 2017) and (ii) tax planning and consultation related to transactions and divestitures (which were approximately $1,400,000 in 2016 and $1,200,000 in 2017). Amounts exclude fees paid to KPMG by Level 3 prior to its acquisition by CenturyLink of $8,000 and $0 in 2016 and 2017, respectively.

 

 

The Audit Committee maintains written procedures that require it to annually review and pre-approve the scope of all services to be performed by our independent auditor. This review includes an evaluation of whether the provision of non-audit services by our independent auditor is compatible with maintaining the auditor’s independence in providing audit and audit-related services. The Committee’s procedures prohibit the independent auditor from providing any non-audit services unless the service is permitted under applicable law and is pre-approved by the Audit Committee or its Chairman. The Chairman is authorized to pre-approve projects if the total anticipated cost of all projects pre-approved by him during any fiscal quarter does not exceed $250,000. The Audit Committee has pre-approved the Company’s independent auditor to provide up to $75,000 per quarter of miscellaneous permitted tax services that do not constitute discrete and separate projects. The Chairman and the Chief Financial Officer are required periodically to advise the full Committee of the scope and cost of services not pre-approved by the full Committee. Although applicable regulations waive these pre-approval requirements in certain limited circumstances, the Audit Committee did not use these waiver provisions in either 2016 or 2017.

KPMG has advised us that one or more of its partners will be present at the meeting. We understand that these representatives will be available to respond to appropriate questions and will have an opportunity to make a statement if they desire to do so.

Ratification of KPMG’s appointment as our independent auditor for 2018 will require the affirmative vote of the holders of at least a majority of the votes cast on the proposal at the meeting.

The Board unanimously recommends a vote FOR this proposal.

AUDIT COMMITTEE REPORT

Management is responsible for our internal controls and financial reporting process. Our independent auditor is responsible for performing an independent audit of our consolidated financial statements and the effectiveness of our internal control over financial reporting, and to issue reports thereon. As more fully described in its charter, the Audit Committee is responsible for assisting the Board in its general oversight of these processes and for appointing and overseeing the independent auditor, including reviewing their qualifications, independence and performance.

In this context, the Committee has met and held discussions with management and our internal auditors and independent auditor for 2017, KPMG LLP. Management represented to the Committee that our consolidated financial statements were prepared in accordance with generally accepted U.S. accounting principles. The Committee has reviewed and discussed with management and KPMG the consolidated financial statements, and management’s report and KPMG’s report and attestation on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. The Committee also discussed with KPMG matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees .

 

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Among other matters, over the course of the past year, the Committee also:

 

•

reviewed the scope of and overall plans for the annual audit and the internal audit program, including a review of critical accounting policies, critical accounting estimates, and significant unusual transactions;

 

•

reviewed a report by the independent auditor describing the independent auditor’s internal quality control procedures;

 

•

reviewed the performance of the lead engagement partner of our independent auditor;

 

•

reviewed and discussed each quarterly and annual earnings press release before issuance;

 

•

received periodic reports from the director of internal audit, and met with other members of the internal audit staff;

 

•

reviewed and approved plans to integrate Level 3’s internal audit operations into our internal audit operations;

 

•

received periodic reports pursuant to our policy for the submission and confidential treatment of communications from employees and others about accounting, internal controls and auditing matters;

 

•

reviewed with management the scope and effectiveness of our disclosure controls and procedures;

 

•

met quarterly in separate executive sessions, including private sessions with the Company’s independent auditors, internal auditors and top executives;

 

•

received a report with regard to any hiring of former employees of KPMG; and

 

•

as discussed in greater detail under “Corporate Governance — Risk Oversight,” coordinated with the Risk Evaluation Committee to oversee the Company’s risk management function, especially with respect to the financial, tax and accounting risks.

KPMG also provided to the Committee the written disclosures required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with audit committees concerning independence. The Committee discussed with KPMG that firm’s independence, and considered the effects that the provision of non-audit services may have on KPMG’s independence.

Based on and in reliance upon the reviews and discussions referred to above, and subject to the limitations on the role and responsibilities of the Committee referred to in its charter, the Committee recommended that the Board of Directors include the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017.

In addition to the Company’s corporate compliance program and hotline, the Audit Committee has established procedures for the receipt and evaluation, on a confidential basis, of any complaints or concerns regarding our accounting, auditing, financial reporting or related matters. To report such matters, please send written correspondence to Audit Committee Chair, c/o Post Office Box 4364, Monroe, Louisiana 71211.

If you would like additional information on the responsibilities of the Audit Committee, please refer to its charter, which you can obtain in the manner described above under “Corporate Governance — Access to Information.”

Submitted by the Audit Committee of the Board of Directors.

 

W. Bruce Hanks (Chair)		Peter C. Brown
Martha H. Bejar		Kevin P. Chilton

 

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PROPOSAL TO APPROVE THE

CENTURYLINK 2018 EQUITY INCENTIVE PLAN

(Item 3 on Proxy or Voting Instruction Card)

Our Board believes that our growth depends upon the efforts of our officers, directors, employees, consultants, and advisors, and that the proposed CenturyLink 2018 Equity Incentive Plan (the “2018 Plan”) will provide an effective means of attracting, retaining, and motivating qualified key personnel while encouraging long-term focus on maximizing shareholder value. The 2018 Plan has been adopted by our Board, subject to approval by our shareholders at the annual meeting.

The principal features of the 2018 Plan are summarized below. However, this summary is qualified in its entirety by reference to by the full text of the 2018 Plan, as attached to this proxy statement as Appendix A . Because this is a summary, it may not contain all the information that you may consider to be important. Therefore, we recommend that you read Appendix A carefully before you decide how to vote on this proposal.

Purpose of the Proposal

We believe that providing officers, directors, employees, consultants and advisors with a proprietary interest in the growth and performance of our Company is crucial to stimulating individual performance while at the same time enhancing shareholder value. While we believe that employee equity ownership is a significant contributing factor in achieving strong corporate performance, we recognize that increasing the number of available shares under incentive plans may potentially dilute the equity ownership of our current shareholders.

Prior to the Level 3 Combination, we had one active equity plan under which we granted long-term incentive awards — the Amended and Restated CenturyLink 2011 Equity Incentive Plan (the “2011 Plan”), which was most recently approved by our shareholders in 2016. In connection with the Level 3 Combination, we assumed the Legacy Level 3 Communications, Inc. Stock Plan (the “Legacy Level 3 Plan” and, together with the 2011 Plan, our “current equity plans”). As noted in the chart under the heading “— Equity Compensation Plan Information”, as of December 31, 2017, we had 43,570,576 shares available for grant under our current equity plans as of December 31, 2017. However, the majority of these shares are reserved for issuance under the Legacy Level 3 Plan, which, under NYSE rules, cannot be used to make grants to anyone who was employed by CenturyLink or our then-existing subsidiaries on the day prior to the closing of the Level 3 Combination.

Therefore, we are proposing adoption of the 2018 Plan in order to replace both of our current equity plans with a single, state-of-the-art equity plan free of the limitations contained in our current equity plans. We believe that adoption of the 2018 Plan is integral to our continued ability to attract, retain, and motivate key stakeholders in a manner aligned with the interests of our shareholders.

Assuming that our shareholders approve the 2018 Plan at the annual meeting, we will not make any future grants under either of our current equity plans. However, if shareholders do not approve the 2018 Plan at the annual meeting, we will continue to use our current equity plans but, given the limitations on use of those plans discussed above, we may be required to re-evaluate our compensation structure to ensure that it remains competitive. Specifically, if the 2018 Plan is not approved, the Company may be required to increase the cash-based component of employee compensation, which could reduce the alignment of employee and shareholder interests.

Summary of the 2018 Plan

Administration of the 2018 Plan . The Human Resources and Compensation Committee (or a subcommittee thereof) will generally administer the 2018 Plan and has the authority to make awards under the 2018 Plan, including setting the terms of the awards. The Committee also generally has the authority to interpret the 2018 Plan, to establish any rules or regulations relating to the 2018 Plan, and to make any other determination that it

 

21

believes necessary or advisable for proper administration of the 2018 Plan. Subject to the limitations specified in the 2018 Plan, the Committee may delegate its authority to our Chief Executive Officer or his designee with respect to grants to employees or consultants who are not subject to Section 16 of the Securities Exchange Act of 1934.

Eligibility . Key employees, officers, and directors of CenturyLink and our consultants or advisors are eligible to receive awards (“Incentives”) under the 2018 Plan. Based on current estimates, we anticipate that approximately 2,175 officers and 11 non-employee directors would be eligible to receive Incentives under the 2018 Plan. Incentives may be granted in any one or a combination of the following forms: incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and Other Stock-Based Awards (as defined below). Each of these types of Incentives is discussed in more detail in “Types of Incentives” below.

Shares Issuable under the 2018 Plan . A total of 34,600,000 of our Common Shares are authorized for issuance under the 2018 Plan. This figure represents approximately 3.2% of the outstanding Common Shares as of our record date of April 6, 2018. The closing price of a Common Share on the record date, as quoted on the NYSE, was $17.21.

Limitations on Shares Issuable under the 2018 Plan . Under the 2018 Plan, Incentives relating to no more than 1,500,000 Common Shares may be granted to a single participant in any fiscal year. A maximum of 34,600,000 Common Shares may be issued upon exercise of options intended to qualify as incentive stock options under the Code. The maximum value of Incentives that may be granted under the 2018 Plan to each non-employee director of CenturyLink during a single calendar year is $500,000.

Share Counting . For purposes of determining the maximum number of Common Shares available for delivery under the 2018 Plan, shares that are not delivered because an Incentive is forfeited, canceled, or expired will return to the 2018 Plan and be available for reissuance. In addition, any Common Shares subject to an Incentive originally granted under the 2011 Plan that are not delivered because, following shareholders’ approval of the 2018 Plan, such Incentive is forfeited, canceled, or expired, will also be available for issuance or delivery as a new Incentive under the 2018 Plan. However, Common Shares subject to an Incentive will not be recycled if (a) they are tendered in payment of exercise or base price of a stock option or stock-settled SAR; (b) they were covered by, but not issued upon settlement of, stock-settled SARs; or (c) they were delivered or withheld by the Company to satisfy any tax withholding obligation related to stock options or stock-settled SARs. If an Incentive, by its terms, may only be settled in cash, it will not impact the number of Common Shares available for issuance under the 2018 Plan.

Adjustments to Shares Issuable under the 2018 Plan . Proportionate adjustments will be made to all of the share limitations provided in the 2018 Plan, including shares subject to outstanding Incentives, in the event of any recapitalization, reclassification, stock dividend, stock split, combination of shares, or other comparable change in our Common Shares, and the terms of any Incentive will be adjusted to the extent appropriate to provide participants with the same relative rights before and after the occurrence of any such event.

Minimum Vesting Periods . Except for any Incentives that are issued in payment of cash amounts earned under our short-term incentive program, all Incentives must be granted with a minimum vesting period of at least one year without providing for incremental vesting during that first year.

Dividends and Dividend Equivalents . The 2018 Plan provides that the Committee may grant dividends or dividend equivalent rights on certain types of awards (restricted stock, RSUs, and Other Stock-Based Awards). If the Committee elects to grant such rights, any such rights must vest and pay out or be forfeited in tandem with underlying Incentives rather than during the vesting period.

 

 

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Amendments to the 2018 Plan . Our Board may amend or discontinue the 2018 Plan at any time. However, our shareholders must approve any amendment to the 2018 Plan that would:

 

•

materially increase the number of Common Shares that may be issued through the 2018 Plan,

 

•

materially increase the benefits accruing to participants,

 

•

materially expand the classes of persons eligible to participate,

 

•

expand the types of awards available for grant,

 

•

materially extend the term of the 2018 Plan,

 

•

materially reduce the price at which Common Shares may be offered through the 2018 Plan, or

 

•

permit the repricing of an option or stock appreciation right.

Duration of the 2018 Plan . No Incentives may be granted under the 2018 Plan after May 23, 2028.

Types of Incentives . Each type of Incentive that may be granted under the 2018 Plan is described below.

Stock Options . A stock option is a right to purchase Common Shares from CenturyLink. The Committee will determine the number and exercise price of the options, and the time or times that the options become exercisable, provided that the option exercise price may not be less than the fair market value of a Common Share on the date of grant, except for an option granted in substitution of an outstanding award in an acquisition. The term of an option will also be determined by the Committee, but may not exceed ten years. The Committee may accelerate the exercisability of any stock option at any time. As noted above, the Committee may not, without the prior approval of our shareholders, decrease the exercise price for any outstanding option after the date of grant. In addition, an outstanding option may not, as of any date that the option has a per share exercise price that is greater than the then-current fair market value of a Common Share, be surrendered to us as consideration for the grant of a new option with a lower exercise price, another Incentive, a cash payment, or Common Shares, unless approved by our shareholders. Incentive stock options will be subject to certain additional requirements necessary in order to qualify as incentive stock options under Section 422 of the Code.

The option exercise price may be paid:

 

•

in cash or by check,

 

•

in Common Shares,

 

•

through a “cashless” exercise arrangement with a broker approved by CenturyLink,

 

•

through a net exercise procedure if approved by the Committee, or

 

•

in any other manner authorized by the Committee.

Stock Appreciation Rights . A stock appreciation right, or SAR, is a right to receive, without payment to CenturyLink, a number of Common Shares determined by dividing the product of the number of shares as to which the stock appreciation right is exercised and the amount of the appreciation in each share by the fair market value of a share on the date of exercise of the right. The Committee will determine the base price used to measure share appreciation (which may not be less than the fair market value of a Common Share on the date of grant), whether the right may be paid in cash, and the number and term of stock appreciation rights, provided that the term of a SAR may not exceed ten years. The Committee may accelerate the exercisability of any SAR at any time. The 2018 Plan restricts decreases in the base price and certain exchanges of SARs on terms similar to the restrictions described above for options.

Restricted Stock . The Committee may grant Common Shares subject to restrictions on sale, pledge, or other transfer by the recipient for a certain restricted period. All shares of restricted stock will be subject to such restrictions as the Committee may provide in an agreement with the participant, including provisions that may

 

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obligate the participant to forfeit the shares to us in the event of termination of employment or if specified performance goals or targets are not met. Subject to restrictions provided in the participant’s incentive agreement and the 2018 Plan, a participant receiving restricted stock shall have all of the rights of a shareholder as to such shares, including the right to receive dividends although, as noted above, any such dividends would not be paid currently but would vest or be forfeited in tandem with the related shares of restricted stock.

Restricted Stock Units . A restricted stock unit, or RSU, represents the right to receive from CenturyLink one Common Share on a specific future vesting or payment date. All RSUs will be subject to such restrictions as the Committee may provide in an agreement with the participant, including provisions that may obligate the participant to forfeit the RSUs in the event of termination of employment or if specified performance goals or targets are not met. Subject to the restrictions provided in the incentive agreement and the 2018 Plan, a participant receiving RSUs has no rights of a shareholder until Common Shares are issued to him or her. RSUs may be granted with dividend equivalent rights. Any such dividend equivalent rights would not be paid currently but would vest or be forfeited in tandem with the related RSUs.

Other Stock-Based Awards . The 2018 Plan also permits the Committee to grant to participants awards of Common Shares and other awards that are denominated in, payable in, valued in whole or in part by reference to, or are otherwise based on the value of, or the appreciation in value of, Common Shares (referred to herein as “Other Stock-Based Awards”). The Committee has discretion to determine the times at which such awards are to be made, the size of such awards, the form of payment, and all other conditions of such awards, including any restrictions, deferral periods, or performance requirements.

Termination of Employment . In the event that a participant ceases to be an employee of CenturyLink or its subsidiaries or to provide services to us for any reason, including death, disability, early retirement, or normal retirement, any Incentives may be exercised, shall vest, or shall expire at such times as provided in the applicable incentive agreement or as may be otherwise determined by the Committee.

Change in Control . Upon a change in control of CenturyLink, as defined in the Incentive Plan or the applicable incentive agreement, the vesting of time-based Incentives will only occur if the participant has a contemporaneous or subsequent termination of employment. In addition, the payout of any performance-based Incentives upon a change of control may not exceed the greater of a pro-rata payout based on target performance or payout of the Incentive based on actual performance. However, within certain time periods and under certain circumstances, the Committee may:

 

•

require that all outstanding Incentives be exercised by a certain date;

 

•

require the surrender to CenturyLink of some or all outstanding Incentives in exchange for a stock or cash payment for each Incentive equal in value to the per share change of control value, calculated as described in the 2018 Plan, over the exercise or base price;

 

•

make any equitable adjustment to outstanding Incentives as the Committee deems necessary to reflect our corporate changes; or

 

•

provide that an Incentive shall become an Incentive relating to the number and class of shares of stock or other securities or property (including cash) to which the participant would have been entitled in connection with the change of control transaction if the participant had been a shareholder.

Transferability of Incentives . No Incentives granted under the 2018 Plan may be transferred, pledged, assigned, or otherwise encumbered by a participant except: (a) by will; (b) by the laws of descent and distribution; (c) if permitted by the Committee and so provided in the applicable incentive agreement, pursuant to a domestic relations order, as defined in the Code; or (d) as to options only, if permitted by the Committee and so provided in the applicable incentive agreement, to immediate family members or to a partnership, limited liability company or trust for which the sole owners, members or beneficiaries are the participant or immediate family members.

 

 

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Tax Withholding . We may withhold from any payments or share issuances under the 2018 Plan, or collect as a condition of payment, any taxes required by law to be withheld. The participant may, but is not required to, satisfy his or her withholding tax obligation by electing to deliver currently-owned Common Shares, or to have us withhold shares from the shares the participant would otherwise receive, in either case having a value equal to the maximum amount required to be withheld. This election must be made prior to the date on which the amount of tax to be withheld is determined. The Committee has the right to disapprove of any such election, except for participants who are subject to Section 16 of the Securities Exchange Act of 1934.

Purchase of Incentives . The Committee may approve the repurchase by CenturyLink of an unexercised or unvested Incentive from the holder by mutual agreement, so long as the repurchase would not constitute the repricing of an option or SAR.

Federal Income Tax Consequences

The federal income tax consequences related to the issuance of the different types of Incentives that may be awarded under the 2018 Plan are summarized below. Participants who are granted Incentives under the 2018 Plan should consult their own tax advisors to determine the tax consequences based on their particular circumstances.

Stock Options . A participant who is granted a stock option normally will not realize any income, nor will we normally receive any deduction for federal income tax purposes, in the year the option is granted.

When a non-qualified stock option granted under the 2018 Plan is exercised, the participant will realize ordinary income measured by the difference between the aggregate purchase price of the shares acquired and the aggregate fair market value of the shares acquired on the exercise date and, subject to the limitations of Section 162(m) (as described below), we will be entitled to a deduction in the year the option is exercised equal to the amount the participant is required to treat as ordinary income.

Incentive stock options may only be granted to employees. An employee generally will not recognize any income upon the exercise of any incentive stock option, but the excess of the fair market value of the shares at the time of exercise over the option price will be an item of tax preference, which may, depending on particular factors relating to the employee, subject the employee to the alternative minimum tax imposed by Section 55 of the Code. The alternative minimum tax is imposed in addition to the federal individual income tax, and it is intended to ensure that individual taxpayers do not completely avoid federal income tax by using preference items. An employee will recognize capital gain or loss in the amount of the difference between the exercise price and the sale price on the sale or exchange of shares acquired pursuant to the exercise of an incentive stock option, provided the employee does not dispose of such shares within two years from the date of grant and one year from the date of exercise of the incentive stock option (the holding periods). An employee disposing of such shares before the expiration of the holding periods will recognize ordinary income generally equal to the difference between the option price and the fair market value of the shares on the date of exercise. The remaining gain, if any, will be capital gain. We will not be entitled to a federal income tax deduction in connection with the exercise of an incentive stock option, except where the employee disposes of the shares received upon exercise before the expiration of the holding periods.

If the exercise price of a non-qualified option is paid by the surrender of previously-owned shares, the basis and the holding period of the previously-owned shares carry over to the same number of shares received in exchange for the previously-owned shares. The compensation income recognized on exercise of these options is added to the basis of the shares received. If the exercised option is an incentive stock option and the shares surrendered were acquired through the exercise of an incentive stock option and have not been held for the holding periods, the optionee will recognize income on such exchange, and the basis of the shares received will be equal to the fair market value of the shares surrendered. If the applicable holding period has been met on the date of exercise, there will be no income recognition and the basis and the holding period of the previously owned shares will carry over to the same number of shares received in exchange, and the remaining shares will begin a new holding period and have a zero basis.

 

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Stock Appreciation Rights . Generally, a participant who is granted a stock appreciation right under the 2018 Plan will not recognize any taxable income at the time of the grant. The participant will recognize ordinary income upon exercise equal to the amount of cash or the fair market value of the shares received on the day they are received.

In general, there are no federal income tax deductions allowed to CenturyLink upon the grant of stock appreciation rights. Upon the exercise of the stock appreciation right, however, we will be entitled to a deduction equal to the amount of ordinary income that the participant is required to recognize as a result of the exercise, provided that the deduction is not otherwise disallowed under Section 162(m).

Restricted Stock . Unless the participant makes an election to accelerate recognition of the income to the date of grant under Section 83(b) of the Code (as described below), the participant will not recognize income, and we will not be allowed a tax deduction, at the time the restricted stock award is granted. When the restrictions lapse, the participant will recognize ordinary income equal to the fair market value of the shares as of that date, and we will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Section 162(m). If the participant files an election under Section 83(b) of the Code within 30 days of the date of grant of restricted stock, the participant will recognize ordinary income as of the date of the grant equal to the fair market value of the shares as of that date, and we will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Section 162(m). Any future appreciation in the shares will be taxable to the participant at capital gains rates. If the shares are later forfeited, however, the participant will not be able to recover the tax previously paid pursuant to a Section 83(b) election.

Restricted Stock Units . A participant will not be deemed to have received taxable income upon the grant of restricted stock units. The participant will be deemed to have received taxable ordinary income at such time as shares are distributed with respect to the restricted stock units in an amount equal to the fair market value of the shares distributed to the participant. Upon the distribution of shares to a participant with respect to restricted stock units, we will ordinarily be entitled to a deduction for federal income tax purposes in an amount equal to the taxable ordinary income of the participant, subject to any applicable limitations under Section 162(m). The basis of the shares received will equal the amount of taxable ordinary income recognized by the participant upon receipt of such shares.

Other Stock-Based Awards . Generally, a participant who is granted an Other Stock-Based Award under the 2018 Plan will recognize ordinary income at the time the cash or Common Shares associated with the award are received. If shares are received, the ordinary income will be equal to the excess of the fair market value of the shares received over any amount paid by the participant in exchange for the shares.

In the year that the participant recognizes ordinary taxable income in respect of such Incentive, we will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the participant is required to recognize, provided that the deduction is not otherwise disallowed under Section 162(m).

Section  162(m) . Section 162(m) of the Code limits the amount of compensation paid to certain covered employees that we may deduct for federal income tax purposes to $1 million per employee per year. As revised by federal tax reform legislation passed in December 2017, Section 162(m)’s definition of “covered employees” includes any individual who served as our CEO or CFO at any time during the taxable year plus the three other most highly-compensated officers (other than the CEO and CFO) for the taxable year. Once an individual becomes a covered employee for any taxable year beginning after December 31, 2016, that individual will remain a covered employee for all future years, including after termination of employment or even death. As a result, compensation payable to a covered employee under the 2018 Plan that might otherwise be deductible may not be deductible if all compensation paid to the employee for the taxable year exceeds $1 million.

 

 

26

Section  409A of the Code . If any Incentive constitutes non-qualified deferred compensation under Section 409A, it will be necessary that the Incentive be structured to comply with Section 409A to avoid the imposition of additional tax, penalties, and interest on the participant.

Tax Consequences of a Change of Control . If, upon a change of control of CenturyLink, the exercisability, vesting, or payout of an Incentive is accelerated, any excess on the date of the change of control of the fair market value of the shares or cash issued under accelerated Incentives over the purchase price of such shares, if any, may be characterized as “parachute payments” (within the meaning of Section 280G of the Code) if the sum of such amounts and any other such contingent payments received by the employee exceeds an amount equal to three times the “base amount” for such employee. The base amount generally is the average of the annual compensation of the employee for the five years preceding such change in ownership or control. An “excess parachute payment,” with respect to any employee, is the excess of the parachute payments to such person, in the aggregate, over and above such person’s base amount. If the amounts received by an employee upon a change of control are characterized as parachute payments, the employee will be subject to a 20% excise tax on the excess parachute payment and we will be denied any deduction with respect to such excess parachute payment.

The foregoing discussion summarizes the federal income tax consequences of Incentives that may be granted under the 2018 Plan based on current provisions of the Code, which are subject to change. This summary does not cover any foreign, state, or local tax consequences.

Vote Required

Approval of the 2018 Plan requires the affirmative vote of the holders of at least a majority of the votes cast on the proposal.

The Board recommends that you vote FOR this proposal.

Equity Compensation Plan Information

The following table provides information as of December 31, 2017 about our equity compensation plans under which Common Shares are authorized for issuance.

 

Plan Category		Number of securities to be issued upon exercise of outstanding options and rights (a)				Weighted- average exercise price of outstanding options and rights (b) (1)				Number of securities remaining available for future issuance under plans (excluding securities reflected in column (a)) (c) (2)
Equity Compensation Plans approved by shareholders			1,550,824				36.35				8,565,514
Equity Compensation Plans not approved by shareholders			12,403,513				27.37				35,005,062
Totals			13,954,337				27.41				43,570,576

 

(1)	The outstanding awards in column (a) include both options and restricted stock units. As restricted stock units do not have an exercise price, those awards were excluded from the calculation of the exercise prices disclosed in this column (b).

(2)

The shares available for issuance disclosed in this column relate to our two current equity plans: (i) the 2011 Plan (included under “Equity Compensation Plans approved by shareholders”) and (ii) the Legacy Level 3 Plan, which was approved by Level 3, but not CenturyLink, shareholders (and thus is included under “Equity Compensation Plans not approved by shareholders”). A description of the Legacy Level 3 Plan follows this chart. If our shareholders approve the 2018 Plan at the meeting, no additional shares will be issued in the future from either of the 2011 Plan or the Legacy Level 3 Plan.

 

 

 

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In connection with the Level 3 Combination, we assumed the Legacy Level 3 Plan. The Legacy Level 3 Plan was approved by Level 3’s shareholders on May 21, 2015 and no new grants may be made under the Legacy Level 3 Plan after May 21, 2025, although awards made prior to that date may remain outstanding beyond that date. In accordance with NYSE rules, we will not make grants from the Legacy Level 3 Plan to those employees and directors who, prior to the Level 3 Combination, were employed by or provided services to CenturyLink or our then-existing subsidiaries. The Legacy Level 3 Plan is currently administered by our Compensation Committee, which may delegate some of its authority to officers and employees of the Company, subject to certain exceptions. As noted in the table above, after adjustment as provided in the merger agreement, a total of 35,005,062 Common Shares remained available for issuance under the Legacy Level 3 Plan at December 31, 2017 (out of an overall total of 48,677,624 shares reserved for issuance). Currently under the Legacy Level 3 Plan, the Committee may make awards of qualified or nonqualified stock options with a maximum term of 10 years, restricted stock, RSUs, SARs, performance awards, and Other Stock-Based Awards. Shares surrendered in payment of the exercise price of options or SARs or in payment of withholding taxes are not eligible for reissuance under the Legacy Level 3 Plan. Our Board amended the Legacy Level 3 Plan as of the Closing Date to, among other things, reflect these merger-adjusted share limitations and conform the administration and change of control provisions to those of our other outstanding equity incentive plans.

As noted above, if shareholders approve the 2018 Plan as proposed, we will make no future issuances under either of our two equity incentive plans (the 2011 Plan or the Legacy Level 3 Plan).

 

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ADVISORY VOTE ON EXECUTIVE COMPENSATION

(Item 4 on Proxy or Voting Instruction Card)

Each year since 2011 we have provided our shareholders the opportunity to vote on a non-binding, advisory resolution to approve the compensation of our named executive officers as disclosed in our annual proxy statements pursuant to the rules of the SEC.

Under our executive compensation programs, our named executive officers are rewarded for achieving specific annual and long-term goals, as well as increased shareholder value. We believe this structure aligns executive pay with our financial performance and the creation of sustainable shareholder value. The Compensation Committee of our Board continually reviews our executive compensation programs to ensure they achieve the goals of aligning our compensation with both current market practices and your interests as shareholders. For additional information on our executive compensation, we urge you to read the “Compensation Discussion and Analysis” and “Executive Compensation” sections of this proxy statement.

At the meeting, we will ask you to vote, in an advisory manner, to approve the overall compensation of our named executive officers, as described in this proxy statement, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosures. This proposal, commonly known as a “say-on-pay” proposal, gives you the opportunity to express your views. This advisory vote is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers and our executive compensation policies and practices as described in this proxy statement. Accordingly, your vote will not directly affect or otherwise limit any existing compensation or award arrangement of any of our named executive officers.

While this “say-on-pay” vote is advisory and will not be binding on our Company or the Board, it will provide valuable information for future use by our Compensation Committee regarding shareholder sentiment about our executive compensation. We understand that executive compensation is an important matter for our shareholders. Accordingly, we invite shareholders who wish to communicate with our Board on executive compensation or any other matters to contact us as provided under “Corporate Governance — Top Leadership Positions and Structure.”

Approval of this proposal will require the affirmative vote of the holders of at least a majority of the votes cast on the proposal at the meeting.

The Board recommends that you vote FOR the overall compensation of our named executive officers as described in this proxy statement.

SHAREHOLDER PROPOSALS

(Items 5(a) and 5(b) on Proxy or Voting Instruction Card)

We periodically receive suggestions from our shareholders, some as formal shareholder proposals. We give careful consideration to all suggestions, and assess whether they promote the best long-term interests of CenturyLink and its shareholders.

We expect Items 5(a) and 5(b) to be presented by shareholders at the meeting. Following SEC rules, we are reprinting the proposals and supporting statements as they were submitted to us, other than minor formatting changes. We take no responsibility for them. On request to the Secretary at the address listed under “Other Matters — Annual Financial Report,” we will provide information about the sponsor’s shareholdings. Adoption of both of these proposals requires the affirmative vote of the holders of at least a majority of the votes cast on the proposal at the meeting.

 

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The Board recommends that you vote AGAINST Items 5(a) and 5(b) for the reasons we give after each one below.

Lobbying Proposal (Item (5(a))

The following proposal was submitted by the AFL-CIO Reserve Fund, located at 816 16th Street, NW, Washington D.C., 20006.

“Whereas, we believe in full disclosure of CenturyLink direct and indirect lobbying activities and expenditures to assess whether CenturyLink’s lobbying is consistent with its expressed goals and in the best interests of shareholders.

Resolved, the shareholders of CenturyLink request the preparation of a report, updated annually, disclosing:

 

1.

Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.

2.

Payments by CenturyLink used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient.

3.

CenturyLink’s membership in and payments to any tax-exempt organization that writes and endorses model legislation.

4.

Description of management’s decision making process and the Board’s oversight for making payments described in section 2 above.

For purposes of this proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which CenturyLink is a member.

Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels.

The report shall be presented to the Audit Committee or other relevant oversight committees and posted on CenturyLink’s website.

Supporting Statement

We encourage transparency and accountability in the use of corporate funds to influence legislation and regulation. CenturyLink spent over $20 million from 2010 — 2016 on federal lobbying. This figure does not include lobbying expenditures to influence legislation in states, where CenturyLink also lobbies in 38 states (“Amid Federal Gridlock, Lobbying Rises in the States,” Center for Public Integrity , February 11, 2016), but disclosure is uneven or absent. For example, CenturyLink spent $729,286 on lobbying in Minnesota from 2011 — 2016. CenturyLink’s lobbying over customer privacy has attracted media scrutiny (“Telecom Lobbying Muscle Kills Privacy Rules,” Associated Press , April 17, 2017).

CenturyLink is a member of USTelecom, which spent $9.38 million on lobbying in 2015 and 2016. CenturyLink does not comprehensively disclose its memberships in trade associations nor the amounts of its payments used for lobbying, and CenturyLink does not disclose membership in or contributions to tax-exempt organizations that write and endorse model legislation, such as its membership in the American Legislative Exchange Council (ALEC). Transparent reporting would reveal whether company assets are being used for objectives contrary to CenturyLink’s long-term interests.

We are concerned that our company’s lack of trade association and ALEC disclosure presents reputational risks. For example, CenturyLink’s ALEC membership has drawn press scrutiny (“Telecom Sleaze: ALEC and Its Communication’s Funders — AT&T, Verizon, CenturyLink, Comcast and Time Warner Cable,” Huffington Post , May 2, 2015), and over 100 companies have publicly left ALEC, including 3M, Google, Shell, Sprint and T-Mobile.”

 

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The Board recommends that you vote AGAINST this proposal for the following reasons:

We believe our continued success and long-term profitability are substantially dependent upon our ability to actively engage in political, legislative and regulatory processes to advocate in favor of laws and policies that are in the best interests of our company, shareholders and customers. The proponent’s proposal this year is substantially similar to the proposal it submitted last year, which received less than 30% support of the shares voted at last year’s annual meeting.

For the reasons discussed further below, we continue to believe that we currently disclose a substantial amount of information on our lobbying activities and that the preparation and publication of the report contemplated by this proposal is neither necessary nor an efficient use of our resources.

 

•

Information regarding our participation in the political process is set forth in our semi-annual Political Contributions Reports (the “Semi-Annual Reports”), which are available for review on our website. Our Semi-Annual Reports outline the core principles governing our political participation.

 

•

In addition to furnishing our Semi-Annual Reports, we file substantial amounts of information about our lobbying activity under federal, state and local laws. At the federal level, we file quarterly reports under the Lobbying Disclosure Act disclosing our lobbying expenditures and detailing the entities we lobbied and the subject matter of our lobbying efforts. This includes quarterly reporting to the Federal Election Commission regarding our employee political action committee. Any lobbying firms hired by us file similar reports, and trade associations to which we contribute are separately subject to strict public disclosure requirements regarding their lobbying activities. We and our in-house and external lobbyists also file reports disclosing political contributions and related payments. Furthermore, we file all lobbying reports required by state laws, which in some cases have broader disclosure requirements than federal law. Shareholders can access this information through websites maintained by the U.S. House of Representatives, the U.S. Senate, the Federal Election Commission, and various state governmental bodies, or through various commercial websites that aggregate similar data.

 

•

Our policies and procedures governing lobbying and political activities are subject to rigorous internal controls designed to ensure, among other things, that our applicable disclosures are full and complete. As noted in our Semi-Annual Reports, our Senior Vice President, Public Policy and Government Relations, together with senior management, the Board, and various public policy and legal personnel, oversees and manages our corporate political activities in an effort to attain our public policy objectives and comply with all applicable laws. We have a policy of not contributing to “Super PACs”.

 

•

We believe we significantly benefit by participating in a number of industry and trade associations, which provide us with access to valuable industry data and expertise. These groups are independent organizations that represent the diverse interests of their members, and deal with a wide range of issues. These organizations frequently make expenditures or take action contrary to our preferences, often without our knowledge. As such, we do not believe that our membership in these organizations should be viewed as an endorsement of any particular organization or policy. Disclosure of the information contemplated by the proposal could be used to unfairly suggest that we support every position taken by organizations to which we contribute. For these reasons, we do not believe that additional disclosures regarding our contributions to such organizations would be helpful to shareholders.

 

•

We expend significant resources in connection with our political and lobbying activities. We believe the information that we currently furnish in our Semi-Annual Reports and file with state and federal agencies strikes an appropriate balance between transparency and avoiding excessive burden and cost. We believe that requiring us to gather and disclose additional information would result in an unproductive consumption of valuable time and corporate resources by tracking insignificant activities without materially enhancing existing disclosures.

 

•

We also oppose the proposal because many of its aspects are vague or unworkable, and may create confusion. We believe the proposal’s definition of lobbying and lobbying expenditures are ambiguous

 

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and could, depending on the jurisdiction, include items such as office rent, business travel expenses, and even employee salaries. As a result, the disclosures required by the proposal could be inconsistent and confusing, because a particular expenditure might be lobbying-related in one jurisdiction, but not in another.

 

•

The proposal seeks to impose unnecessary line-item disclosures on lobbying expenditures that are not required by law and are not standard among other companies, including our competitors. Complying with the requirements of this proposal could put us at a relative disadvantage to our competitors. Any new requirements should be addressed by lawmakers and uniformly imposed on all entities.

 

•

Finally, you should be aware that the proponent’s Supporting Statement cites figures that we cannot verify and an article that appears to apply to companies other than us.

The Board is confident that the Company’s current lobbying activities are effective and fully aligned with the shareholders’ long-term interests. For the reasons set forth above, the Board believes that this proposal is overly burdensome, would result in an unproductive use of our resources, and is not in the best interests of our shareholders.

Billing Practices Proposal (Item 5(b))

The following proposal was submitted by Thomas P. Swiler, located at 3709 Embudito Drive NE, Albuquerque, New Mexico 87111.

“Whereas: Customers have a right to know how much the services they buy, including taxes, will cost them, and according to CenturyLink’s Code of Conduct, “We must truthfully market, promote, advertise and sell our products. This is consistent with our commitment to act honestly in all business affairs. All descriptions of our products, services, and prices must be truthful and accurate.”

Resolved: Shareholders request that CenturyLink ensure adherence to this principle by providing customers an itemized list, including taxes, of charges, credits, expected monthly costs, the value and duration of limited time promotions, and commitment period associated with any service change within seven days of their decision to change the service. Shareholders further request that customers shall be given the option to delay the service change until they have approved the costs by dialing a unique code listed on the itemized list, or, if an immediate service charge is desired, be able to revert to their previous service within seven days of receiving the itemized list. This procedure will ensure that customers receive what they expect, which will improve customer satisfaction and retention, and will ultimately benefit the company and its shareholders.

Supporting Statement:

You are urged to vote “Yes” for this proposal for the following reasons;

As a CenturyLink customer, I have experienced instances in which the monthly cost, after initial charges and credits, that appeared on my bill after making a service change was not the monthly cost promised, and it becomes contingent on me to correct the problem, if it can be fixed at all, wasting my time and causing me frustration. While this mode of operation may provide short-term benefits to the company and employees who may receive bonuses by locking customers into a limited term commitment as a price higher than anticipated, it does so at a long-term expense to the company and shareholders due to the dwindling customer base that results when dissatisfied customers choose different telecommunications options. By providing customers with written acknowledgement of agreed upon services and pricing, there can be no misrepresentation or misunderstanding of the agreed to terms. Customer satisfaction will increase, and more customers will be retained.”

The Board recommends that you vote AGAINST this proposal for the following reasons:

Our Board agrees that customer satisfaction and retention are crucial to the Company’s success, and spends considerable time with management attempting to improve our customers’ experience. As described in greater

 

32

detail below, our Board believes that the steps proposed by the proponent are unnecessary and unworkable because:

 

•

Our Board has focused on customer satisfaction for many years and has overseen the implementation of a wide range of actions designed to improve our customers’ experience; and

 

•

Our recent and continuing changes will advance the goal of improved customer satisfaction more effectively than the proponent’s proposal.

Actions Taken to Improve Customer Experience . We have long recognized the need for strong customer relations. In recent years we have worked to reduce the complexity of our product offerings and bills, which we believe were largely an outgrowth of sweeping changes in the communications and technology industries, among other factors. With extensive involvement of the Board, we augmented these efforts during the last half of 2017 with a comprehensive review of our policies, procedures and practices relating to consumer sales, service and billing.

As a result of these efforts, over the past couple of years we have, among other things:

 

•

created a new executive leadership team responsible for our customer advocacy group, which we believe has significantly enhanced and improved the timely flow of customer information to our most senior leaders;

 

•

enhanced our ability to detect customer issues through improved data analytics capabilities;

 

•

simplified our product offerings and bill presentations, including improving our bill estimation and quoting tools, expanding our use of service confirmation letters and taking other steps designed to reduce billing fluctuations and uncertainties;

 

•

revised our customer call intake and training functions to reduce the risk of conflicting or potentially confusing messages; and

 

•

conditioned payment of a portion of our senior management’s annual compensation upon attaining targeted improvements in customer care.

In the near term, we plan to further improve our customer processes through, among other things, enhancing our ability to gather and analyze all forms of customer feedback and continuing to expand and improve our training programs. Moreover, we plan to continue to canvass our operations in an on-going manner to identify other potential changes we can make to improve customer satisfaction in an evolving marketplace.

Effect of Our Changes . The Board is confident that our above-described recent actions have simplified our products and strengthened our processes. The Board further believes that these changes, coupled with the other changes we plan to implement, will improve the experience of our customers, thereby attaining the goals sought by the proponent.

We do not believe that the additional changes proposed by the proponent are appropriate or workable. Unlike our focus on continuous improvements, the proponent has proposed a static mandate, which we believe could limit our future flexibility to adopt approaches that our management, customer base or regulators subsequently determine to be more effective in serving our customers’ needs. The proponent also seeks information which is already made available to customers. Presently, we generally make our prices and charges available to consumers online, during sales calls, and in correspondence and bills. We also routinely provide confirmation of service letters to customers after the point of sale.

The proposal seeks to have us make a more specific representation about a customer’s initial or later bills, but this information is not always available due to future events that are outside our control, or is not always determinable at or near the time of sale. The proposal would also obligate us to create an expensive and unduly

 

33

complex new infrastructure that we believe many of our customers might find cumbersome, confusing or unsatisfactory. We believe the proponent’s proposal would also require us to craft a proliferating number of software applications and additional steps for the activation of service, thereby hindering our efforts over the past couple of years to simplify our customer care and billing processes. In addition, the sequencing of installation events suggested by the proponent could create material inconsistencies with our existing order completion systems, as well as our legal and regulatory obligations.

Ultimately, we believe our recent, pending and future changes will more effectively advance the goal of customer satisfaction than the proponent’s proposal.

For the reasons set forth above, the Board believes that the concerns raised by this proposal have been addressed and that the proposal is unnecessary, unworkable and not in your best interests.

 

34

OWNERSHIP OF OUR SECURITIES

Principal Shareholders

The following table sets forth information regarding ownership of our Common Shares by the persons known to us to have beneficially owned more than 5% of the outstanding Common Shares on December 31, 2017 (the “investors”), unless otherwise noted.

 

Name and Address		Amount and Nature of Beneficial Ownership of Common Shares (1)				Percent of Outstanding Common Shares (1)
Temasek Holdings (Private) Limited 60B Orchard Road #06-18 Tower 2 Singapore 238891			118,164,323	(2)			11.0	%
The Vanguard Group 100 Vanguard Blvd. Malvern, Pennsylvania 19355			101,372,433	(3)			9.5	%
Blackrock, Inc. 55 East 52nd Street New York, New York 10055			72,517,271	(4)			6.8	%
Southeastern Asset Management, Inc. 6410 Poplar Avenue, Suite 900 Memphis, Tennessee 38119			71,486,921	(5)			6.7	%

 

(1)

The figures and percentages in the table above have been determined in accordance with Rule 13d-3 of the SEC based upon information furnished by the investors, except that we have calculated the percentages in the table based on the actual number of Common Shares outstanding on the dates as to which the investors have reported their holdings (as noted in notes 2 through 5), as opposed to the estimated percentages set forth in the reports of such investors referred to below in such notes. In addition to Common Shares, we have outstanding Preferred Shares that vote together with the Common Shares as a single class on all matters. One or more persons beneficially own more than 5% of the Preferred Shares; however, the percentage of total voting power held by such persons is immaterial. For additional information regarding the Preferred Shares, see “General Information About the Annual Meeting — How many votes may I cast?”

(2)

Based on information contained in a Schedule 13D/A Report dated as of April 5, 2018 that this investor filed with the SEC. In this report, the investor indicated that, as of April 5, 2018, it shared with two of its subsidiaries voting power and dispositive power with respect to all of the above-listed shares.

(3)

Based on information contained in a Schedule 13G/A Report dated as of February 7, 2018 that this investor filed with the SEC. In this report, the investor indicated that, as of December 31, 2017, it (i) held sole voting power with respect to 1,353,681 of these shares, (ii) shared voting power with respect to 212,211 of these shares, (iii) held sole dispositive power with respect to 99,828,012 of these shares and (iv) shared dispositive power with respect to 1,544,421 of the above-listed shares.

(4)

Based on information contained in a Schedule 13G/A Report dated as of January 24, 2018 that this investor filed with the SEC. In this report, the investor indicated that, as of December 31, 2017, it held sole voting power with respect to 63,622,438 of these shares and sole dispositive power with respect to all of the above-listed shares.

(5)

Based on information contained in a Schedule 13G/A Report dated as of February 13, 2018 that this investor filed with the SEC. In this report, the investor indicated that, as of December 31, 2017, it (i) shared voting power with respect to 31,864,230 shares, (ii) held sole voting power with respect to 35,194,325 of these shares, (iii) shared dispositive power with respect to 32,889,230 shares and (iv) held sole dispositive power with respect to 38,597,691 of the above-listed shares.

 

 

 

35

Executive Officers and Directors

The following table sets forth information, as of the record date, regarding the beneficial ownership of Common Shares by our executive officers and directors. Except as otherwise noted, all beneficially owned shares are held with sole voting and investment power and are not pledged to third parties.

 

		Components of Total Shares Beneficially Owned
Name		Unrestricted Shares Beneficially Owned (1)				Unvested Restricted Stock (2)				Total Shares Beneficially Owned (3), (4)
Current Executive Officers:
Stacey W. Goff			93,125				393,962				487,087
Aamir Hussain			90,505				470,833				561,338
Sunit S. Patel (5)			682,820				318,616				1,001,436
Glen F. Post, III			1,001,645				1,086,431				2,088,076
Jeffrey K. Storey			1,180,107				542,590				1,722,697
Scott A. Trezise			25,126				234,812				259,938
Outside Directors:
Martha H. Bejar			20,109				5,882				25,991
Virginia Boulet			37,258				5,882				43,140
Peter C. Brown (6)			24,297				5,882				30,179
Kevin P. Chilton			37,562				4,224				41,786
Steven T. Clontz (7)			167,295				4,224				171,519
T. Michael Glenn (8)			71,028				4,224				75,252
W. Bruce Hanks			52,840				5,882				58,722
Mary L. Landrieu			4,859				5,882				10,741
Harvey P. Perry (9)			91,555				5,882				97,437
Michael J. Roberts			34,630				5,882				40,512
Laurie A. Siegel			32,038				5,882				37,920
Former Executive Officer:
R. Stewart Ewing, Jr.			36,010				73,144				109,154
All executive officers and directors as a group (17) persons) (10)			3,646,799				3,106,972				6,753,771

 

(1)

This column includes the following number of shares allocated to the individual’s account under one of our qualified 401(k) plans: 7,175 — Mr. Goff; 186,158 — Mr. Post; 5,081 — Mr. Storey; 9,187 — Mr. Patel and 21,324 — Mr. Ewing. Participants in these plans are entitled to direct the voting of their plan shares, as described in greater detail elsewhere herein.

(2)

Reflects (i) for all shares listed, unvested shares of restricted stock over which the person holds sole voting power but no investment power, and (ii) with respect to our performance-based restricted stock granted to our executive officers, the number of shares that will vest if we attain target levels of performance.

(3)

Excludes (i) shares that might be issued under restricted stock units if our performance exceeds target levels and (ii) “phantom units” held by Mr. Roberts that are payable in cash upon the termination of his service as a director, as described further under “Director Compensation — Other Benefits.”

(4)	None of the persons named in the table beneficially owns more than 1% of the outstanding Common Shares. The shares beneficially owned by all directors and executive officers as a group constituted 0.6% of the outstanding Common Shares as of the record date.

(5)	Includes 1,428 shares indirectly held and beneficially owned by Mr. Patel in an individual retirement account.

(6)	Includes 24,297 shares held by a tax-exempt charitable foundation, as to which Mr. Brown has voting and dispositive powers by virtue of his control of the foundation.

(7)	Includes 40,000 shares held by Mr. Clontz’s wife and 500 shares held by his son as to which Mr. Clontz disclaims beneficial ownership.

 

36

(8)	Includes 32,143 shares held indirectly by Mr. Glenn in a trust.

(9)	Includes 709 shares beneficially held by Mr. Perry’s spouse, as to which Mr. Perry disclaims beneficial ownership, and 35,987 shares held by Mr. Perry through our dividend reinvestment plan (as of the most recent date practicable).

(10)

As described further in the notes above, includes (i) 1,428 shares held through an individual retirement account, (ii) 24,297 shares held beneficially through a foundation, (iii) 32,143 shares held indirectly by a trust, (iv) 40,709 shares held beneficially by spouses of these individuals and 500 shares owned by the son of one of these individuals, in each case as to which beneficial ownership is disclaimed, and (v) 35,987 shares held through our dividend reinvestment plan (as of the most recent date practicable), excluding 2,384 shares held through such plan by one of our executive officers who no longer participates in such plan.

 

 

 

37

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

Fiscal 2017 was a transformational year in our company’s history. Our combination with Level 3 (the “Level 3 Combination”) was completed on November 1, 2017 (the “Closing” or “Closing Date”), creating the second largest domestic communications provider serving global enterprise customers, with enhanced capabilities to meet the demands of our customers in an increasingly competitive environment. Below are highlights of the combined company’s profile:

*	Excluding revenue related to our divested colocation business and including estimated intercompany eliminations and purchase accounting adjustments.

Given the dramatic increase in the Company’s scale and geographic footprint and the significant changes to corporate strategy resulting from the Level 3 Combination, our Board and its Human Resources and Compensation Committee (the “Committee”) spent considerable time and effort recalibrating our existing executive compensation program to support the challenges and opportunities inherent in combining the two companies. As described in greater detail below, during the one-year period between the merger announcement in October 2016 and the Closing, the Committee focused on designing an executive compensation program to retain, incentivize and appropriately reward the Company’s senior leadership team throughout the duration of the transaction, from the critical period between announcement and Closing and through post-Closing

 

38

Approx. 450,000 Route Miles of Fiber Globally Approx. 360,000 International Transport Miles International Transport Route Miles are a combination of leased and owned, fiber and optical transport connectivity. 100,000+ On-Net buildings 52,500 Employees Globally More Than 60+ Countries and Counting Proforma Revenue Approx. $24B (Estimated trailing twelve months ending December 31, 2017)*

implementation of the combined company’s strategy. An important component of that process was the implementation of previously-announced succession plans for the chief executive officer (“CEO”) and chief financial officer (“CFO”) positions, including the recruitment and incorporation of two former Level 3 executives into the CenturyLink executive management team who will succeed our long-tenured CFO and CEO.

For 2017, our named executive officers were:

 

•  Glen F. Post, III		Chief Executive Officer
•  Jeffrey K. Storey		President and Chief Operating Officer
•  Sunit S. Patel		Executive Vice President and Chief Financial Officer
•  Aamir Hussain		Executive Vice President and Chief Technology Officer
•  Stacey W. Goff		Executive Vice President, Chief Administrative Officer, General Counsel and Secretary
•  R. Stewart Ewing, Jr.		Former Executive Vice President, Chief Financial Officer and Assistant Secretary

Because the Closing occurred during the fiscal year, our named executive officer group for 2017 consists of both legacy CenturyLink executives (Messrs. Post, Hussain, Goff, and Ewing, our “legacy named executives”) as well as two former Level 3 executives who joined us as CenturyLink executive officers at the Closing (Messrs. Storey and Patel, our “newly named executives”).

This Compensation Discussion and Analysis (the “CD&A”) is organized into four subsections:

 

Subsection				Page
I.		Executive Summary			39
II.		Our Compensation Philosophy and Linkage to Pay for Performance			42
III.		Our Compensation Program Objectives and Components of Pay			48
IV.		Our Policies, Processes and Guidelines Related to Executive Compensation			64

I. Executive Summary

As described further below, the central goals of our executive compensation program are to incentivize our executives to attain objectives that we believe will create shareholder value, to reward performance that contributes to the execution of our business strategies, and to attract and retain the right executives for our business.

2017 Business Highlights . In addition to successfully completing the Level 3 Combination, we achieved several other significant accomplishments during 2017, including the following:

 

•

Paid dividends of nearly $1.5 billion to shareholders.

 

•

Invested in our network to improve transmission speed availability across our broadband service footprint, resulting in the growth of the percent of addressable units receiving service with transmission speeds of 100 megabits per second (Mbps) or higher and 1 gigabit per second (Gbps) or higher by 34% and 24%, respectively. We ended the year with 4.4 million addressable units capable of speeds of 100 Mbps or higher and approximately 1.7 million addressable units capable of 1 Gbps or higher.

 

•

Launched 12 new products and services for enterprise and small business customers (including Level 3 product or service launches), including (i) Cloud Application Manager, (ii) Amazon Chime delivered by CenturyLink, (iii) Managed Enterprise with Cisco Meraki, (iv) Big Data as a Service with Managed Cloudera, (v) Business VoIP for Small Businesses, and (vi) CenturyLink Business Wi-Fi; and released 12 major product enhancements to include increased functionality for Managed SD-WAN and CenturyLink Private Cloud products.

 

39

•

Expanded our post-Level 3 Combination security offerings into new international markets and enhanced our ability to serve customers by integrating various legacy Level 3 and CenturyLink products and services.

 

•

Completed the sale of our data center and colocation business for pre-tax cash proceeds of $1.8 billion and a 10% equity stake in the purchaser consortium’s newly-formed global secure infrastructure company, Cyxtera Technologies.

2017 Executive Compensation Highlights . Throughout 2017, the Committee took steps to (i) attract and appropriately compensate newly-hired executives with skills tailored to the combined company, (ii) retain, reward and adequately incentivize our legacy named executives in connection with their integration efforts before and after the Closing and (iii) begin development of executive compensation programs suitable for the combined company. In the course of these actions, we continued to focus on maintaining a strong linkage between executive pay and our performance and strategic goals and developing executive compensation packages designed to be competitive with our market for executive talent.

Our recent key executive compensation decisions and highlights are summarized below.

 

•

Our executive compensation program for 2017 continued to emphasize variable “at risk” compensation, with the majority of each named executive officer’s total target compensation structured as a combination of short- and long-term performance-driven incentives (which, for our CEO, represented 90% of his total target compensation).

 

•

As in prior years, the Committee set challenging performance targets under our incentive programs to ensure that payouts track corporate performance. In fact, we did not fully achieve our pre-established goals for 2017. Specifically:

 

•

Our short-term incentive bonus payouts for 2017 were 73.0% of targeted amounts for each of our legacy named executives.

 

•

Nearly 75% of the performance-based restricted shares originally granted to our named executives in 2015 were forfeited based upon our actual performance over the three-year performance period ending December 31, 2017.

 

•

Our annual long-term incentive grants to our legacy named executives in February 2017 consisted of a combination of performance-based restricted stock (60% of the target grant value) and time-vested restricted stock (40% of the target grant value).

 

•

During its annual review of executive compensation in February 2017, the Committee generally maintained levels of target total compensation for our legacy named executives substantially similar to levels awarded in prior years, subject to a few modest exceptions necessary to address below-market pay packages.

 

•

We recently converted our long standing supplemental life insurance policies, which currently cover three grandfathered senior executives, to policies with fixed premiums at significantly reduced levels and the Committee approved the resumption of premium payments beginning with 2016 and 2017.

 

•

We announced a CFO succession plan, which was contingent upon the successful completion of the Level 3 Combination. To implement the plan, Mr. Ewing, who served as our CFO prior to the Level 3 Combination, agreed to step down from all executive positions effective with the Closing and then fully retired from all positions with the Company after a short transition period. Mr. Patel, who had served as CFO for Level 3 prior to the Level 3 Combination, was appointed to succeed Mr. Ewing as CFO effective upon the Closing.

 

•

In June 2017, the Company announced a CEO succession plan, which initially envisioned Mr. Post, our current CEO, stepping down from that role effective January 1, 2019. In March 2018, Mr. Post elected to accelerate the plan by retiring at the meeting. We anticipate that Mr. Storey, who most recently

 

40

served as Level 3’s President and CEO and was appointed as our President and Chief Operating Officer effective upon the completion of the Level 3 Combination, will succeed Mr. Post as CEO at that time.

 

•

Throughout mid-2017, the Committee or its chair approved or reviewed offer letters to Messrs. Storey and Patel and certain other Level 3 officers selected to join our post-combination senior leadership team upon the Closing.

 

•

Our newly named executives participated in a discretionary bonus program for the two months of 2017 in which they served as CenturyLink officers, and each earned a payout of 100% of his targeted amount, pro-rated for the two-month period of service (following which they will participate in our short-term incentive program).

 

•

Additionally, in anticipation of the Level 3 Combination, the Committee reviewed market compensation data for each individual expected to serve as an executive officer of the combined company following the Closing. In June, the Committee approved compensation adjustments for a select group of legacy executives contingent and effective upon the Closing. These changes were based on market data that compared executive pay to a new peer group for the combined company. See further discussion under the heading “— Use of ‘Benchmarking’ Data — Compensation Benchmarking” in Subsection IV below.

 

•

In order to attract, retain and incentivize our executives before and after the Level 3 Combination, the Committee granted a combination of integration and retention awards to our legacy executives. The details of these actions are discussed under the heading “— Awards Related to Level 3 Combination” in Subsection III below.

 

•

Effective upon the Closing, Messrs. Storey and Patel officially joined us as executive officers and received certain special cash and equity awards as provided in their previously-disclosed offer letters, which are described under the heading “— Awards Related to Level 3 Combination” in Subsection III below.

 

•

After 34 years of service to the Company, Mr. Ewing agreed to step down from all executive positions effective with the Closing in order to implement the above-discussed CFO succession plan agreed to by the Company and Level 3 as a component of the Level 3 Combination. As discussed above, Mr. Patel succeeded Mr. Ewing as CFO effective upon the Closing, and after a short transition period, Mr. Ewing fully retired from employment with the Company. The Committee approved additional compensation from contractually obligated amounts, which are described under the heading “— Compensation Paid to our Former Executive” in Subsection III below, following their consideration of a range of factors, including Mr. Ewing’s contributions to the growth of CenturyLink over his long tenure and the critical role he played in negotiating, financing and implementing the Level 3 Combination.

Assessment of “Say on Pay” Voting Results and Shareholder Outreach

In May 2015, 2016 and 2017, our shareholders cast approximately 95%, 89% and 87% respectively, of their votes in favor of our “say on pay” proposal. The Committee takes the results of these votes into consideration when making executive compensation decisions. Although this level of support seems to indicate that our shareholders are generally satisfied with the scope and structure of our compensation programs, our senior management continued our shareholder outreach program with our top institutional investors that began in 2014. Most recently, in May 2017, we contacted our top institutional investors, holding approximately 20% of our outstanding shares, and offered shareholder outreach calls. We remain committed to providing our shareholders with an opportunity for open dialogue on compensation matters and other issues relevant to our business, and expect to continue to engage in outreach efforts in the future.

 

41

II. Our Compensation Philosophy and Linkage to Pay for Performance

Our Compensation Philosophy

We compensate our senior management through a mix of programs designed to be market-competitive and fiscally responsible. More specifically, our executive compensation programs are designed to:

 

•

provide an appropriate mix of fixed and variable compensation to attract, retain and motivate key executives,

 

•

ensure that a majority of our executive compensation is performance-based to support creation of long-term shareholder value without encouraging excessive risk taking,

 

•

target compensation at the 50 th percentile of market levels , when targeted levels of performance are achieved, for similarly-situated and comparably-skilled executives at a select group of peer companies approved by the Committee,

 

•

recognize and reward outstanding contributions and results, both on an individual basis and a company or divisional basis, compared to peer compensation and performance benchmark levels,

 

•

promote internal equity by offering comparable pay to executives whom we expect to make roughly equivalent contributions, while differentiating executives’ compensation arrangements when appropriate, and

 

•

monitor share dilution .

 

42

Overview of Pay Elements and Linkage to Compensation Philosophy and Objectives

We believe the following core elements of our compensation program help us to realize our compensation philosophy and objectives:

 

Pay Element		Characteristics		Compensation Philosophy and Objectives
Base Salary		Annual fixed cash compensation		Provides a competitive and stable component of income to our executives
Short-Term Incentive Bonus		Annual variable cash compensation based on the achievement of annual performance measures. For 2017, 85% of these payments were based on financial targets, comprised of operating cash flow and core revenue , with 15% based on customer experience improvements . For each executive, the Committee has an opportunity to make a positive or negative adjustment based on the executive’s performance against individual objectives		Provides competitive short-term incentive opportunities for our executives to earn annual cash bonuses based on performance objectives that, if attained, can reasonably be expected to (i) promote our business and strategic objectives and (ii) correspond to those paid to similarly-situated and comparably skilled executives at peer companies
Performance-Based Restricted Stock (60% of long-term incentive grant value)		Annual long-term variable equity awards that cliff vest three years from the date of grant based on our performance as measured against specific pre-established performance criteria. For grants made in 2017, vesting of 50% of the award will be based on our relative three-year total shareholder return (“TSR”) versus our custom industry peer group and vesting of the other 50% will be based on a three-year revenue target		Fosters a culture of ownership, aligns the long-term interests of our executives with our shareholders and rewards or penalizes executives based on our long-term relative TSR and absolute revenue performance
Time-vested Restricted Stock (40% of long-term incentive grant value)		Annual long-term equity awards that vest based on years of service		Provides variable compensation that helps to retain executives and ensures our executives’ interests are aligned with those of shareholders to promote the creation of long-term value

The Committee believes our incentive programs supported our strategic and cultural priorities for 2017 as described below:

 

•

Our senior officers’ 2017 pay was linked to similar performance objectives for both our short-term and long-term incentive compensation, as we determined revenue stabilization to be an important goal requiring successful execution of both our short-term and our long-term strategies.

 

•

We determined that our generation of core revenue has been critical to our goal of stabilizing and ultimately increasing our consolidated revenues with a view to attain strategic revenue growth sufficient to offset our continuing legacy revenue losses. Core revenue was a performance measure in both our short-term incentive bonus and performance-based restricted shares, representing 27% to 29% of our executive officers’ 2017 target total compensation.

 

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•

Total shareholder return relative to our peers was one of the performance measures used in our performance-based restricted shares, representing 18% to 21% of our executive officers’ 2017 target total compensation. This compensation will ultimately be realized only if we successfully execute our strategic plans and perform satisfactorily in relation to our industry peers.

 

•

Operating cash flow enables us to, among other things, (i) fund strategic capital investments designed to expand our business opportunities, (ii) return cash to our shareholders through dividends or periodic share repurchases, and (iii) meet our debt and pension commitments. Operating cash flow is a performance measure in our short-term incentive bonus, representing 8% to 9% of our executive officers’ 2017 target total compensation.

 

•

Improving customer experience is critical to maintain and grow our revenue base. This performance measure includes operational goals and metrics that measure how well we are serving our customers as well as their perceptions of our service. CenturyLink is committed to meeting the needs of all our customers, improving customer satisfaction and service scores, reducing customer inconveniences and decreasing repair times. Customer experience is a performance measure in our short-term incentive bonus, representing 3% of our executive officers’ 2017 target total compensation.

 

•

The individual performance objectives provide “line of sight” to each senior officer’s performance regarding their specific areas of responsibility. In addition, this aspect of the short-term incentive plan design reinforces leadership behaviors promoting our Unifying Principles and expectations of our broader workforce. We believe that successfully executing on clearly-defined individual performance objectives will help us improve team collaboration, expand our product lines, refine our market strategies, strengthen our network, execute expansion opportunities, reduce costs and otherwise improve our operations.

Given the on-going integration of the two companies, the Committee has continued to revise our incentive programs to align them with the size, market, operations and strategic imperatives of the combined company.

The following chart illustrates the approximate allocation of our CEO and our current other named executive officers (“NEOs”) total target compensation opportunity for 2017 between elements that are fixed and variable or performance-based pay that is “at risk”:

 

 

•

A fixed annual salary (“base”) represents 10% of our CEO’s total target compensation and 15% of our other NEOs’ average target total compensation.

 

•

Variable pay is comprised of a short-term incentive (“STI”) bonus, time-vested restricted stock awards (“RSA”) and performance-based restricted stock awards (“PSA”), which represents 90% of our CEO’s total target compensation and 85% of our other NEOs’ average target total compensation. This portion of pay is considered “at risk” since the receipt or value of the award is subject to the attainment of certain performance goals, vesting requirements and overall stock performance.

 

44

Significant Stock Ownership . Stock ownership guidelines further align executives and shareholders while focusing the executives on our long-term success. We established our executive stock ownership guidelines after review of executive compensation best practices. Under our stock ownership guidelines as of December 31, 2017:

 

•

Mr. Post held over $30.1 million in stock (including restricted shares), which was 24.1 times base salary and approximately 4.0 times greater than his target ownership level of six times base salary.

 

•

Our other NEOs held an aggregate of over $74.1 million in stock (including restricted shares), which was, on average, 18.6 times their respective base salaries and nearly 6.2 times greater than their respective target ownership level of three times base salary.

 

•

Although our Stock Ownership guidelines provide that newly-appointed executives have three years to meet ownership guidelines, each of Messrs. Storey and Patel already has holdings in excess of his current target level (three times base salary).

 

•

Even though our CEO and other NEOs already exceeded their stock ownership guidelines, our named executives personally acquired an additional 121,000 shares of stock after Closing, which demonstrates their confidence in the potential for the combined company.

Pay-For-Performance Alignment

As illustrated by the data below, we believe our compensation over the past several years has remained in alignment with our performance.

Short-Term Incentive Performance . The Committee sets target levels of performance based on a variety of factors, including its assessment of the difficulty of achieving such levels and the potential impact of such achievement on enhancing shareholder value. The percentages in the table below represent the actual payouts to our senior officers under our short-term incentive program (our “STI program”) for each of the past three years as a percentage of the target opportunity set for him or her by the Committee for that performance year.

 

Performance Year		Actual Payout as a % of Target Opportunity
2015			77.6	%
2016			80.2	%
2017			73.0	% (1)
3-year Average			76.9	%

 

(1)	Does not include the short-term incentive payouts earned by Messrs. Storey or Patel for the two-month period following the Closing, which were paid out at 100% of target, pro-rated for partial year service, under a separate discretionary plan.

Long-Term Incentive Performance . For several years, our annual long-term incentive grants (our “LTI program”) have consisted of shares of restricted stock, vesting of a portion of which is contingent upon the Company’s performance as measured against certain pre-established criteria. In recent years, we have used two different performance metrics with these LTI grants, with vesting of one-half of the performance-based award being tied to a relative metric (our three-year total shareholder return relative to a select peer group), and vesting of the remaining one-half being tied to an absolute metric (the sum of our annual revenue targets over three-year performance periods as measured against pre-established targets). Since 2014, the Committee has awarded 60% of the aggregate grant date value of the executives’ LTI awards in the form of performance-based restricted stock, up from 50% in prior years.

 

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The percentages in the tables below represent the percentage of the target value of the executives’ LTI awards granted in the form of performance-based restricted stock and time-vested restricted stock, including the portion based upon relative TSR and absolute revenue performance objectives.

 

Grant Years (1)		% of Total Fair Value Awarded in Time-Vested Restricted Shares				% of Total Fair Value Awarded in TSR Performance- Based Restricted Shares (2)				% of Total Fair Value Awarded in Absolute  Revenue Performance-Based Restricted Shares
2013			50	%			25	%			25	%
2014 — 2017			40	%			30	%			30	%

 

(1)	The performance period for each year grant is three years beginning on January 1 of the respective grant year.

(2)	As noted in the table and commentary below and “— Use of ‘Benchmarking’ Data — Compensation Benchmarking” in Subsection IV below, the applicable TSR peer group has been a self-constructed peer group since 2013.

As described in greater detail in “— Long-Term Equity Incentive Compensation” under Subsection III below, in order to further align our pay with performance, our performance-based restricted shares are granted at target performance levels, but the ultimate payout of those awards can range between 0% to 200%, depending on our actual performance as determined at the end of the three-year performance period.

The payout percentages in the tables below represent the percentage of the target number of performance-based restricted stock granted to our senior officers that ultimately vested, with all remaining shares being forfeited. To further enhance the pay for performance linkage, any dividends granted on these shares are not paid currently, but rather accumulate during the restricted period and vest or are forfeited in tandem with the related shares.

Actual Payouts of TSR Performance-Based Restricted Stock

 

Grant Year		Performance Period				Peer Group				CTL TSR				Percentile Rank								Actual Payout %
2013			2013 — 2015				TSR Peer Group				-19.47	%			16	th							0	%
2014			2014 — 2016				TSR Peer Group				-5.34	%			25	th							50	%
2015			2015 — 2017				TSR Peer Group				-47.17	%			13	th							0	%
3-year average																							16.7	%

Actual Payouts of Absolute Revenue Performance-Based Restricted Stock

 

Grant Year		Performance Period				Performance Goal (1)				Absolute Revenue Target				Company’s Performance								Actual Payout %
2013			2013 — 2015				Sum of Core Revenue Targets over Three-Year Performance Period			$	49.125 million				99.5	%							92.6	%
2014			2014 — 2016				Sum of Core Revenue Targets over Three-Year Performance Period			$	48.525 million				99.2	%							89.1	%
2015			2015 — 2017				Sum of Core Revenue Targets over Three-Year Performance Period			$	47.145 million				98.3	%							76.2	%
3-year average																							86.0	%

 

(1)	For additional information, see “— Annual Grants of Long-Term Incentive Compensation” below.

 

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Stock Performance . As mentioned throughout this section, our LTI program is designed to align the interests of the executives with our shareholders and therefore reward and incent superior performance. Since these awards are grants of restricted stock, the actual value of LTI awards (both time-vested and performance-based shares of restricted stock) fluctuates with the change in stock price. In making LTI grants, our Committee typically approves a target LTI value and the actual number of shares in each grant is determined by dividing that target value by the volume-weighted average closing price of a share of our common stock over the 15-trading-day period ending five trading days prior to the grant date (“VWAP”), rounding to the nearest whole share. The chart below reflects the VWAP used to calculate each of our 2015, 2016, and 2017 LTI grants, the closing share price on any vesting dates that have occurred for each grant between the applicable grant date and the end of fiscal 2017, and the change in value of a share of our common stock from the grant date VWAP to the last trading day of fiscal 2017.

Stock performance through December 31, 2017

 

Grant Date		Grant Date Value of a Share (VWAP) (1)								Closing Share Price on First Vesting Date (2)				Closing Share Price on Second Vesting Date (2)				Closing Share Price on 12/29/17 (3)								Closing Share Price on 12/29/17 as a percentage of Grant Date Value (4)
02/23/15		$	38.74							$	29.25			$	24.71			$	16.68								-57	%
02/23/16		$	26.09							$	24.71				—			$	16.68								-36	%
02/21/17		$	25.12								—				—			$	16.68								-34	%

 

(1)

As noted above, we determine the number of shares in a given grant of restricted stock by dividing the LTI target value by the applicable VWAP (the volume-weighted average closing price of our shares of common stock over a 15-trading day period ending five trading days prior to the grant date), and rounding to the nearest share. This valuation method is different from the equity grant valuation method we are required to disclose in our Summary Compensation Table under applicable accounting and SEC disclosure rules.

(2)	The vesting dates for the first two tranches of the February 2015 LTI grants have already occurred, as has the vesting date for the first tranche of the February 2016 LTI grants. This column represents the closing stock price on each of vesting dates, if applicable.

(3)	Represents the closing price on the last trading day of fiscal 2017.

(4)	Represents the stock performance (based on the change in value, but disregarding dividends) of the 2015, 2016 and 2017 LTI grants from grant date through the end of fiscal 2017, determined by dividing the $16.68 closing price on the last day of trading in 2017 by the grant date VWAP.

Realizable Pay for our CEO . The chart below illustrates the realizable pay for 2015, 2016 and 2017 for our CEO, most of which was “at risk” variable compensation. We calculate realizable pay for a given year by adding together the (i) actual salary paid during the year, (ii) STI bonus that was ultimately paid out for performance during that year, (iii) the value of RSAs and PSAs that vested during the year and (iv) the value of RSAs and PSAs that are projected to vest based on actual performance through the end of the year, valuing the shares based on the closing price of our common stock on the last business day of the year.

 

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As this chart illustrates, our CEO’s realizable pay has averaged 55% over the last 3 years, specifically 49%, 57% and 58% of his total target compensation for years 2015, 2016 and 2017, respectively. The realizable pay for each pay element of pay that impacted our CEO’s realizable pay is discussed further above in this Subsection under the headings “— Short-Term Incentive Performance,” “— Long-Term Incentive Performance” and “Stock Performance.”

 

III. Our Compensation Program Objectives and Components of Pay

Our Compensation Practices

To assist us in achieving our broad compensation goals, we apply the following practices (many of which are described further elsewhere in this CD&A):

What We Do…

 

 

•

Focus on performance-based compensation weighted heavily towards long-term incentive awards

 

•

Benchmark against 50 th percentile peer compensation levels

 

•

Maintain robust stock ownership guidelines applicable to our executive officers and outside directors

 

•

Annually review our compensation programs to avoid encouraging excessively risky behavior

 

•

Conduct annual “say-on-pay” votes

 

•

Periodically seek input from shareholders on our executive compensation program

 

•

Maintain a compensation “clawback” policy

 

•

Impose compensation forfeiture covenants broader than those mandated by law

 

•

Review the composition of our peer groups at least annually

 

•

Conduct independent and intensive performance reviews of our senior officers

 

•

Cap the number of relative TSR performance-based shares that may vest if our own TSR is negative

 

•

Review realizable pay of our senior officers and total compensation “tally” sheets

 

•

Require shareholders to approve any future severance agreements valued at more than 2.99 times the executive’s target cash compensation

 

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2015-2017 Realizable Pay 2015 Target Comp 2015 Realizable Pay 2016 Target Comp 2016 Realizable Pay 2017 Target Comp 2017 Realizable Pay Base Salary STI TBRS PBRS: Core Revenue PBRS: TSR Cash: Integration Award PBRS: Integration Award

What We Don’t Do…

 

 

•

Enter into employment agreements with our executives

 

•

Maintain a supplemental executive retirement plan

 

•

Permit our directors or employees to hedge our stock , or our directors or senior officers to pledge our stock

 

•

Pay dividends on unvested restricted stock

 

•

Permit the Committee’s compensation consultant to provide other services to CenturyLink

 

•

Pay, provide or permit:

 

(i)

excessive perquisites ,

 

(ii)

excise tax “gross-up” payments , or

 

(iii)

single-trigger change of control equity acceleration benefits.

Summary of 2017 Compensation for our Named Executive Officers

Two of the core principles of our compensation philosophy are to offer (i) competitive compensation to our named executive officers at the 50th percentile of market levels and (ii) an appropriate mix of fixed and variable compensation.

During 2017, the Committee assessed the adequacy of our executive compensation both before and after the Closing, using pre- and post-combination benchmarking data, and took the following actions:

 

•

Pre-Combination. In February 2017, in connection with its annual review of total target compensation of our legacy named executives, the Committee determined that the average total target compensation was approximately 9% below the 50th percentile of market levels for pre-combination compensation benchmark data. As a result, the Committee approved certain changes to the compensation, as described further below, which resulted in average total target compensation that was approximately 6% below the 50th percentile of market levels for pre-combination compensation benchmark data.

 

•

Post-Combination. As disclosed previously, the Committee, in preparation for the Closing, conducted a supplemental benchmarking assessment of executive pay for each individual who was expected to continue or join the Company as a senior officer following the Closing. Since the Committee was considering compensation that would be contingent and effective upon the completion of the Level 3 Combination, the Committee approved a new peer group for use in benchmarking compensation. As described in greater detail under “— Use of ‘Benchmarking’ Data — Compensation Benchmarking” in Subsection IV below, the revised peer group is more comparable to the combined company in terms of size, markets and operations.

 

•

The Committee used that assessment in creating competitive pay packages to induce each of Messrs. Storey and Patel, our newly named executives, to join our executive management team upon the Closing.

 

•

In addition, the Committee determined that average total target compensation for Messrs. Post, Hussain and Goff, even after the adjustments made during the February 2017 annual review process, was approximately 40% below the 50th percentile of market levels derived from the new post-combination compensation benchmark data. Therefore, the Committee decided to make certain additional changes to the compensation of Messrs. Hussain and Goff, with such changes contingent and effective upon the Closing. The Committee did not make any changes to Messrs. Post and Ewing’s on-going compensation arrangements, given their pending retirement.

 

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•

As a result of these actions and decisions, the average total target compensation, immediately after the Closing, for Messrs. Post, Patel, Hussain, Goff and Storey was approximately 25% below the 50th percentile of market levels for post-combination compensation benchmark data.

Each element of our 2017 compensation is discussed further below in this Subsection under the headings “— Salary,” “— Short-Term Incentive Bonuses,” “— Annual Grants of Long-Term Equity Incentive Compensation” and “— Awards Related to Level 3 Combination.” In each case, more information on how we determined specific pay levels is located in Subsection IV under the headings “— Our Compensation Decision-Making Process” and “— Use of ‘Benchmarking’ Data — Compensation Benchmarking.” Compensation paid to Mr. Ewing, whose employment ended on November 17, 2017, is discussed further below in this Subsection under the heading “— Compensation Paid to our Former Executive Officer.”

Salary

General . Early each year, the Committee takes a number of steps in connection with setting annual salaries, including reviewing compensation tally sheets and benchmarking data, reviewing each senior officer’s pay and performance relative to other senior officers, and considering when the officer last received a pay increase. More information on how we determined specific pay levels in 2017, see further discussion under the heading “— Our Compensation Decision-Making Process” and “— Use of ‘Benchmarking’ Data — Compensation Benchmarking” in Subsection IV below.

Annual Review Process (February 2017) . In February 2017, the Committee reviewed pre-combination compensation benchmarking data for all executive officers and awarded a salary increase of 10% for Mr. Hussain in recognition of his performance and market position, and left unchanged the salary for our other named executive officers.

Salary Adjustments Effective upon Closing (November 1, 2017) . After its annual review process, the Committee conducted an additional compensation benchmarking assessment mid-year in anticipation of the Level 3 Combination. The Committee’s review of this data informed its decisions with respect to initial compensation arrangements for each of the two newly named executives (as memorialized in each officer’s offer letter) and also additional base salary increases for certain legacy named executives, all of which were contingent and effective upon the Closing. Effective upon Closing, Mr. Storey was named President and COO with an annual salary of $1,500,000 and Mr. Patel became our Executive Vice President and CFO with an annual base salary of $750,000. In addition, the base salary of each of Messrs. Hussain and Goff was increased to $600,000 effective on the Closing.

Recent Actions . In February 2018, the Committee reviewed the updated compensation benchmarking data for all executive officers and left unchanged the salary for our named executive officers. See further discussion under the heading “— Use of ‘Benchmarking’ Data — Compensation Benchmarking” in Subsection IV below.

Short-Term Incentive Bonuses

General . With the assistance of its compensation consultant and management, the Committee approves STI bonus target percentages each year. Typically, in the first quarter of each year, with the assistance of management, the Committee approves (i) the performance objectives for prospective bonuses, (ii) the “threshold,” “target” and “maximum” threshold levels of performance, (iii) the weighting of the performance objectives, (iv) the amount of bonus payable if the target level of performance is attained and (v) the finally determined amount of bonus payments attributable to performance for the prior year. During 2017, the Committee took various actions to ensure that appropriate STI award opportunities were granted to (i) legacy named executives under CenturyLink programs covering the periods before and after the Level 3 Combination and (ii) Messrs. Storey and Patel under a legacy Level 3 bonus program for the two months following the Closing in which they served as members of our 2017 senior leadership team.

 

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The table below summarizes the 2017 STI bonus opportunities for our named executive officers.

 

Named Officer		2017 Salary (1)				x				Bonus Target% (2)				=				Target Bonus Opportunity
Current Executives:
Glen F. Post, III		$	1,250,000								175	%						$	2,187,500
Jeffrey K. Storey			248,219								175	%							432,517
Sunit S. Patel			124,521								120	%							147,475
Aamir Hussain			550,699								103.6	%							570,755
Stacey W. Goff			550,662								111.8	%							615,756
Former Executive:
R. Stewart Ewing, Jr.			585,949								110	%							644,544

 

(1)

Salary reflected in this table represents earned salary during 2017 and includes certain adjustments and pro-rations described below. Salary reflected for Mr. Hussain is his salary earned during 2017 with a salary increase, from $500,000 to $550,000, effective on February 26, 2017, and an increase to $600,000 on November 1, 2017. Salary for Mr. Goff represents salary earned during 2017 with a salary increase from $541,000 to $600,000 on November 1, 2017. The salary reflected in this table represents earned salary from November 1 through December 31, 2017 based on an annual salary of $750,000 for Mr. Patel and $1,500,000 for Mr. Storey. Salary reflected for Mr. Ewing is the portion of his annual salary of $663,138 that he earned through his retirement date of November 17, 2017.

(2)

Represents target bonus percentages effective for 2017. For Messrs. Hussain and Goff, the target bonus percentage represents a blended target percentage, as each received an increase in their target bonus percentage to 120% on November 1, 2017 from 100% and 110% respectively. For Messrs. Storey and Patel, the target bonus percentages were set by the Committee effective November 1, 2017.

Performance Objectives and Targets . Each year, the Committee reviews in detail the relevance of our STI performance objectives for alignment with our business goals and objectives. In March 2017, the Committee reaffirmed its decision from the prior two years to offer STI bonuses for all senior officers based upon our attainment of consolidated operating cash flow and consolidated core revenue targets (collectively “financial performance objectives”). In addition, the Committee added Customer Experience as an additional performance objective for 2017. See the further discussion under the heading “— Overview of Pay Elements and Linkage to Compensation Philosophy and Objectives” in Subsection II above and “— 2017 Performance Results” below.

CenturyLink STI Plan . In March 2017, the Committee approved a target level of 6% of operating cash flow return on average assets for purposes of fixing the maximum amount of potential annual bonuses for 2017 payable to our senior officers in accordance with Section 162(m) of the Internal Revenue Code (the “Code”).

In March 2017, the Committee also approved performance objectives, comprised of threshold, target and maximum financial performance levels for pre-combination operating cash flow and core revenues (weighted 85%) and certain specified operational performance metrics for measuring improvements in customer experience (weighted 15%). Immediately prior to the Level 3 Combination, the Committee approved similar financial performance targets for the combined company’s consolidated revenue and consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the post-combination portion of 2017 (weighted 85% for such period) and reaffirmed that operational performance metrics for customer experience would be weighted 15%. The Committee further determined that actual STI bonuses paid to legacy CenturyLink officers for 2017 would be based on attainment of these pre-combination and post-combination metrics, weighted in accordance with the proportionate length of each period.

If the threshold performance level with respect to any particular financial or operational performance objective under our STI program is not attained, the bonus payable to the participating officer with respect to that portion of his or her targeted bonus opportunity will be calculated to be zero. If threshold performance is met on

 

51

any particular metric, each participating officer will earn a reduced portion of his or her target bonus amount for that portion of the award. If the maximum performance level with respect to any particular metric is met or exceeded, each participating officer will earn 200% of his or her target bonus amount. Measurement of the attainment of any particular metric will be interpolated if actual performance is between (i) the “threshold” and the “target” performance levels or (ii) the “target” and the “maximum” performance levels.

In March 2017, the Committee, in collaboration with our CEO, also approved guidelines designed to enable the Committee, in its discretion, to increase or decrease the bonus of each senior officer by up to 10%, based on the officer’s individual performance during 2017 with respect to (i) assisting the Company to meet its expense budget, (ii) exhibiting collaboration and leadership skills, (iii) attaining three to four specific individualized performance objectives and (iv) the officer’s individual assessment under our management performance rating system.

Legacy Level  3 Discretionary Bonus Program . Given that the Level 3 Combination occurred very late in our fiscal year, the Committee agreed to determine bonuses payable to our newly named executives for the two-month period in which they were employed by CenturyLink using the same discretionary bonus program previously used by Level 3 for its executives. Under this program, the Committee would assess the performance of standalone Level 3 over this two-month period, measured against a variety of financial performance objectives. However, these objectives were not intended as specific targets and the Committee’s determination to pay a bonus under this program was entirely discretionary.

2017 Performance Results . In February 2018, the Committee reviewed audited results of the Company’s performance as compared to the financial performance targets established for 2017. As explained below, the Committee determined that the aggregate earned company performance was 73.0% of the target bonus for legacy named executives and 100% of the target bonus for our newly named executives.

CenturyLink STI Plan

 

•

For the CenturyLink STI program, overall STI performance for the full year was determined by adding together performance results from the two separate performance periods: (i) the ten-month pre-combination period and (ii) the two-month post-combination period. The 2017 bonuses for Messrs. Post, Hussain, Goff and Ewing are based on the pre- and post-combination targets and performance, as described both above and below. Pre-combination targets were set in February 2017 and do not include any financial results for Level 3. Post-combination targets were set immediately prior to the Closing and include financial results for the combined company.

 

•

162(m) Target  —  Operating Cash Flow Return on Average Assets. We attained a 9.4% operating cash flow return on average assets, which exceeded the target level established by the Committee in February 2017 for purposes of fixing the maximum amount of potential annual bonuses for 2017 payable to our senior officers in accordance with Section 162(m) of the Code.

 

•

Core Revenue. We achieved consolidated core revenue results that were below our pre- and post-combination targets, resulting in earned performance of 76.4% and 51.9% of the pre- and post-combination targets, respectively.

 

•

Operating Cash Flow. We achieved consolidated operating cash flow results that were below our pre-combination target, thereby resulting in earned performance of 67.7% of the pre-combination target.

 

•

Adjusted EBITDA . We achieved consolidated adjusted EBITDA results that were below our post-combination target, thereby resulting in 46.8% of the post-combination target.

 

•

Improved Customer Experience. We achieved sustained improvement in provisioning, customer satisfaction and service levels. Additionally, we completed several initiatives that we believe will drive

 

52

improved customer experience in future years. As a result of these accomplishments, we awarded 90% for the customer experience performance objective.

 

•

Individual Performance Objectives. The Committee reviewed with management the degree to which each senior officer met certain specific individual performance objectives and benchmarks, as well as qualitative assessments of each officer’s performance. As noted below under “- Committee Discretion,” the Committee elected not to make individual performance adjustments with impact to any of our legacy named executive officers’ 2017 bonus awards.

Upon completion of each fiscal year, our actual operating results may be adjusted up or down, as appropriate, in accordance with the Committee’s long-standing guidelines that are designed to eliminate the effects of extraordinary or non-recurring transactions that were not known, anticipated or quantifiable on the date the performance goals were established. Consistent with these long-standing guidelines, the Committee made certain adjustments to our actual operating results for 2017, including adjustments to reflect the actual timing of the sale of our data center and colocation business.

Legacy Level 3 Discretionary Bonus Program

For the two-month discretionary bonus program in which our newly named executives participated, when assessing our overall short-term incentive performance, the Committee reviewed post-combination targets and performance for stand-alone Level 3 financial and operational performance objectives.

 

•

Financial Performance Objectives. We achieved consolidated core network services revenue, consolidated adjusted EBITDA and free cash flow that were 99.5%, 96.9% and 108.8% of our post-combination targets, respectively.

Calculation of Bonuses under the CenturyLink STI Plan . For 2017, the STI bonus payments were calculated using the performance objectives, payout scale, and other criteria approved by the Committee in the first quarter of the year and immediately prior to Closing. After our internal audit personnel have reviewed these determinations and calculations, they are provided in writing to the Committee for its review and approval.

The 2017 bonuses paid to our named executives were calculated under a three-step process. In step one, the Committee determined that we had exceeded our Section 162(m) target of operating cash flow return on average assets and, therefore, each of our legacy named executives qualified for potential annual bonuses up to a fixed maximum amount defined as a percentage of the executive’s 2017 salary. In step two, the Committee calculated bonuses by measuring the company’s performance against the financial and operational performance objectives described above under the heading “— 2017 Performance Results.” In step three, the Committee authorized actual bonuses for our legacy named executives, which were substantially lower than the maximum potential bonuses calculated in step one. For 2017 awards, no named executive officer received a discretionary adjustment for individual performance.

Determination of Bonuses for Newly Named Executives . In making its discretionary determination to authorize bonus payments for the last two months of 2017 to Messers. Patel and Storey at 100% of their target bonus opportunity, the Committee took into account Level 3’s financial performance described above under the heading “— 2017 Performance Results”.

 

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Actual Amounts Authorized . The actual amounts of the named executive officers’ 2017 bonuses were calculated as follows:

 

Named Officer		Target Bonus Opportunity (1)				x				Earned Company Performance % (2)				+				Discretionary Adjustment for Individual Performance (3)				=				Bonus (4)
Current Executives:
Glen F. Post, III		$	2,187,500								73	%						$	0							$	1,596,675
Jeffrey K. Storey			432,517								100	%							0								432,517
Sunit S. Patel			147,475								100	%							0								147,475
Aamir Hussain			570,755								73	%							0								416,651
Stacey W. Goff			615,756								73	%							0								449,502
Former Executive:
R. Stewart Ewing, Jr.			644,544								73	%							0								470,517

 

(1)	Determined in the manner reflected in the chart above under the heading “— Short-Term Incentive Bonuses — General.”

(2)	Calculated or determined as discussed above under “— 2017 Performance Results.”

(3)	Determined based on achievement of individual performance objectives as described further above in this Subsection.

(4)

For Messrs. Post, Hussain Goff and Ewing, these bonus amounts are reflected in the Summary Compensation Table appearing below under the column “Non-Equity Incentive Plan Compensation.” For Messrs. Patel and Storey, these bonus amounts are reflected in the Summary Compensation Table appearing below under the column “Bonus.”

 

 

Committee Discretion . As noted above, for the CenturyLink STI Plan, we exceeded our target for our 162(m) objectives which set the maximum 2017 bonuses payable to each of our senior officers. The Committee maintains the discretion, subject to certain limits, to either increase or decrease the bonus amounts determined on the basis of actual performance earned for financial and individual targets and objectives. The actual performance earned on pre- and post-combination targets ranged from 71.5% to 73.7%. For the sake of administrative ease, the Committee elected to apply minimal discretionary adjustments and payout the 2017 annual incentive bonus payments at 73% for each of our legacy named executives.

The Committee may authorize the payment of annual bonuses in cash or shares of common stock. Since 2000, the Committee has paid these bonuses entirely in cash, principally to diversify our compensation mix and to conserve shares in our equity plans.

Recent Actions . Effective January 1, 2018, our newly named executives participate in the CenturyLink STI program with our legacy named executives. In connection with establishing targets for the 2018 STI program, the Committee made no changes to the target bonus percentage for any of our named executives. However, the Committee revised the financial and operational performance objectives used in the 2018 STI program, including the weighting of the various metrics, in order to better align the program with the business strategies and goals of the combined company going forward.

Annual Grants of Long-Term Incentive Compensation

General . Our long-term incentive compensation plans authorize the Committee to grant a variety of stock-based incentive awards to key personnel. We strive to provide equity compensation in forms that create appropriate incentives to optimize performance at reasonable cost, that minimize enterprise risk, that align the interests of our officers and shareholders, that foster our long-term financial and strategic objectives and that are competitive with incentives offered by other companies.

 

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For the last ten years, the Committee has elected to grant all of our LTI awards in the form of restricted stock for a variety of reasons, including:

 

•

the Committee’s recognition of the prevalent use of restricted stock by our peers,

 

•

the Committee’s desire to minimize the dilution associated with our LTI awards, and

 

•

the retentive value of restricted stock under varying market conditions.

Consistent with this practice, in February 2017, the Committee granted 60% of our legacy named executives’ target LTI in the form of performance-based shares of restricted stock, which is ultimately payable only if we attain certain specified goals. The remaining 40% of each legacy named executive’s LTI award was granted in the form of time-vested shares of restricted stock, the value of which is dependent on our performance over an extended vesting period.

Performance Benchmarks . On an annual basis, the Committee reviews the relevance of our performance benchmarks for alignment with our long-term strategic plan. In connection with making annual LTI grants to our legacy named executives in February 2017, the Committee elected to keep the same two performance benchmarks, relative TSR and absolute revenue, that we used for performance-based restricted shares granted in the last few years. See further discussion under the heading “— Overview of Pay Elements and Linkage to Compensation Philosophy and Objectives” in Subsection II above.

An overview of our TSR performance-based restricted shares granted in early 2017 is outlined below.

 

•

Performance Benchmark : Our benchmark is our percentile rank versus the below-described 24-company TSR peer group. See further discussion under the heading “— Use of ‘Benchmarking’ Data — Performance Benchmarking” in Subsection IV below.

 

•

Performance Period : January 1, 2017 through December 31, 2019.

 

•

Performance Vesting : The ultimate number of TSR performance-based restricted shares that vest will be based on our TSR during the above-described performance period relative to the TSR of the TSR peer group over the same period, as illustrated in the table below.

 

Relative Total Shareholder Return
Performance Level		Company’s Percentile Rank				Payout as % of Target Award (1)
Maximum			³  75 th  Percentile				200%
Target			50 th Percentile				100%
Threshold			25 th Percentile				50%
Below Threshold			< 25 th  Percentile				0%

 

(1)	Linear interpolation is used when our relative TSR performance is between the threshold, target and maximum amounts to determine the corresponding percentage of the target award earned.

An overview of our absolute revenue performance-based restricted shares granted in early 2017 is outlined below.

 

•

Performance Benchmark : Our benchmark is an absolute revenue target over the below-described three-year performance period, which is equal to the sum of three annual absolute revenue targets separately established by the Committee during the first quarter of the years 2017, 2018, and 2019. “Absolute revenue” is defined each year in a manner designed to correspond to revenue from our core operations, excluding certain specifically defined non-core revenues, principally those associated with our receipt of governmental subsidy payments.

 

•

Performance Period : January 1, 2017 through December 31, 2019.

 

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•

Performance Vesting : The ultimate number of our absolute revenue performance-based restricted shares that vest will be based on our achievement of the aggregate three-year absolute revenue target, as illustrated in the table below; provided, however, none of our absolute revenue performance-based restricted shares will vest unless we attain a 6% operating cash flow annual return on average assets during the performance period. Upon completion of each fiscal year within the three-year performance period, the Committee intends to adjust our actual operating, to the extent necessary, in accordance with the Committee’s long-standing guidelines that are designed to eliminate the effects of extraordinary or non-recurring transactions that were not known, anticipated or quantifiable on the date the performance goals were established.

 

Absolute Revenue
Performance Level		Company’s Performance (1)				Payout as % of Target Award (2)
Maximum			³  103.5%				200%
Target			100.0%				100%
Threshold			96.5%				50%
Below Threshold			< 96.5%				0%

 

(1)	Determined by dividing (i) the sum of our absolute revenue actually attained for the years 2017, 2018 and 2019 by (ii) the sum of our absolute revenue targets separately established for each of the years 2017, 2018 and 2019.

(2)	Linear interpolation is used when our absolute revenue performance is between the threshold, target and maximum amounts to determine the corresponding percentage of target award earned.

For additional information on the above-described grants, see “Executive Compensation — Incentive Compensation and Other Awards.”

2017 Annual LTI Grants . Following its deliberations in February 2017, the Committee formally approved an increase in target annual LTI compensation for Mr. Hussain to $1,600,000. This increase was primarily the result of the Committee’s recognition of Mr. Hussain’s overall leadership and performance demonstrated in 2016, but also reflected the Committee’s review of compensation benchmarking. See further discussion under the heading “— Use of ‘Benchmarking’ Data — Performance Benchmarking” in Subsection IV below. During 2017, the Committee granted annual LTI awards to our other legacy named executives on terms and in amounts substantially similar to the awards granted to them in 2016.

 

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In February 2017, the Committee granted to each of our legacy named executives the following number of (i) restricted shares that will vest over a three-year period principally in exchange for continued service (“time-vested restricted shares”), (ii) performance-based restricted shares that will vest in February 2020 based on our relative total shareholder return (the “TSR performance-based restricted shares”) and (iii) performance-based restricted shares that will vest in February 2020 principally based on our attainment of absolute revenue targets over the above-described three-year performance period (the “absolute revenue performance-based restricted shares”):

2017 Annual LTI Grants (Excluding Special Grants)

 

										Performance-Based Restricted Shares
Named Officer		Time-vested Restricted Shares								No. of TSR Performance- Based Restricted Shares (2)				No. of Absolute Revenue Performance- Based Restricted Shares (2)				Fair Value (1)				Total Fair Value (1)
		No. of Shares				Fair Value (1)
Current Executives:
Glen F. Post, III			135,361			$	3,400,000				101,521				101,522			$	5,100,000			$	8,500,000
Aamir Hussain			25,480				640,000				19,110				19,110				960,000				1,600,000
Stacey W. Goff			20,065				504,000				15,049				15,049				756,000				1,260,000
Former Executive:
R. Stewart Ewing, Jr.			24,842				624,000				18,632				18,633				936,000				1,560,000

 

(1)

For purposes of these grants, we determined both the number of time-vested and performance-based restricted shares by dividing the total fair value granted to the executive by the volume-weighted average closing price of a share of our common stock over the 15-trading-day period ending five trading days prior to the grant date (“VWAP”), rounding to the nearest whole share. However, as noted previously, for purposes of reporting these awards in the Summary Compensation Table, our shares of time-vested restricted stock are valued based on the closing price of our common stock on the date of grant and our shares of performance-based restricted stock are valued as of the grant date based on probable outcomes, as required by applicable accounting and SEC disclosure rules. See footnote 2 to the Summary Compensation Table for more information.

(2)	Represents the number of restricted shares granted in 2017. As discussed further above, the actual number of shares that vest in the future may be lower or higher, depending on the level of performance achieved.

 

 

Recent Actions . At its February 2018 meeting, the Committee granted LTI awards to our senior officers with a similar mix of 60% performance-based and 40% time-vested restricted stock awards. However, the performance measure and performance period were changed to an adjusted EBITDA run rate for a two-year period that will vest over three years. For each of our named executives, other than Mr. Storey, the Committee elected to grant equity awards at levels based on the compensation benchmarking conducted in the summer of 2017 for the post-transaction combined company. Mr. Storey did not receive an award in February 2018, as his employment offer letter provides that he is not eligible to receive another LTI grant until February 2019 (at which time his target LTI value will be no less than $8,375,000). See further discussion under the heading “—Use of ‘Benchmarking’ Data — Compensation Benchmarking” in Subsection IV below.

In connection with the announcement of Mr. Post’s decision to retire at the meeting, the Committee authorized (i) the vesting upon retirement of half of Mr. Post’s 2018 time-vested restricted shares, (ii) Mr. Post’s retention of half of his 2018 performance-based restricted shares subject to their original performance conditions and (iii) the vesting upon retirement of the equity portion of Mr. Post’s 2017 special integration award at a 100% payout rate. The Committee also authorized Mr. Post to receive full vesting of all time-vested restricted shares

 

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granted to him before 2018 and to retain, subject to their original performance conditions, all performance-based restricted shares granted to him before 2018.

Awards Related to Level 3 Combination

Special Awards to Legacy Named Executives . Given the recruitment, retention and motivational challenges inherent in undertaking a transaction as complicated as the Level 3 Combination, in June of 2017, the Committee, with the assistance of its compensation consultant and management, approved an integration and retention award program in which our legacy named executives participated. The details of these awards are outlined below.

Integration Awards . These integration awards were intended to incentivize the performance of certain key officers through the Closing and the critical integration period following the Closing. Messrs. Post, Hussain and Goff were selected to participate.

The target value of the integration award to each of these officers was as follows: Mr. Post, $3,000,000; Mr. Hussain, $600,000 and Mr. Goff, $550,000. The target value of each integration award was split into two equally-weighted components: 50% in the form of cash and 50% in the form of shares of performance-based restricted stock.

The cash portion of this award was scheduled to vest on the Closing Date, with the actual payout to the officer ranging between 80% and 120% of the target value depending upon the Committee’s subjective determination of the officer’s integration-related performance. Immediately prior to the Closing, the Committee assessed the integration-related performance of each of Messrs. Post, Hussain, and Goff through the Closing, and decided to award each a payout on that cash portion at the 100% target value. The cash amounts paid at the Closing are included in the Summary Compensation under the heading “Bonus” in the following amounts: Mr. Post, $1,500,000; Mr. Hussain, $300,000 and Mr. Goff, $275,000.

With respect to the equity portion of the award, it will vest on December 15, 2018 subject to the officer’s continued service to the Company through the vesting date and the actual number of shares vesting will range between 80% and 120% of the number of shares granted, depending on the Committee’s subjective determination of the officer’s integration-related performance between the Closing and the vesting date. The equity portion of this integration award is reported in the Summary Compensation Table under the column “Stock Awards” and in the Grant of Plan-Based Awards Table.

Retention Awards . These retention awards were intended to assist the Company in retaining certain key executives whose services the Committee believed would be essential to successfully completing the Level 3 Combination and integrating the operations of the two companies. Messrs. Hussain and Goff were selected to participate. The retention awards consist of time-vested shares of restricted stock, with a grant date value of $4,500,000 for both Messrs. Hussain and Goff. The awards will vest one-third per year over a three-year period, subject to the executive’s continued service with the Company.

Mr. Hussain was selected to participate because he is a highly sought-after leader in the technology and network services market and the Committee determined that his leadership would be critical to the Company achieving its integration and synergy goals. Similarly, the Committee determined that Mr. Goff’s assistance was critical to successfully attaining the regulatory approvals necessary to complete the Level 3 Combination and to successfully integrating the legal and regulatory affairs of the Company post-Closing. These retention awards are reported in the Summary Compensation Table under the column “Stock Awards” and also in the Grant of Plan-Based Awards Table.

CenturyLink Signing Awards to Newly Named Executives . Both of our newly named executives received certain cash and equity awards as inducements to join our senior leadership team following the Closing.

 

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With respect to Mr. Storey, his offer letter entitled him to receive the following special awards:

 

•

A cash signing bonus of $6,600,000, payable in cash in two equal installments, with the first installment paid to him shortly following the Closing and the second installment to be paid on November 1, 2018. The first installment ($3,300,000) is reported under the “Bonus” column of the Summary Compensation Table and we expect that the second installment will be reported in the Summary Compensation Table of next year’s proxy statement.

 

•

An initial LTI grant valued at $10,469,000 at the Closing. This initial equity grant consisted of 60% performance-based shares of restricted stock and 40% time-vested shares of restricted stock. Both the time- and performance-based portions of this grant will vest on February 1, 2019 subject to Mr. Storey’s continued employment through that date, but the payout on the performance-based shares will range between 0% to 200% of the targeted amount, depending upon our performance as measured against an adjusted EBITDA run rate goal. The Committee deferred finalizing the terms and conditions of the performance-based portion of this award until February 2018, primarily in order to align the performance metric used in Mr. Storey’s award with the performance metric used in the 2018 performance-based restricted shares awarded at such time in the ordinary course to our executives (other than Mr. Storey), which are described further above under “— Annual Grants of Long -Term Incentive Compensation — Recent Actions.” Consequently, Mr. Storey’s performance-based shares are not reported as compensation in this year’s Summary Compensation Table or the other tables that accompany it, but will be reported as 2018 compensation in next year’s proxy statement.

In addition, the Committee approved an acceleration of the vesting of Mr. Storey’s outstanding restricted stock unit (“RSU”) awards that were previously granted by Level 3 and converted to CenturyLink restricted stock units in the Level 3 Combination effective as of the Closing, except for 50% of the RSUs that had been granted to him by Level 3 in 2017, which will vest as originally scheduled. Although the vesting of some of his RSUs were accelerated, each will settle and pay out in shares of common stock in accordance with its original payment schedule.

With respect to Mr. Patel, his offer letter entitled him to receive the following special awards:

 

•

A cash signing bonus of $1,300,000, which was paid to him shortly after the Closing. This amount is reported under the “Bonus” column of the Summary Compensation Table.

 

•

Two special LTI grants in the form of shares of restricted stock:

 

•

The first special LTI grant was valued at $1,500,000 and will vest on November 1, 2020, assuming continuous employment through such date, with a payout range of between 0 to 200% of the grant’s target value based on the level of achievement of two equally-weighted performance criteria (attaining an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) run rate goal, and a subjective evaluation of Mr. Patel’s performance by the Committee). As with Mr. Storey’s above-described special award, the Committee finalized the terms and conditions of the performance-based portion of Mr. Patel’s award in February 2018. As with Mr. Storey’s award, Mr. Patel’s performance-based shares are not reported as compensation in this year’s Summary Compensation Table or the other tables accompanying it, but will be reported as 2018 compensation in next year’s proxy statement.

 

•

The second special LTI grant was a time-vested restricted stock grant with a grant date value of $1,300,000, which will vest on November 1, 2018, provided that Mr. Patel remains employed with us on that date. This second LTI grant is reported in the Summary Compensation Table under the column “Stock Awards” and also in the Grant of Plan-Based Awards Table.

In addition, the Committee approved the acceleration of vesting of Mr. Patel’s outstanding RSU awards that were previously granted by Level 3 and converted to CenturyLink RSUs in the Level 3 Combination effective as of the Closing, except with respect to the RSUs granted to him by Level 3 in 2017, which will continue to vest on

 

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their original terms and conditions. In addition, all RSUs that were granted to him before 2017 were cancelled and converted to a deferred cash award based on the per-share closing price of our common stock on the date of Closing, which will be paid to Mr. Patel in cash on the same schedule that the now-cancelled awards would have otherwise settled and paid out in shares.

Assumption of Level  3 Integration Awards with Continued Service Requirements . Prior to the Closing, Level 3 also implemented certain retention programs in order to address its own transaction-related incentive and retention concerns. The majority of these awards were paid out by Level 3 upon Closing. However, at the Closing, we assumed the remaining portion of those awards for which any portion remained contingent on continued service. Each of Messrs. Storey and Patel holds such an award. Specifically, provided the executive continues to provide services to us through November 1, 2018, Mr. Storey is entitled to a cash payments totaling $2,542,000 and Mr. Patel is entitled to cash payments totaling $1,429,000. Assuming the executive meets his continued service requirement, this amount will be reported for him in the “Bonus” column of Summary Compensation Table in our proxy statement for next year.

The number of time- and performance-based shares that were granted to our named executives in connection with the Level 3 Combination are summarized in the “2017 Acquisition-Related Stock Awards” table below.

2017 Acquisition-Related Stock Awards

 

										Performance-Based Restricted Shares
Named Officer		Time-vested Restricted Shares								No. of EBITDA Performance- Based Restricted Shares (1) (2)				No. of Integration Performance- Based Restricted Shares (1)				Fair Value (1)				Total Fair Value (1)
		No. of Shares (1)				Fair Value (1)
Glen F. Post, III			—			$	—				—				62,640			$	1,500,000			$	1,500,000
Jeffrey K. Storey			217,036				4,187,600				325,554				—				6,281,400				10,469,000
Sunit S. Patel			67,377				1,300,000				77,742				—				1,500,000				2,800,000
Aamir Hussain			187,920				4,500,000				—				12,528				300,000				4,800,000
Stacey W. Goff			187,920				4,500,000				—				11,484				275,000				4,775,000

 

(1)

For purposes of these grants, we determined both the number of time-vested and performance-based restricted shares by dividing the total fair value granted to the executive by the volume-weighted average closing price of our Common Shares over a 15-trading day period ending five trading days prior to the grant date. In the Summary Compensation Table, however, our 2017 grants of time-vested restricted stock are valued based on the closing stock price of our Common Shares on the day of grant and our 2017 grants of performance-based restricted shares are valued as of the grant date based on probable outcomes, in each case in accordance with mandated SEC disclosure rules. See footnote 2 to the Summary Compensation Table for more information.

(2)

As described under “— CenturyLink Signing Awards to Newly Named Executives”, the terms and conditions for these awards were set in February 2018. As such, in accordance with FASB ASB Topic 718 and mandated SEC disclosure rules, these awards are not reported in the Summary Compensation Table or the tables accompanying it.

 

 

Compensation Paid to our Former Executive

As noted previously, the CFO succession plan was negotiated in conjunction with the Level 3 Combination and Mr. Ewing, who served as our Executive Vice President and Chief Financial Officer prior to the Level 3 Combination, agreed to step down from all executive positions at the Closing. After a short transition period, Mr. Ewing fully retired from the Company on November 17, 2017.

 

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