Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

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  Preliminary Proxy Statement
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  Definitive Proxy Statement
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AT&T Inc.

 

(Name of Registrant as Specified In Its Charter)

 

          

 

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Table of Contents

LOGO

Notice of At & T inc. 2019 Annual Meeting Of Stockholders and Proxy Statement.


Table of Contents

T O O UR S TOCKHOLDERS

 

LOGO  

Letter from the Chairman,

CEO and President

Dear Stockholders:

It’s a pleasure to invite you to our 2019 Annual Meeting of Stockholders. I hope you can join us on Friday, April 26, 2019, at 9:00 a.m., at the Moody Performance Hall, 2520 Flora Street, Dallas, Texas 75201.

At this year’s meeting, we will discuss our strategy to become a modern media company and deliver on our mission to inspire human progress through the power of communication and entertainment.

You’ll hear about how we’re executing on that strategy by building on the solid performance of our communications business, standing up a revolutionary advertising business and continuing to create great entertainment. Most important, we’ll discuss our plans to grow free cash flow and pay down our debt – all while continuing to invest in growth and maintain a solid, steady dividend for you, our owners.

In recent years, you have seen us transform our company in big and dramatic ways. But one thing has not – and will not – change. That’s our goal of delivering strong results for you and sustainable, long-term growth and success for AT&T. On behalf of the Board and our management team, thank you for your continued support.

Sincerely,

Randall Stephenson

LOGO

 

  Letter from the Lead Director

Dear Stockholders:

In my second term as your company’s Independent Lead Director, I want you to know how proud I am to reaffirm AT&T’s lasting commitment to thoughtful and effective governance.

The Board’s role is to keep our company focused on the long-term and protect the interests of our stockholders. We take a disciplined, hands-on approach to discharging that duty – questioning assumptions, offering alternative points of view and assessing every decision through the lens of building stockholder value.

We have worked hard to recruit and maintain a Board with deep experience and varied backgrounds. In a rapidly evolving marketplace, that diversity of perspectives is crucial to our success in serving our customers and creating value for you.

I hope to see you at our 2019 Annual Meeting. Until then, please accept the gratitude of our entire Board for your enduring confidence in AT&T.

Sincerely,

Matthew Rose

 


Table of Contents

LOGO

 

AT&T Inc.

One AT&T Plaza

Whitacre Tower

208 S. Akard Street

Dallas, TX 75202

NOTICE OF 2019 ANNUAL MEETING

OF STOCKHOLDERS AND PROXY STATEMENT

 

To the holders of Common Stock of AT&T Inc.:

The 2019 Annual Meeting of Stockholders of AT&T Inc. will be held as follows:

 

When:   

9:00 a.m. local time, Friday, April 26, 2019

Where:   

Moody Performance Hall

2520 Flora Street

Dallas, Texas 75201

The purpose of the annual meeting is to consider and take action on the following:

 

1.

Election of Directors

 

2.

Ratification of Ernst & Young LLP as independent auditors

 

3.

Advisory approval of executive compensation

 

4.

Any other business that may properly come before the meeting, including a stockholder proposal

Holders of AT&T Inc. common stock of record at the close of business on February 27, 2019, are entitled to vote at the meeting and any adjournment of the meeting. Please sign, date, and return your proxy card or submit your proxy and/or voting instructions by telephone or through the Internet promptly so that a quorum may be represented at the meeting. Any person giving a proxy has the power to revoke it at any time, and stockholders who are present at the meeting may withdraw their proxies and vote in person.

By Order of the Board of Directors.

 

LOGO

Stacey Maris

Senior Vice President – Assistant General Counsel

and Secretary

March 11, 2019

 

Y OUR V OTE IS I MPORTANT

 

 

 

 

 

Please sign, date and return your proxy card or submit your proxy and/or voting instructions by telephone or through the Internet promptly so that a quorum may be represented at the meeting. Any person giving a proxy has the power to revoke it at any time, and stockholders who are present at the meeting may withdraw their proxies and vote in person.

 

 

 

A TTENDING THE M EETING

 

 

 

 

 

If you plan to attend the meeting in person, please bring the admission ticket (attached to the proxy card or the Notice of Internet Availability of Proxy Materials) to the Annual Meeting. If you do not have an admission ticket or if you hold your shares in the name of a bank, broker, or other institution, you may obtain admission to the meeting by presenting proof of your ownership of AT&T stock.

 

 

 

 

 

 

 

Important Notice

Regarding the

Availability of Proxy Materials

for the Stockholder Meeting

To Be Held on April 26, 2019:

 

The proxy statement and

annual report to security holders

are available at

www.edocumentview.com/att

 

 

 

 

 

 

 

 

 

LOGO   i


Table of Contents

GUIDE TO AT&T’S PROXY STATEMENT

 

 

 G ENERAL

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of AT&T Inc. ( AT&T , the Company , or we ) for use at the 2019 Annual Meeting of Stockholders of AT&T. The meeting will be held at 9:00 a.m. local time on Friday, April 26, 2019, at the Moody Performance Hall, 2520 Flora Street, Dallas, Texas 75201.

The purposes of the meeting are set forth in the Notice of Annual Meeting of Stockholders (see page i). This Proxy Statement and form of proxy are being sent or made available beginning March 11, 2019, to stockholders who were record holders of AT&T’s common stock, $1.00 par value per share, at the close of business on February 27, 2019. These materials are also available at www.edocumentview.com/att. Each share entitles the registered holder to one vote. As of January 31, 2019, there were 7,290,236,907 shares of AT&T common stock outstanding.

To constitute a quorum to conduct business at the meeting, stockholders representing at least 40% of the shares of common stock entitled to vote at the meeting must be present or represented by proxy.

 

TABLE OF CONTENTS    INDEX OF FREQUENTLY ACCESSED INFORMATION
1   PROXY STATEMENT SUMMARY
4   VOTING PROCEDURES
5   VOTING ITEMS
5  

Management Proposal

Item No. 1 - Election of Directors

13  

Management Proposal

Item No. 2 - Ratification of the Appointment of Ernst & Young as Independent Auditors

14  

Management Proposal

Item No. 3 - Advisory Approval of Executive Compensation

15  

Stockholder Proposal

Item No. 4 - Independent Chair

16   CORPORATE GOVERNANCE
17  

Risk Oversight

18  

Board Leadership Structure

19  

Board Composition and Refreshment

21  

Board Committees

26  

Related Person Transactions

26  

Director Compensation

29  

Common Stock Ownership

33   AUDIT COMMITTEE
36   COMPENSATION DISCUSSION AND ANALYSIS
37  

Executive Summary

40  

Role of the Human Resources Committee

44  

2018 Performance

51  

Named Executive Officer Compensation

56  

2018 Long Term Grants

62   EXECUTIVE COMPENSATION TABLES
76   OTHER INFORMATION
79   ANNEX A
77   Attending the Meeting
34   Auditor Fees
58   Benefits and Policies
18   Board Leadership Structure
16   Board Meeting Attendance
78   CEO Pay Ratio
41   Checklist of Compensation Practices
57   Clawback Policy
60   Compensation Consultant
6   Director Biographies
20   Director Independence
60   Equity Retention Policy
60   Hedging Policy
25   How to Contact Your Board
56   Long Term Awards Granted in 2018
40   Pay For Performance
50   Peer Group Comparison for Awards
25   Proxy Access
23   Public Policy Engagement
51   Realized Compensation
26   Related Person Transactions
17   Risk Oversight
30   Stock Ownership of Executives and Directors
60   Stock Ownership Guidelines
76   Voting
 

 

Acronyms Used

 

CAM

  

Career Average Minimum

CCO

  

Chief Compliance Officer

CDP

  

Cash Deferral Plan

CEO

  

Chief Executive Office

CSR

  

Corporate Social Responsibility

DOJ

  

U.S. Department of Justice

EBITDA

   Earnings Before Interest, Taxes, Depreciation, and Amortization

EPS

  

Earnings Per Share

EY

  

Ernst & Young LLP

FCF

  

Free Cash Flow

MCB

  

Management Cash Balance

NEO

  

Named Executive Officer

NYSE

  

New York Stock Exchange

ROIC

  

Return on Invested Capital

RSU

  

Restricted Stock Unit

SEC

  

Securities and Exchange Commission

SERP

  

Supplemental Employee Retirement Plan

SRIP

  

Supplemental Retirement Income Plan

SPDP

  

Stock Purchase and Deferral Plan

SRIP

  

Supplemental Retirement Income Plan

TSR

  

Total Stockholder Return

 

 

ii   LOGO


Table of Contents

PROXY STATEMENT SUMMARY

 

 

 

This summary highlights information contained elsewhere in this Proxy Statement. Please read the entire Proxy Statement carefully before voting.

Attending the Annual Meeting of Stockholders

 

If you plan to attend the meeting in person, please bring the admission ticket (attached to the proxy card or the Notice of Internet Availability of Proxy Materials) to the Annual Meeting. If you do not have an admission ticket or if you hold your shares in the name of a bank, broker, or other institution, you may obtain admission to the meeting by presenting proof of your ownership of AT&T stock.

Agenda and Voting Recommendations

 

 

  Item

 

 

Description

 

  

Board Recommendation

 

  

    Page    

 

 

  MANAGEMENT PROPOSALS:

     

 

    1

 

 

 

Election of Directors

 

  

 

FOR  each nominee

 

  

 

5

 

 

    2

 

 

 

Ratification of Ernst & Young LLP as auditors for 2019

 

  

 

FOR

 

  

 

13

 

 

    3

 

 

 

Advisory Approval of Executive Compensation

 

  

 

FOR

 

  

 

14

 

 

  STOCKHOLDER PROPOSAL:

 

         

 

    4

 

 

 

Independent Chair

 

  

 

AGAINST

 

  

 

15

 

Corporate Governance Highlights

We are committed to good corporate governance, which promotes the long-term interests of stockholders, strengthens Board and management accountability, and helps build public trust in the Company. The Corporate Governance section beginning on page 16 describes our governance framework, which includes the following highlights:

 

Independent Lead Director

 

       

Proxy access

 

       

Stockholder right to call

special meetings

         

11 independent

Director nominees

 

    

Independent Audit,

Human Resources, and

Corporate Governance and

Nominating Committees

    

Directors required to

hold shares until they

leave the Board

         

Demonstrated Board

refreshment and diversity

    

Robust Board, Committee, and

Director evaluation process

     Clawback policy
         

Annual election of

Directors by majority vote

 

    

Long-standing commitment

to sustainability

 

    

Regular sessions of

non-management Directors

 

 


 

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Table of Contents

PROXY STATEMENT SUMMARY

 

 

 

Current Directors*

 

Our Directors exhibit an effective mix of skills, experience, diversity, and perspectives

 

LOGO   LOGO   LOGO

 

 

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Senior leadership/Ceo experience global business/ affairs finance/public accounting government/ regulatory industry/ technology investment/private equity

 

 Name

 

  Age

 

 

 

Director

Since

 

  

Principal Occupation

 

 

 Randall L. Stephenson

 

 

 

58

 

 

 

2005

 

  

 

Chairman, CEO, and President, AT&T Inc.

 

 

 Samuel A. Di Piazza, Jr.

 

 

 

68

 

 

 

2015

 

  

 

Retired Global CEO, PricewaterhouseCoopers International Limited

 

 

 Richard W. Fisher

 

 

 

69

 

 

 

2015

 

  

 

Former President and CEO, Federal Reserve Bank of Dallas

 

 

 Scott T. Ford

 

 

 

56

 

 

 

2012

 

  

 

Member and CEO, Westrock Group, LLC

 

 

 Glenn H. Hutchins

 

 

 

63

 

 

 

2014

 

  

 

Chairman, North Island and Co-Founder, Silver Lake

 

 

 William E. Kennard

 

 

 

62

 

 

 

2014

 

  

 

Former United States Ambassador to the European Union and former Chairman of the Federal Communications Commission

 

 

 Michael B. McCallister

 

 

 

66

 

 

 

2013

 

  

 

Retired Chairman and CEO, Humana Inc.

 

 

 Beth E. Mooney

 

 

 

64

 

 

 

2013

 

  

 

Chairman and CEO, KeyCorp

 

 

 Joyce M. Roché**

 

 

 

71

 

 

 

1998

 

  

 

Retired President and CEO, Girls Incorporated

 

 

 Matthew K. Rose

 

 

 

59

 

 

 

2010

 

  

 

Chairman and CEO, Burlington Northern Santa Fe, LLC

 

 

 Cynthia B. Taylor

 

 

 

57

 

 

 

2013

 

  

 

President and CEO, Oil States International, Inc.

 

 

 Laura D’Andrea Tyson

 

 

 

71

 

 

 

1999

 

  

 

Distinguished Professor of the Graduate School, Haas School of Business, and Chair of the Blum Center for Developing Economies Board of Trustees at the University of California, Berkeley

 

 

 Geoffrey Y. Yang

 

 

 

60

 

 

 

2016

 

  

 

Founding Partner and Managing Director, Redpoint Ventures

 

* All Directors are independent, except for Mr. Stephenson

** Retiring effective April 26, 2019

 

 

 


 

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Table of Contents

PROXY STATEMENT SUMMARY

 

 

 

Executive Compensation Highlights

2019 Program Enhancement

The Committee has approved the use of Net-Debt-to-Adjusted-EBITDA as a new performance metric with a 20% weighting for determining 2019 short-term incentive awards (payable 2020) for all Executive Officers.

The narrative on pages 40-60 more fully describes how the Committee, with the input of its consultant, has designed and evolved our Executive Officer compensation and benefits program using the Committee’s guiding pay principles as the pillars of the program. We also outline how we establish pay targets and how actual Executive Officer pay is determined. Finally, we provide a description of other benefits.

 

P AY AND P ERFORMANCE AT A G LANCE *

 

 

    

2018 Corporate Short Term Awards

 

Metric   Type of
Metric
  Metric
Weight
  Attainment   Payout%

2018 EPS

  Quantitative   60%   92%   81%

2018 FCF

  Quantitative   30%   98%   98%

Collaboration

  Qualitative   10%   n/a   100%
Weighted Average Payout               88%

 

  *

See performance adjustments beginning on page 45

Long Term Award – Performance Share Component

2016-2018 Performance Period

 

Metric   Metric
Weight
  Attainment   Payout%

3-Year ROIC

  75%   7.56%   101%

3-Year Relative TSR

  25%   Level 6   0%

Weighted Average Payout

          76%
 

 

   What We Do

      

   What We Don’t Do

 

 

Multiple Performance Metrics and Time Horizons: Use multiple performance metrics and multi-year vesting timeframes to discourage unnecessary short-term risk taking.

 

Stock Ownership and Holding Period Requirements: NEOs must comply with stock ownership guidelines and hold 25% of post-2015 stock award distributions until retirement.

 

Dividend Equivalents: Paid at the end of performance period on earned Performance Shares.

 

Annual Compensation-Related Risk Review: Performed annually to confirm that our programs do not encourage excessive risk taking and are not reasonably likely to have a material adverse effect on the Company.

 

Clawback Policy: Provides for the recovery of previously paid executive compensation for any fraudulent or illegal conduct.

 

Severance Policy: Limits payments to 2.99 times salary and target bonus.

 

        

 

No “Single Trigger” Change in Control Provisions: No accelerated vesting of equity awards upon change in control.

 

No Tax Gross-Ups: No excise tax gross-up payments; no other tax gross-ups, except in extenuating circumstances.

 

No Credit for Unvested Shares when determining stock ownership guideline compliance.

 

No Repricing or Buy-Out of underwater stock options.

 

No Hedging or Short Sales of AT&T stock.

 

No Supplemental Executive Retirement Benefits for officers promoted/hired after 2008.

 

No Guaranteed Bonuses: The Company does not guarantee bonus payments.

 

No Excessive Dilution: Our annual equity grants represent less than 1% of the total outstanding Common Stock each year. As of July 31, 2018, our total dilution was 1.4% of outstanding Common Stock.

 

   

    


 

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Table of Contents

VOTING PROCEDURES

 

 

Each share of AT&T common stock represented at the Annual Meeting is entitled to one vote on each matter properly brought before the meeting. All matters, except as provided below, are determined by a majority of the votes cast, unless a greater number is required by law or our Certificate of Incorporation for the action proposed. A majority of votes cast means the number of votes cast “for” a matter exceeds the number of votes cast “against” such matter.

If the proxy is submitted and no voting instructions are given, the person or persons designated on the card will vote the shares for the election of the Board of Directors’ nominees and in accordance with the recommendations of the Board of Directors on the other subjects listed on the proxy card and at their discretion on any other matter that may properly come before the meeting.

The Board of Directors is not aware of any matters that will be presented at the meeting for action on the part of stockholders other than those described in this Proxy Statement.

Election of Directors

In the election of Directors, each Director is elected by the vote of the majority of the votes cast with respect to that Director’s election. Under our Bylaws, if a nominee for Director is not elected and the nominee is an existing Director standing for re-election (or incumbent Director), the Director must promptly tender his or her resignation to the Board, subject to the Board’s acceptance. The Corporate Governance and Nominating Committee will make a recommendation to the Board as to whether to accept or reject the tendered resignation or whether other action should be taken. The Board will act on the tendered resignation, taking into account the Corporate Governance and Nominating Committee’s recommendation, and publicly disclose (by a press release, a filing with the SEC, or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. The Corporate Governance and Nominating Committee in making its recommendation and the Board of Directors in making its decision may each consider any factors or other information that they consider appropriate and relevant. Any Director who tenders his or her resignation as described above will not participate in

the recommendation of the Corporate Governance and Nominating Committee or the decision of the Board of Directors with respect to his or her resignation.

If the number of persons nominated for election as Directors as of ten days before the record date for determining stockholders entitled to notice of or to vote at such meeting shall exceed the number of Directors to be elected, then the Directors shall be elected by a plurality of the votes cast. Because no persons other than the incumbent Directors have been nominated for election at the 2019 Annual Meeting, the majority vote provisions will apply.

Advisory Vote on Executive Compensation

The advisory vote on executive compensation is non-binding, and the preference of the stockholders will be determined by the choice receiving the greatest number of votes.

All Other Matters to be Voted Upon

All other matters at the 2019 Annual Meeting will be determined by a majority of the votes cast.

Abstentions

Except as noted above, shares represented by proxies marked “abstain” with respect to the proposals described on the proxy card and by proxies marked to deny discretionary authority on other matters will not be counted in determining the vote obtained on such matters.

Broker Non-Votes

Under the rules of the NYSE, on certain routine matters, brokers may, at their discretion, vote shares they hold in “street name” on behalf of beneficial owners who have not returned voting instructions to the brokers. On all other matters, brokers are prohibited from voting uninstructed shares. In instances where brokers are prohibited from exercising discretionary authority (so-called broker non-votes ), the shares they hold are not included in the vote totals.

At the 2019 Annual Meeting, brokers will be prohibited from exercising discretionary authority with respect to each of the matters submitted other than the ratification of the auditors. As a result, for each of the matters upon which the brokers are prohibited from voting, the broker non-votes will have no effect on the results.

 

 

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Table of Contents

VOTING ITEMS

 

 

M ANAGEMENT P ROPOSALS

 

Item No. 1 - Election of Directors

 

Under our Bylaws, the Board of Directors has the authority to determine the size of the Board and to fill vacancies. Currently, the Board is comprised of 13 Directors, one of whom is an Executive Officer of AT&T. There are no vacancies on the Board. Under AT&T’s Corporate Governance Guidelines, a Director will not be nominated by the Board for re-election if the Director would be 72 or older at the time of the election.

Joyce M. Roché will retire at the 2019 Annual Meeting and will not stand for re-election. Accordingly, the Board has voted to reduce its size to 12 Directors effective immediately before the meeting.

The Board of Directors has nominated the 12 persons listed below for election as Directors to one-year terms of office that would expire at the 2020 Annual Meeting. Each of the nominees is an incumbent Director of AT&T recommended for re-election by the Corporate Governance and Nominating Committee. In making these nominations, the Board reviewed the background of the nominees (each nominee’s biography can be found beginning on the next page) and determined to nominate each of the current Directors for re-election, other than the retiring Director.

The Board believes that each nominee has valuable individual skills, attributes, and experiences that, taken together, provide us with the variety and depth of knowledge, judgment and vision necessary to provide effective oversight of a large and varied enterprise like AT&T. As indicated in the following biographies, the nominees have significant leadership skills and extensive experience in a variety of fields, including telecommunications, technology, public accounting, health care, education, economics, financial services, law, operations, logistics, government service, public policy, academic research, consulting, and nonprofit organizations, each of which the Board believes provides valuable knowledge about important elements of AT&T’s business. A number of the nominees also have extensive experience in international business and affairs, which the Board believes affords it an important global perspective in its deliberations.

If one or more of the nominees should at the time of the meeting be unavailable or unable to serve as a Director, the shares represented by the proxies will be voted to elect the remaining nominees and any substitute nominee or nominees designated by the Board. The Board knows of no reason why any of the nominees would be unavailable or unable to serve.

 

 

 

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The Board recommends you vote FOR each of the following candidates:

 

 

LOGO       

 

   Name

 

 

Age

 

 

 

Director

Since

 

 

Principal Occupation

 

 

 

Randall L. Stephenson

 

 

 

 

58

 

 

 

 

2005

 

 

 

 

Chairman, CEO, and President, AT&T Inc.

 

 

 

Samuel A. Di Piazza, Jr.

 

 

 

 

68

 

 

 

 

2015

 

 

 

 

Retired Global CEO, PricewaterhouseCoopers International Limited

 

 

 

Richard W. Fisher

 

 

 

 

69

 

 

 

 

2015

 

 

 

 

Former President and CEO, Federal Reserve Bank of Dallas

 

 

 

Scott T. Ford

 

 

 

 

56

 

 

 

 

2012

 

 

 

 

Member and CEO, Westrock Group, LLC

 

 

 

Glenn H. Hutchins

 

 

 

 

63

 

 

 

 

2014

 

 

 

 

Chairman, North Island and Co-Founder, Silver Lake

 

 

 

William E. Kennard

 

 

 

 

62

 

 

 

 

2014

 

 

 

Former United States Ambassador to the European Union and former Chairman of the Federal Communications Commission

 

 

 

 

Michael B. McCallister

 

 

 

 

66

 

 

 

 

2013

 

 

 

 

Retired Chairman and CEO, Humana Inc.

 

 

 

Beth E. Mooney

 

 

 

 

64

 

 

 

 

2013

 

 

 

 

Chairman and CEO, KeyCorp

 

 

 

Matthew K. Rose

 

 

 

 

59

 

 

 

 

2010

 

 

 

 

Chairman and CEO, Burlington Northern Santa Fe, LLC

 

 

 

Cynthia B. Taylor

 

 

 

 

57

 

 

 

 

2013

 

 

 

 

President and CEO, Oil States International, Inc.

 

 

 

Laura D’Andrea Tyson

 

 

 

 

71

 

 

 

 

1999

 

 

 

Distinguished Professor of the Graduate School, Haas School of Business, and Chair of the Blum Center for Developing Economies Board of Trustees at the University of California, Berkeley

 

 

 

 

Geoffrey Y. Yang

 

 

 

 

60

 

 

 

 

2016

 

 

 

 

Founding Partner and Managing Director, Redpoint Ventures

 

All Director nominees are independent, except for Mr. Stephenson.

 

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Table of Contents

VOTING ITEMS

 

 

 

 

Randall L. Stephenson

 

 

 

Age 58     Director since 2005    

LOGO

 

 

Mr. Stephenson is Chairman of the Board, Chief Executive Officer, and President of AT&T Inc. and has served in this capacity since 2007. He has held a variety of high-level finance, operational, and marketing positions with AT&T, including serving as Chief Operating Officer from 2004 until his appointment as Chief Executive Officer in 2007 and as Chief Financial Officer from 2001 to 2004. He began his career with the Company in 1982. Mr. Stephenson received his B.S. in accounting from Central State University (now known as the University of Central Oklahoma) and earned his Master of Accountancy degree from the University of Oklahoma.

 

       

AT&T Board Committees

Executive (Chair)

 

Past Directorships

The Boeing Company (2016-2017);

Emerson Electric Co.

(2006-2017)

   

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Mr. Stephenson’s qualifications to serve on the Board include his more than 35 years of experience in the telecommunications industry, his intimate knowledge of our Company and its history, his expertise in finance and operations management, and his years of executive leadership experience across various divisions of our organization, including serving as Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Senior Vice President of Finance, and Senior Vice President of Consumer Marketing.

 

   
 

LOGO

 

Senior Leadership/Chief Executive Officer Experience

  LOGO   Extensive Knowledge of the Company’s Business and/or Industry      
   

 

LOGO

 

 

High Level of Financial Experience

 

  LOGO  

Public Company Board Service and Governance Experience

 

     
               

 

 

Samuel A. Di Piazza, Jr.

 

 

 

Age 68     Director since 2015    

LOGO

 

 

Mr. Di Piazza served as Global Chief Executive Officer of PricewaterhouseCoopers International Limited (an international professional services firm) from 2002 until his retirement in 2009. Mr. Di Piazza began his 36-year career with PricewaterhouseCoopers (PwC, formerly Coopers & Lybrand) in 1973 and was named Partner in 1979 and Senior Partner in 2000. From 1979 to 2002, Mr. Di Piazza held various regional leadership positions with PwC. After his retirement from PwC, Mr. Di Piazza joined Citigroup where he served as Vice Chairman of the Global Corporate and Investment Bank from 2011 until 2014. Since 2010, Mr. Di Piazza has served as the Chairman of the Board of Trustees of The Mayo Clinic. He received his B.S. in accounting from the University of Alabama and earned his M.S. in tax accounting from the University of Houston. He served as a Director of DIRECTV from 2010 until the company was acquired by AT&T Inc. in 2015.

 

       

AT&T Board Committees

Audit (Chair); Executive;

Public Policy and

Corporate Reputation

 

Other Public Company Directorships

Jones Lang LaSalle

Incorporated; ProAssurance Corporation; Regions Financial Corporation

 

Past Directorships

DIRECTV (2010-2015)

   

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Mr. Di Piazza’s qualifications to serve on the Board include his executive leadership skills, his vast experience in public accounting with a major accounting firm, and his experience in international business and affairs, all strong attributes for the Board of AT&T. His qualifications also include his prior service as a Director of DIRECTV, a digital entertainment services company that we acquired.

 

   
 

LOGO

 

Senior Leadership/Chief Executive Officer Experience

  LOGO   Extensive Knowledge of the Company’s Business and/or Industry      
 

 

LOGO

 

 

 

 

High Level of Financial Experience

 

 

 

 

LOGO

 

 

 

 

Global Business/Affairs Experience

 

 

     
             

 

6   LOGO


Table of Contents

VOTING ITEMS

 

 

 

 

Richard W. Fisher

 

 

 

Age 69     Director since 2015    

LOGO

 

 

Mr. Fisher served as President and Chief Executive Officer of the Federal Reserve Bank of Dallas from 2005 until March 2015. He has been Senior Advisor to Barclays PLC (a financial services provider) since 2015. From 2001 to 2005, Mr. Fisher was Vice Chairman and Managing Partner of Kissinger McLarty Associates (a strategic advisory firm). From 1997 to 2001, Mr. Fisher served as Deputy U.S. Trade Representative with the rank of Ambassador. Previously, he served as Managing Partner of Fisher Capital Management and Fisher Ewing Partners LP (investment advisory firms) and prior to that was Senior Manager of Brown Brothers Harriman & Co. (a private banking firm). He is an Honorary Fellow of Hertford College, Oxford University, and a Fellow of the American Academy of Arts and Sciences. Mr. Fisher received his B.A. in economics from Harvard University and earned his M.B.A. from Stanford University.

 

       

AT&T Board Committees

Corporate Development
and Finance; Corporate Governance and Nominating 

 

Other Public Company Directorships

PepsiCo, Inc.;

Tenet Healthcare
Corporation

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Mr. Fisher’s qualifications to serve on the Board include his extensive financial, trade and regulatory expertise, and a deep understanding of Mexico and Latin America, all of which enable him to provide valuable financial and strategic insight to AT&T.

 

   
 

LOGO

 

Senior Leadership/Chief Executive Officer Experience

  LOGO  

Government/Regulatory Expertise

   
 

 

LOGO

 

 

High Level of Financial Experience

 

  LOGO  

Global Business/Affairs Experience

 

   
           

 

 

Scott T. Ford

 

 

 

Age 56     Director since 2012    

LOGO

 

 

Mr. Ford founded Westrock Group, LLC (a private investment firm in Little Rock, Arkansas) in 2013, where he has served as Member and Chief Executive Officer since its inception. Westrock Group operates Westrock Coffee Company, LLC (a fully integrated coffee company), which Mr. Ford founded in 2009, and where he has served as Chief Executive Officer since 2009. Westrock Group also operates Westrock Asset Management, LLC (a global alternative investment firm), which Mr. Ford founded in 2014, and where he has served as Chief Executive Officer and Chief Investment Officer since 2014. Mr. Ford previously served as President and Chief Executive Officer of Alltel Corporation (a provider of wireless voice and data communications services) from 2002 to 2009 and served as an executive member of Alltel Corporation’s board of directors from 1996 to 2009. He also served as Alltel Corporation’s President and Chief Operating Officer from 1998 to 2002. Mr. Ford led Alltel through several major business transformations, culminating with the sale of the company to Verizon Wireless in 2009. Mr. Ford received his B.S. in finance from the University of Arkansas, Fayetteville.

 

       

AT&T Board Committees

Corporate Development and Finance (Chair); Executive; Human Resources

 

Past Directorships

Bear State Financial, Inc. (2011-2018)

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Mr. Ford’s qualifications to serve on the Board include his extensive experience and expertise in the telecommunications industry, his strong strategic focus, his leadership experience in the oversight of a large, publicly traded company, and his experience in international business and private equity, all of which bring valuable contributions to AT&T’s strategic planning and industry competitiveness.

 

   
  LOGO   Senior Leadership/Chief Executive Officer Experience   LOGO   Extensive Knowledge of the Company’s Business and/or Industry    
 

 

LOGO

 

  Public Company Board Service and Governance Experience   LOGO  

Investment/Private Equity Experience

 

   
           

 

LOGO   7


Table of Contents

VOTING ITEMS

 

 

 

 

Glenn H. Hutchins

 

 

 

Age 63     Director since 2014    

LOGO

 

 

Mr. Hutchins is Chairman of North Island (an investment firm based in New York, New York) and of Tide Mill, LLC (the Hutchins family office, formerly North Island, LLC, in New York, New York). He is also a co-founder of Silver Lake (a technology investment firm based in New York, New York and Menlo Park, California), which was founded in 1999, and where Mr. Hutchins served as Co-CEO until 2011 and as Managing Director from 1999 until 2011. Prior to that, Mr. Hutchins was Senior Managing Director at The Blackstone Group (a global investment firm) from 1994 to 1999. Mr. Hutchins served as Chairman of the Board of SunGard Data Systems Inc. (a software and technology services company) from 2005 until 2015. He is a Director of the Federal Reserve Bank of New York and Co-Chairman of the Brookings Institution. Previously, Mr. Hutchins served as a Special Advisor in the White House on economic and health-care policy from 1993 to 1994 and as Senior Advisor on the transition of the Administration from 1992 to 1993. He holds an A.B. from Harvard College, an M.B.A. from Harvard Business School, and a J.D. from Harvard Law School.

 

       

AT&T Board Committees

Corporate Development
and Finance; Public Policy and Corporate Reputation

 

Other Public Company Directorships

Virtu Financial, Inc.

 

Past Directorships

Nasdaq, Inc. (2005-2017)

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Mr. Hutchins’ qualifications to serve on our Board include his extensive experience and expertise in the technology and financial sectors, his public policy experience, and his strong strategic focus, all of which enable him to provide valuable financial and strategic insight to AT&T.

 

   
  LOGO   Senior Leadership/Chief Executive Officer Experience   LOGO  

Government/Regulatory Expertise

 

   
 

 

LOGO

 

 

 

Technology Expertise

 

  LOGO  

Investment/Private Equity Experience

 

   
           

 

 

William E. Kennard

 

 

 

Age 62     Director since 2014    

LOGO

 

 

Mr. Kennard served as the United States Ambassador to the European Union from 2009 to 2013. From 2001 to 2009, Mr. Kennard was Managing Director of The Carlyle Group (a global asset management firm) where he led investments in the telecommunications and media sectors. Mr. Kennard served as Chairman of the U.S. Federal Communications Commission from 1997 to 2001. Before his appointment as FCC Chairman, he served as the FCC’s General Counsel from 1993 until 1997. Mr. Kennard joined the FCC from the law firm of Verner, Liipfert, Bernhard, McPherson and Hand (now DLA Piper) where he was a partner and member of the firm’s board of directors. Mr. Kennard received his B.A. in communications from Stanford University and earned his law degree from Yale Law School.

 

       

AT&T Board Committees

Corporate Governance and Nominating; Public Policy and Corporate Reputation

 

Other Public Company Directorships

Duke Energy Corporation; Ford Motor Company; MetLife, Inc.

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Mr. Kennard’s qualifications to serve on our Board include his expertise in the telecommunications industry, his understanding of public policy, and his international perspective, as well as his background and experience in law and regulatory matters, all strong attributes for the Board of AT&T.

 

   
 

LOGO

 

Senior Leadership/Chief Executive Officer Experience

  LOGO  

Government/Regulatory Expertise

   
 

 

LOGO

 

 

Extensive Knowledge of the Company’s Business and/or Industry

 

  LOGO  

Legal Experience

 

   
           

 

8   LOGO


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VOTING ITEMS

 

 

 

 

Michael B. McCallister

 

 

 

Age 66     Director since 2013    

LOGO

 

 

Mr. McCallister served as Chairman of Humana Inc. (a health care company in Louisville, Kentucky) from 2010 to 2013, and as a member of Humana’s Board of Directors beginning in 2000. He also served as Humana’s Chief Executive Officer from 2000 until his retirement in 2012. During Mr. McCallister’s tenure, he led Humana through significant expansion and growth, nearly quadrupling its annual revenues between 2000 and 2012, and led the company to become a FORTUNE 100 company. Mr. McCallister received his B.S. in accounting from Louisiana Tech University and earned his M.B.A. from Pepperdine University.

 

 

       

AT&T Board Committees

Audit; Human Resources

 

Other Public Company Directorships

Fifth Third Bancorp;

Zoetis Inc.

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Mr. McCallister’s qualifications to serve on the Board include his executive leadership experience in the oversight of a large, publicly traded company and his depth of experience in the health care sector, which is of increasing importance to a company like AT&T.

 

   
  LOGO   Senior Leadership/Chief Executive Officer Experience   LOGO  

Public Company Board Service and Governance Experience

 

   
 

 

LOGO

 

 

Healthcare Expertise

 

  LOGO  

High Level of Financial Experience

 

   
           

 

 

Beth E. Mooney

 

 

 

Age 64     Director since 2013    

LOGO

 

 

Ms. Mooney is Chairman and Chief Executive Officer of KeyCorp (a bank holding company in Cleveland, Ohio) and has served in this capacity since 2011. She previously served as KeyCorp’s President and Chief Operating Officer from 2010 to 2011. Ms. Mooney joined KeyCorp in 2006 as a Vice Chair and head of Key Community Bank. Prior to joining KeyCorp, beginning in 2000 she served as Senior Executive Vice President at AmSouth Bancorporation (now Regions Financial Corporation), where she also became Chief Financial Officer in 2004. Ms. Mooney served as a Director of the Federal Reserve Bank of Cleveland in 2016 and was appointed to represent the Fourth Federal Reserve District on the Federal Advisory Council beginning in 2017. She received her B.A. in history from the University of Texas at Austin and earned her M.B.A. from Southern Methodist University.

 

 

       

AT&T Board Committees

Corporate Development
and Finance; Corporate
Governance and
Nominating

 

Other Public Company Directorships

KeyCorp

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Ms. Mooney’s qualifications to serve on the Board include her executive leadership skills in the oversight of a large, publicly traded and highly-regulated company and her more than 30 years of experience in the banking and financial services industry, which bring valuable financial and strategic insight to AT&T.

 

   
 

LOGO

 

Senior Leadership/Chief Executive Officer Experience

  LOGO  

Government/Regulatory Expertise

 

   
 

 

LOGO

 

 

High Level of Financial Experience

 

  LOGO  

Public Company Board Service and Governance Experience

 

   
           

 

LOGO   9


Table of Contents

VOTING ITEMS

 

 

 

 

Matthew K. Rose

 

 

 

Age 59     Director since 2010    

LOGO

 

Mr. Rose is Chairman of the Board and Chief Executive Officer of Burlington Northern Santa Fe, LLC (a freight rail system based in Fort Worth, Texas and a subsidiary of Berkshire Hathaway Inc., formerly known as Burlington Northern Santa Fe Corporation) and has served in this capacity since 2002, having also served as President until 2010. Before serving as its Chairman, Mr. Rose held several leadership positions there and at its predecessors, including President and Chief Executive Officer from 2000 to 2002, President and Chief Operating Officer from 1999 to 2000, and Senior Vice President and Chief Operations Officer from 1997 to 1999. Mr. Rose also serves as Executive Chairman of BNSF Railway Company (a subsidiary of Burlington Northern Santa Fe, LLC), having served as Chairman and Chief Executive Officer from 2002 to 2013. He earned his B.S. in marketing from the University of Missouri. Mr. Rose has announced his intention to retire from BNSF in April of 2019.

 

       

AT&T Board Committees

Corporate Governance and Nominating (Chair); Executive; Human Resources

 

Other Public Company Directorships

BNSF Railway Company; Burlington Northern Santa Fe, LLC; Fluor Corporation

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Mr. Rose’s qualifications to serve on the Board include his extensive experience in the executive oversight of a large, complex and highly-regulated organization, his considerable knowledge of operations management and logistics, and his experience and skill in managing complex regulatory and labor issues comparable to those faced by AT&T.

 

   
  LOGO  

Senior Leadership/Chief Executive Officer Experience

  LOGO  

Government/Regulatory Expertise

   
 

 

LOGO

 

 

 

 

Labor Experience

 

 

LOGO

 

 

Operations/Logistics Experience

 

   
           

 

 

Cynthia B. Taylor

 

 

 

Age 57     Director since 2013    

LOGO

 

 

Ms. Taylor is President, Chief Executive Officer and a Director of Oil States International, Inc. (a diversified solutions provider for the oil and gas industry in Houston, Texas) and has served in this capacity since 2007. She previously served as Oil States International, Inc.’s President and Chief Operating Officer from 2006 to 2007 and as its Senior Vice President-Chief Financial Officer from 2000 to 2006. Ms. Taylor was Chief Financial Officer of L.E. Simmons & Associates, Inc. from 1999 to 2000 and Vice President-Controller of Cliffs Drilling Company from 1992 to 1999, and prior to that, held various management positions with Ernst & Young LLP, a public accounting firm. She received her B.B.A. in accounting from Texas A&M University and is a Certified Public Accountant.

 

       

AT&T Board Committees

Audit; Public Policy and Corporate Reputation

 

Other Public Company Directorships

Oil States International, Inc.

 

Past Directorships

Tidewater Inc. (2008-2017)

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Ms. Taylor’s qualifications to serve on the Board include her executive leadership skills in the oversight of a large, publicly traded company, her vast experience in finance and public accounting, and her experience in international business and affairs, all of which bring a broad spectrum of management experience to our Board.

 

   
  LOGO  

Senior Leadership/Chief Executive Officer Experience

  LOGO  

Global Business/Affairs Experience

   
 

 

LOGO

 

 

High Level of Financial Experience

  LOGO  

Operations/Logistics Experience

   
           

 

10   LOGO


Table of Contents

VOTING ITEMS

 

 

 

 

Laura D’Andrea Tyson

 

 

 

Age 71     Director since 1999    

LOGO

 

 

Dr. Tyson is a Distinguished Professor of the Graduate School at the Haas School of Business, University of California, Berkeley, and has served in this capacity since 2016. She is also the Chair of the Blum Center for Developing Economies Board of Trustees, University of California, Berkeley, and has served in this capacity since 2007. Dr. Tyson has also been the Faculty Director of the Berkeley Haas School’s Institute for Business and Social Impact since 2013. Dr. Tyson was interim Dean of UC Berkeley’s Haas School of Business from July 1, 2018, through December 31, 2018. She previously served as Dean of the Haas School from 1998 to 2001. She also served as Dean of London Business School from 2002 until 2006. Dr. Tyson was Professor of Business Administration and Economics at Berkeley Haas from 2007 until 2016 and was Professor of Global Management at the Haas School from 2008 until 2013. From 1997 to 1998, she served as UC Berkeley’s Professor of Economics and Business Administration. Dr. Tyson has served in various government roles, including serving as a member of the U.S. Department of State Foreign Affairs Policy Board (2011-2013), the Council on Jobs and Competitiveness for the President of the United States (2011-2013), and the Economic Recovery Advisory Board to the President of the United States (2009-2011), and has also served as National Economic Adviser to the President of the United States (1995-1996) and as Chair of the White House Council of Economic Advisers (1993-1995). Since 2007, Dr. Tyson has served as an adviser and faculty member of the World Economic Forum. Dr. Tyson received her B.A. in economics from Smith College and earned her Ph.D. in economics at the Massachusetts Institute of Technology. Dr. Tyson served as a Director of Ameritech Corporation from 1997 until the company was acquired by AT&T (then known as SBC Communications Inc.) in 1999.

 

       

AT&T Board Committees

Audit; Executive; Public Policy and Corporate
Reputation (Chair)

 

Other Public Company Directorships

CBRE Group, Inc.

 

Past Directorships

Morgan Stanley (1997-2016); Silver Spring Networks, Inc. (2009-2018)

 

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Dr. Tyson’s qualifications to serve on the Board include her expertise in economics and public policy, her experience as an advisor in various business and political arenas, and her vast knowledge of international business and affairs, all strong attributes for the Board of AT&T. Her qualifications also include her prior service as a director of a telecommunications company that we acquired.

 

   
  LOGO   Senior Leadership/Chief Executive Officer Experience   LOGO  

Government/Regulatory Expertise

   
 

 

LOGO

 

 

 

High Level of Financial Experience

 

 

 

LOGO

 

 

Public Company Board Service and Governance Experience

   
           

 

LOGO   11


Table of Contents

VOTING ITEMS

 

 

 

 

Geoffrey Y. Yang

 

 

 

Age 60     Director since 2016    

LOGO

 

 

 

Mr. Yang is a founding partner and Managing Director of Redpoint Ventures (a global private equity and venture capital firm based in Menlo Park, California) and has served in this capacity since 1999. Prior to founding Redpoint, Mr. Yang was a General Partner with Institutional Venture Partners (a private equity investment firm in Menlo Park, California), which he joined in 1987. Mr. Yang has over 30 years of experience in the venture capital industry and has helped found or served on the boards of a variety of consumer media, internet, and infrastructure companies. Mr. Yang holds a B.S.E. in engineering from Princeton University and an M.B.A. from Stanford University.

 

       

AT&T Board Committees

Corporate Development
and Finance; Human
Resources

 

Other Public Company Directorships

Franklin Resources, Inc.

 

 

 

Qualifications, Attributes, Skills, and Experience

 

   
 

Mr. Yang’s qualifications to serve on the Board include his extensive experience in technology and emerging forms of media and entertainment, his decades of experience and expertise in venture capital, his strong strategic focus, as well as his vast experience in serving on the boards of private and public technology companies, all of which enable him to provide valuable contributions to AT&T’s financial and strategic planning and industry competitiveness.

 

   
  LOGO   Senior Leadership/Chief Executive Officer Experience   LOGO  

Global Business/Affairs Experience

   
 

 

LOGO

 

 

Investment/Private Equity Experience

 

  LOGO  

Technology Expertise

 

   
           

 

12   LOGO


Table of Contents

VOTING ITEMS

 

 

Item No. 2 - Ratification of the Appointment of Ernst & Young LLP as Independent Auditors

 

This proposal would ratify the Audit Committee’s appointment of Ernst & Young LLP ( EY ) to serve as independent auditors of AT&T for the fiscal year ending December 31, 2019. The Audit Committee’s decision to re-appoint our independent auditor was based on the following considerations:

 

   

quality and performance of the lead audit partner and the overall engagement team,

 

   

knowledge of the telecommunications, media and enternainment, and technology industries and company operations,

 

   

global capabilities and technical expertise,

 

   

auditor independence and objectivity, and

 

   

the potential impact of rotating to another independent audit firm.

The Audit Committee’s oversight of EY includes regular private sessions with EY, discussions about audit scope and business imperatives, and—as described above—a comprehensive annual evaluation to determine whether to re-engage EY. Considerations concerning auditor independence include:

 

   

Limits on non-audit services: The Audit Committee preapproves audit and permissible non-audit services provided by EY in accordance with its pre-approval policy.

   

Audit partner rotation: EY rotates the lead audit partner and other partners on the engagement consistent with independence requirements. The Audit Committee oversees the selection of each new lead audit partner.

 

   

EY’s internal independence process: EY conducts periodic internal reviews of its audit and other work and assesses the adequacy of partners and other personnel working on the Company’s account.

 

   

Strong regulatory framework: EY, as an independent registered public accounting firm, is subject to PCAOB inspections, “Big 4” peer reviews and PCAOB and SEC oversight.

Based on these considerations, the Audit Committee believes that the selection of Ernst & Young LLP is in the best interest of the company and its stockholders. Therefore, the Audit Committee recommends that stockholders ratify the appointment of Ernst & Young LLP. If stockholders do not ratify the appointment, the Committee will reconsider its decision. One or more members of Ernst & Young LLP are expected to be present at the Annual Meeting, will be able to make a statement if they so desire, and will be available to respond to appropriate questions.

 

 

  LOGO    The Board recommends you vote FOR this proposal    LOGO   

 

LOGO   13


Table of Contents

VOTING ITEMS

 

 

Item No. 3 - Advisory Approval of Executive Compensation

 

This proposal would approve the compensation of Executive Officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the accompanying narrative disclosures (see pages 40 through 75). These sections describe our executive compensation program.

The Human Resources Committee is responsible for executive compensation and works to structure a balanced program that addresses the dynamic, global marketplace in which AT&T competes for talent. The compensation structure includes pay-for-performance and equity-based incentive programs and seeks to reward executives for attaining performance goals.

AT&T submits this proposal to stockholders on an annual basis. While this is a non-binding, advisory vote, the Committee intends to take into account the outcome of the vote when considering future executive compensation arrangements. AT&T is providing this vote as required pursuant to Section 14A of the Securities Exchange Act.

    

 

 G UIDING P AY P RINCIPLES

 

         
    

 (discussed in detail on page 40)

        
   
   

Alignment with Stockholders

     
   
   

Provide compensation elements and set performance targets that closely align executives’ interests with those of stockholders. For example, approximately 69% of target pay for NEOs is tied to stock price performance. In addition, we have executive stock ownership guidelines and stock holding requirements, as described on page 60. Each of the NEOs exceeds the minimum stock ownership guidelines.

     
   
   

Competitive and Market Based

     
   
   

Evaluate all components of our compensation and benefits program in light of appropriate peer company practices to ensure we are able to attract and retain world-class talent with the leadership abilities and experience necessary to develop and execute business strategies, obtain superior results, and build long-term stockholder value in an organization as large and complex as AT&T.

     
   
   

Pay for Performance

     
   
   

Tie a significant portion of compensation to the achievement of predetermined goals and recognize individual accomplishments that contribute to our success. For example, in 2018, 93% of the CEO’s target compensation (and, on average, 89% for other NEOs) was variable and tied to short- and long-term performance incentives, including stock price performance.

     
   
   

Balanced Short- and Long-Term Focus

     
   
   

Ensure that the compensation program provides an appropriate balance between the achievement of short-and long-term performance objectives, with a clear emphasis on managing the sustainability of the business and mitigating risk.

     
   
   

Alignment with Generally Accepted Approaches

     
   
   

Provide policies and programs that fit within the framework of generally accepted approaches adopted by leading major U.S. companies.

 

       
 

 

  LOGO   

The Board recommends you vote FOR this proposal

 

   LOGO   

 

14   LOGO


Table of Contents

VOTING ITEMS

 

 

S TOCKHOLDER P ROPOSALS

 

A stockholder has advised the Company that he intends to introduce at the 2019 Annual Meeting the proposal set forth below. The name and address of, and the number of shares owned by, such stockholder will be provided upon request to the Senior Vice President and Secretary of AT&T at 208 S. Akard Street, Suite 2954, Dallas, Texas 75202.

 

 

Item No. 4 - Stockholder Proposal

Independent Chair

 

Proposal 4 — Independent Board Chairman

 

Shareholders request our Board of Directors to adopt as a policy, and amend our governing documents as necessary, to require henceforth that the Chair of the Board of Directors, whenever possible, to be an independent member of the Board. The Board would have the discretion to phase in this policy for the next Chief Executive Officer transition, implemented so it does not violate any existing agreement.

 

If the Board determines that a Chairman, who was independent when selected is no longer independent, the Board shall select a new Chairman who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chairman. This proposal requests that all the necessary steps be taken to accomplish the above.

 

This proposal topic won 50%-plus support at 5 major U.S. companies in 2013 including 73%-support at Netflix. These 5 majority votes would have been still higher if all shareholders had access to independent proxy voting advice.

 

When considering a shareholder proposal such as this is good to remember the positive role that shareholder proposals have. For instance AT&T adopted a policy requiring that senior executives retain a significant percentage of stock acquired through AT&T’s equity pay programs until one year following the termination of their employment because Ray. T. Chevedden submitted a proposal for this specific topic.

 

An independent Chairman is best positioned to build up the oversight capabilities of our directors while our CEO addresses the challenging day-to-day issues facing the company like the falling price of our stock over a 5-year period. Clearly our CEO needs to focus on increasing the stock price (which has been lagging during a robust stock market) by enhancing the underlying core value of the company.

 

An independent board chairman would have more time to devote to improving the qualifications of our directors. For instance Joyce Roché and Laura Tyson each had more than 19-years long-tenure. Long-tenure in a director is the opposite of independence. Ms. Tyson was also tainted by her Kodak experience.

 

The roles of Chairman and CEO are fundamentally different and should be held by 2 directors, a CEO and a Chairman who is completely independent of the CEO and our company.

 

 

Please vote yes:

Independent Board Chairman – Proposal 4  

 

   LOGO  

 

The Board recommends you vote AGAINST this proposal.

 

  LOGO   

Your Board of Directors believes that AT&T and its stockholders are best served by having Mr. Stephenson serve as both Chairman and CEO.

At this juncture in our Company’s history, your Board believes that the Company can more effectively execute its strategy and business plans to maximize stockholder value if the Chairman of the Board is also responsible for the Company’s operations on a daily basis. At the same time, the Board believes that, as a matter of sound corporate governance, it is important to pair its Chairman with an independent Lead Director who is vested with substantial responsibility for all Board matters, including its oversight of management. To that end, the Board has again appointed an independent Lead Director (currently, Matthew K. Rose) who presides over regular executive sessions of the non-management members of the Board. Members of management do not attend these sessions. The Lead Director is also responsible for approving the agenda for each Board meeting, presiding at Board meetings at which the Chairman is not present, and acting as the principal liaison between the Chairman and CEO and the nonmanagement Directors. For a complete description of the Lead Director’s responsibilities, please see page 18.

As CEO, Mr. Stephenson is the only Director that is also a member of management. As a result, each committee of the Board other than the Executive Committee is made up solely of independent Directors. The appointment of an independent Lead Director and the use of executive sessions of the Board, along with the Board’s strong committee system and substantial majority of independent Directors, allow the Board to maintain effective oversight of management.

For these reasons, the Board does not support an inflexible policy that the CEO and Chairman roles should never be held by the same person. Instead, the Board has established what it believes to be an appropriate balance for AT&T based on the best interests of AT&T’s stockholders and recommends a vote against this proposal.

 

 

LOGO   15


Table of Contents

CORPORATE GOVERNANCE

 

 

 

 

 

 

Table of Contents

 

 

 

 

    16

 

 

 

 

  T HE R OLE OF THE B OARD

 

 

    23

 

 

  E THICS AND C OMPLIANCE P ROGRAM

 

 

 

 

    17

 

 

 

 

  R ISK O VERSIGHT

 

 

    24

 

 

  A NNUAL M ULTI -S TEP B OARD E VALUATION

 

 

 

    18

 

 

 

 

  B OARD S TRUCTURE

 

 

    25

 

 

  C OMMUNICATING WITH Y OUR B OARD

 

 

 

    19

 

 

 

 

  D IRECTOR N OMINATION P ROCESS

 

 

    25

 

 

  A VAILABILITY OF C ORPORATE G OVERNANCE D OCUMENTS

 

 

 

    19

 

 

 

 

  B OARD C OMPOSITION AND R EFRESHMENT

 

 

    25

 

 

  H OW TO S UBMIT A S TOCKHOLDER P ROPOSAL

 

 

 

    20

 

 

 

 

  D IRECTOR I NDEPENDENCE

 

 

    26

 

 

  R ELATED P ERSON T RANSACTIONS

 

 

 

    21

 

 

 

 

  B OARD C OMMITTEES

 

 

    26

 

 

  D IRECTOR C OMPENSATION

 

 

 

    23

 

 

 

 

  P UBLIC P OLICY E NGAGEMENT

 

 

 

 

    29

 

 

  C OMMON S TOCK O WNERSHIP

AT&T is committed to strong corporate governance principles. Effective governance protects the long-term interests of our stockholders, promotes public trust in AT&T, and strengthens management accountability. AT&T regularly reviews and updates its corporate governance practices to reflect evolving corporate governance principles and concerns identified by stockholders and other stakeholders.

    

 

Key Responsibilities of the Board

 

 

 

    

 

Strategy Oversight

 

        

 

Risk Oversight

 

        

 

Succession Planning

 

Ö    The Board oversees and monitors strategic planning.

   

Ö    The Board oversees risk management.

   

Ö    The Board oversees succession planning and talent development for senior executive positions.

Ö    Business strategy is a key focus at the Board level and is embedded in the work of Board committees.

   

Ö    Board committees, which meet regularly and report back to the full Board, play significant roles in carrying out the risk oversight function.

   

Ö    The Human Resources Committee, which meets regularly and reports back to the Board, has primary responsibility for developing succession plans for the CEO position.

Ö    Company management is charged with executing business strategy and provides regular performance updates to the Board.

   

Ö    Company management is charged with managing risk, through robust internal processes and effective internal controls.

   

Ö    The CEO is charged with preparing and reviewing with the Human Resources Committee talent development plans for senior executives and their potential successors.

T HE R OLE OF THE B OARD

 

 

The Board of Directors is responsible for oversight of management and strategic direction and for establishing broad corporate policies. In addition, the Board of Directors and various committees of the Board regularly meet to review and discuss operational and financial reports presented by the Chairman of the Board and Chief Executive Officer and other members of management as well as reports by experts and other advisors. Corporate review sessions are also offered to Directors to give them more detailed views of our businesses, such as corporate opportunities, technology, and operations.

Members of the Board are expected to attend Board meetings in person, unless the meeting is held by teleconference. The Board held 10 meetings in 2018. Directors are also expected to attend the Annual Meeting of Stockholders. All Directors were present at the 2018 Annual Meeting. In 2018, all Directors attended at least 75% of the total number of meetings of the Board and of the Committees on which each served.

 

 

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B OARD S R OLE IN R ISK O VERSIGHT

 

 

The Board is responsible for overseeing our policies and procedures for assessing and managing risk. Management is responsible for assessing and managing our exposures to risk on a day-to-day basis, including the creation of appropriate risk management policies and procedures. Management also is responsible for informing the Board of our most significant risks and our plans for managing those risks. Annually, the Board reviews the Company’s strategic business plans, which includes evaluating the competitive, technological, economic and other risks associated with these plans.

In addition, under its charter, the Audit Committee reviews and discusses with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies, as well as overseeing our compliance program, compliance with legal and regulatory requirements and associated risks. This includes, among other matters, evaluating risk in the context of financial policies, counterparty and credit

risk, and the appropriate mitigation of risk, including through the use of insurance where appropriate. Members of the Company’s finance, internal audit, and compliance organizations are responsible for managing risk in their areas and reporting regularly to the Audit Committee.

The Company’s senior internal auditing executive and Chief Compliance Officer each meet annually in executive session with the Audit Committee. The senior internal auditing executive and Chief Compliance Officer review with the Audit Committee each year’s annual internal audit and compliance risk assessment, which is focused on significant financial, operating, regulatory and legal matters. The Audit Committee also receives regular reports on completed internal audits of these significant risk areas.

In addition, the Audit Committee, as well as the Board of Directors, receive reports from responsible officers on cybersecurity. The AT&T Chief Security Office establishes policy and requirements for the security of AT&T’s computing and networking environments.

 

 

 

 

Risk Assessment Responsibilities and Processes

 

 

 

THE BOARD

 

The full board has primary responsibility for risk oversight.

 

The Board executes its oversight duties through:

 

•  Assigning specific oversight duties to the Board committees

•  Periodic briefing and informational sessions by management on risk identification, mitigation, and control

   

 

MANAGEMENT

 

Management is primarily responsible for:

 

•  Identifying risk and risk controls related to significant business activities

•  Mapping the risks to company strategy

•  Developing programs and recommendations to determine the sufficiency of risk identification, the balance of potential risk to potential reward, and the appropriate manner in which to manage risk

 

With respect to the risk assessment of the company’s compensation programs, management is primarily responsible for:

 

•  Reviewing all significant compensation programs, focusing on programs with variable payouts

•  Assessing the company’s executive and broad-based compensation and benefits programs to determine whether the programs’ provisions and operation create undesired or unintentional material risk.

     
BOARD COMMITTEES  
     

¯

Audit

 

Oversees issues related to financial, compliance, ethics, and operational risks.

   

¯

Human Resources

 

Oversees issues related to risk in the Company’s compensation programs, including the Board’s conclusion that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company.

 
                 

 

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B OARD L EADERSHIP S TRUCTURE

 

 

The non-management members of the Board of Directors meet in executive session (without management Directors or management personnel present) at least four times per year. The Lead Director, who is appointed for a one-year term, presides over these sessions. Matthew K. Rose currently serves as Lead Director; his term is scheduled to expire January 31, 2020.

 

Chairman of the Board and CEO: Randall L. Stephenson

 

 

Lead Director: Matthew K. Rose

 

 

Audit, Human Resources, Corporate Governance and Nominating, Corporate Development and Finance, and Public Policy and Corporate Reputation Committees composed entirely of independent Directors

 

 

 

 

Duties and Responsibilities

 

 

Chairman of the Board

Presides over meetings of the Board

Presides over meetings of stockholders

Prepares the agenda for each Board meeting

Prepares the agenda for each stockholder meeting

Chief Executive Officer

In general charge of the affairs of the Company, subject to the overall direction and supervision of the Board and its committees

Consults and advises the Board and its committees on the business and affairs of the Company

Performs such other duties as may be assigned by the Board

 

 

Lead Independent Director

 

Presides at meetings of the Board at which the Chairman is not present;

 

Presides at executive sessions of the non-management Directors;

 

Prepares the agenda for the executive sessions of the non-management Directors;

 

Acts as the principal liaison between the non-management Directors and the Chairman and Chief Executive Officer;

 

Coordinates the activities of the non-management Directors when acting as a group;

 

Approves the agenda for each Board meeting;

 

Approves meeting schedules to ensure there is sufficient time for discussion of all agenda items;

Advises the Chairman and Chief Executive Officer as to the quality, quantity and timeliness of the flow of information from management, including the materials provided to Directors at Board meetings;

 

If requested by major stockholders, ensures that he or she is available for consultation and direct communication and acts as a contact for other interested persons;

 

Shares with other Directors, as he or she deems appropriate, letters and other contacts that he or she receives; and

In addition, the Lead Director may:

 

call meetings of the non-management Directors in addition to the quarterly meetings, and

 

require information relating to any matter be distributed to the Board.

 

 

 

Randall Stephenson currently serves as both Chairman of the Board and Chief Executive Officer. The Board believes that having Mr. Stephenson serve in both capacities is in the best interests of AT&T and its stockholders because it enhances communication between the Board and management and allows Mr. Stephenson to more effectively execute the Company’s strategic initiatives and business plans and confront its challenges. The Board believes that the appointment of a strong independent Lead Director and the use of regular executive sessions of the non-management Directors, along with the Board’s strong committee system and substantial majority of independent Directors, allow it to maintain effective oversight of management.

 

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D IRECTOR N OMINATION P ROCESS

 

The Board of Directors believes that the Company benefits from having experienced Directors who bring a wide range of skills and backgrounds to the Boardroom. The Corporate Governance and Nominating Committee is responsible for identifying eligible candidates based on our Corporate Governance Guidelines. The Committee considers a candidate’s:

 

   

general understanding of elements relevant to the success of a large publicly traded company in the current business environment;

 

   

understanding of our business;

 

   

educational and professional background;

 

   

judgment, competence, anticipated participation in Board activities;

 

   

experience, geographic location, and special talents or personal attributes.

Although the Committee does not have a formal diversity policy, it believes that diversity is an important factor in determining the composition of the Board and considers it in making nominee recommendations.

Stockholders who wish to suggest qualified candidates should write to the Senior Vice President—Assistant General Counsel and Secretary, AT&T Inc., 208 S. Akard Street, Suite 2954, Dallas, Texas 75202, stating in detail the qualifications of the persons proposed for consideration by the Committee.

B OARD C OMPOSITION AND R EFRESHMENT *

 

 

 

Blend of Experiences and

Qualifications of Our Directors

 

 

LOGO

Blend of experiences and Qualifications Senior leadership/Ceo experience global business/ affairs finance/public accounting government/ regulatory industry/ technology investment/private equity Other: law, marketing, labor, operations and logistics, healthcare

 

Director Tenure and Age

 

LOGO

 

Diversity

 

LOGO

 

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*Includes Joyce Roché, who is not standing for re-election at the 2019 Annual Meeting.

 

 

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D IRECTOR I NDEPENDENCE

 

 

Our Corporate Governance Guidelines require that a substantial majority of our Board of Directors consist of independent Directors. In addition, the NYSE Listing Standards require a majority of the Board and every member of the Audit Committee, Human Resources Committee, and Corporate Governance and Nominating Committee to be independent. For a Director to be “independent” under the NYSE standards, the Board must affirmatively determine that the Director has no material relationship with AT&T, either directly or as a partner, stockholder or officer of an organization that has a relationship with AT&T, other than in his or her capacity as a Director of AT&T. In addition, the Director must meet certain independence standards specified by the NYSE as well as the additional standards referenced in our Corporate Governance Guidelines (found at www.att.com).

Using these standards for determining the independence of its members, the Board has determined that the following Directors are independent:

 

Samuel A. Di Piazza, Jr.

  

Beth E. Mooney

Richard W. Fisher

  

Joyce M. Roché

Scott T. Ford

  

Matthew K. Rose

Glenn H. Hutchins

  

Cynthia B. Taylor

William E. Kennard

  

Laura D’Andrea Tyson

Michael B. McCallister

  

Geoffrey Y. Yang

In addition, each member of the Audit Committee, the Corporate Governance and Nominating Committee, and the Human Resources Committee is independent.

In determining the independence of the Directors, the Board considered the following commercial relationships between AT&T and companies at which our Directors serve as Executive Officers: payments by AT&T for the use of rights of way and facilities at Burlington Northern Santa Fe, LLC, where Mr. Rose serves as CEO; and interest paid from participation in a structured finance program through KeyCorp, where Ms. Mooney serves as CEO. In addition, each of the foregoing companies as well as each of the entities where Mr. Ford, Ms. Taylor, and Mr. Yang serve as executive officers purchased communications services from subsidiaries of AT&T. In each case for the year 2018:

 

   

The relevant products and services were provided by AT&T or to AT&T on terms determined on an arm’s-length basis that were comparable to the terms provided to or by similarly situated customers or suppliers;

 

   

The transactions were made in the ordinary course of business of each company; and

 

   

The total payments by AT&T to the Director’s company (for rights of way or for interest) or to AT&T by the Director’s company (for communications services) were each substantially less than 1% of the consolidated gross revenues of each of AT&T and the other company. This level is significantly below the maximum amount permitted under the NYSE listing standards for director independence (i.e., 2% of consolidated gross revenues).

 

 

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B OARD C OMMITTEES

 

From time to time the Board establishes permanent standing committees and temporary special committees to assist the Board in carrying out its responsibilities. The Board has established six standing committees of Directors, the principal responsibilities of which are described below. The charters for each of these committees may be found on our website at www.att.com.

 

 

     Audit Committee

 

     

 

       Meetings in Fiscal 2018:  13

 

 

       Samuel A. Di Piazza, Jr., Chair

       Michael B. McCallister

       Cynthia B. Taylor

       Laura D. Tyson

 

        – Financial Expert

 

 

 

 

 

       Consists of four independent Directors.

    

 

•  Oversees:

 

- the integrity of our financial statements

 

- the independent auditor’s qualifications and independence

 

- the performance of the internal audit function and independent auditors

 

- our compliance with legal and regulatory matters.

 

•  Responsible for the appointment, compensation, retention and oversight of the work of the independent auditor.

 

•  The independent auditor audits the financial statements of AT&T and its subsidiaries.

 

 

 

     Corporate Governance and Nominating Committee

 

     

 

       Meetings in Fiscal 2018:  4

 

 

       Matthew K. Rose, Chair

       Richard W. Fisher

       William E. Kennard

       Beth E. Mooney

       Joyce M. Roché*

 

 

 

 

       Consists of five independent Directors.

    

 

•  Responsible for recommending candidates to be nominated by the Board for election by the stockholders, or to be appointed by the Board of Directors to fill vacancies, consistent with the criteria approved by the Board, and recommending committee assignments.

 

•  Periodically assesses AT&T’s Corporate Governance Guidelines and makes recommendations to the Board for amendments and also recommends to the Board the compensation of Directors.

 

•  Takes a leadership role in shaping corporate governance and oversees an annual evaluation of the Board.

 

* Retiring effective April 26, 2019

 

 

     Human Resources Committee

 

     

 

       Meetings in Fiscal 2018:  6

 

 

       Joyce M. Roché, Chair*

       Scott T. Ford

       Michael B. McCallister

       Matthew K. Rose

       Geoffrey Y. Yang

 

 

 

       Consists of five independent Directors.

    

•  Oversees the compensation practices of AT&T, including the design and administration of employee benefit plans.

 

•  Responsible for:

 

- establishing the compensation of the Chief Executive Officer and the other Executive Officers

 

- establishing stock ownership guidelines for officers and developing a management succession plan.

 

* Retiring effective April 26, 2019

 

 

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     Corporate Development and Finance Committee

 

     

 

       Meetings in Fiscal 2018:  5

 

 

       Scott T. Ford, Chair

       Richard W. Fisher

       Glenn H. Hutchins

       Beth E. Mooney

       Geoffrey Y. Yang

 

 

 

       Consists of five independent Directors.

    

 

•  Assists the Board in its oversight of our finances, including recommending the payment of dividends and reviewing the management of our debt and investment of our cash reserves.

 

•  Reviews mergers, acquisitions, dispositions and similar transactions; reviews corporate strategy and recommends or approves transactions and investments.

 

•  Reviews and makes recommendations about the capital structure of the Company, and the evaluation, development and implementation of key technology decisions.

 

 

 

     Public Policy and Corporate Reputation Committee

 

     

       Meetings in Fiscal 2018:  6

 

 

       Laura D. Tyson, Chair

       Samuel A. Di Piazza, Jr.

       Glenn H. Hutchins

       William E. Kennard

       Cynthia B. Taylor

 

 

 

 

 

       Consists of five independent Directors.

    

•  Assists the Board in its oversight of policies related to corporate social responsibility including public policy issues affecting AT&T, its stockholders, employees, customers, and the communities in which it operates.

 

•  Oversees the Company’s management of its brands and reputation.

 

•  Recommends to the Board the aggregate amount of contributions or expenditures for political purposes, and the aggregate amount of charitable contributions to be made to the AT&T Foundation.

 

•  Consults with the AT&T Foundation regarding significant grants proposed to be made by the Foundation.

 

 

     Executive Committee

 

 

 

       Randall L. Stephenson, Chair

       Samuel A. Di Piazza, Jr.

       Scott T. Ford

       Joyce M. Roché*

       Matthew K. Rose

       Laura D. Tyson

 

 

 

 

       Consists of the Chairman of the Board

       and the Chairmen of our five other

       standing committees.

      

 

•  Established to assist the Board by acting upon urgent matters when the Board is not available to meet. No meetings were held in 2018.

 

•  Has full power and authority of the Board to the extent permitted by law, including the power and authority to declare a dividend or to authorize the issuance of common stock.

 

 

* Retiring effective April 26, 2019

A CTIVE O NGOING S TOCKHOLDER E NGAGEMENT

 

 

AT&T has a long tradition of engaging with our stockholders. We believe it is important for our governance process to have meaningful engagement with our stockholders and understand their perspectives on corporate governance, executive compensation, and other issues that are important to them. The Company meets with institutional investors throughout the year, both in person and by teleconference. We share the feedback from this

engagement with the Board and incorporate it into our policies and practices. The Company also provides online reports designed to increase transparency on issues of importance to our investors, including sustainability, diversity, political contributions, transparency, and the Proxy Statement and Annual Report.

 

 

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P UBLIC P OLICY E NGAGEMENT

 

 

We participate in public policy dialogues around the world related to our industry and business priorities, our more than 268,000 employees, our stockholders, and the communities we serve.

In the U.S., the Company and our affiliated political action committees comply with applicable laws and other requirements regarding contributions to: political organizations, candidates for federal, state and local public office, ballot measure campaigns, political action committees, and trade associations. We engage with organizations and individuals to make our views clear and uphold our commitment to help support the communities in which we operate. We base our U.S. political contributions on many considerations, supporting candidates who take reasonable positions on policies that promote economic growth as well as affect our long-term business objectives.

The Public Policy and Corporate Reputation Committee of our Board of Directors reviews our advocacy efforts, including political contributions. Additional information about our public policy engagement efforts, including our Political Contributions Policy and a report of U.S. political contributions from our Company and from AT&T’s Employee Political Action Committees, can be viewed on our website at www.att.com.

 

 

LOGO

Find more online.

Our Political Contributions Policy and the AT&T Political Engagement Report are available on our website at www.att.com.

 

 

E THICS AND C OMPLIANCE P ROGRAM

 

 

The Board has adopted a written Code of Ethics applicable to Directors, officers, and employees that outlines our corporate values and standards of integrity and behavior and is designed to foster a culture of integrity, drive compliance with legal and regulatory requirements and protect and promote the reputation of our Company. The full text of the Code of Ethics is posted on our website at www.att.com.

Our Chief Compliance Officer has responsibility to implement and maintain an effective ethics and compliance program. He also has responsibility to provide updates on our ethics and compliance programs to the Audit Committee.

 

 

LOGO

Find more online.

Our Code of Ethics is available on our website at www.att.com.

 

 

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A NNUAL M ULTI -S TEP B OARD E VALUATIONS

 

 

Each year, the Corporate Governance and Nominating Committee and the Lead Director lead the Board through three evaluations: a Board self-evaluation, Committee self-evaluations, and peer evaluations. Through this process, Directors provide feedback,

assess performance, and identify areas where improvement can be made. We believe this approach supports the Board’s effectiveness and continuous improvement.

 

 

 

One-on-One Director Peer Evaluations

 

   

 

Committee Self-Evaluations

 

   

Members discuss the performance of other members of the Board including, their:

•   Understanding of the business

•   Meeting attendance

•   Preparation and participation in Board activities

•   Applicable skill set to current needs of the business

Responses are discussed with the individual Director if applicable

 

   

Candid open discussion to review the following:

•   Committee process and substance

•   Committee effectiveness, structure, composition, and culture

•   Overall Committee dynamics

•   Committee Charter

 

   

 

 

Ongoing Feedback

 

   

 

Board Self-Evaluation Survey

 

   

Directors provide ongoing, real-time feedback outside of the evaluation process.

 

Lines of communication between our directors and management are always open.

   

Evaluation survey (reviewed annually by the Corporate Governance and Nominating Committee) addresses key topics such as those below, among other things:

•   Process and substance

•   Effectiveness, structure, composition, culture, and overall Board dynamics

•   Performance in key areas

•   Specific issues which should be discussed in the future

•   Responses are discussed and changes and improvements are implemented, if applicable

 

 

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C OMMUNICATING WITH Y OUR B OARD

 

Interested persons may contact the Lead Director or the non-management Directors by sending written comments through the Office of the Secretary of AT&T Inc., 208 S. Akard Street, Suite 2954, Dallas, Texas 75202. The Office will either forward the original materials as addressed or provide Directors with summaries of the submissions, with the originals available for review at the Directors’ request.

A VAILABILITY OF C ORPORATE G OVERNANCE D OCUMENTS

 

A copy of AT&T’s Annual Report to the SEC on Form 10-K for the year 2018 may be obtained without charge upon written request to AT&T Stockholder Services, 208 S. Akard, Room 1830, Dallas, Texas 75202. AT&T’s Corporate Governance Guidelines, Code of Ethics, and Committee Charters for the following committees may be viewed online at www.att.com and are also available in print to anyone who requests them (contact the Senior Vice President and Secretary of AT&T at 208 S. Akard, Suite 2954, Dallas, Texas 75202): Audit Committee, Human Resources Committee, Corporate Governance and Nominating Committee, Corporate Development and Finance Committee, Public Policy and Corporate Reputation Committee, and Executive Committee.

 

 

H OW TO S UBMIT A P ROPOSAL FOR N EXT Y EAR

 

 

If a stockholder wishes to present a proposal or nominate a person for election as a Director at the 2020 Annual Meeting of Stockholders without such proposal or nomination being included in the Company’s proxy materials, such proposal or nomination must be received by the Senior Vice President and Secretary of AT&T at 208 S. Akard, Suite 2954, Dallas, Texas 75202 not less than 90 days nor more than 120 days before the anniversary of the prior Annual Meeting of Stockholders. Since the Annual Meeting of Stockholders will be held on April 26, 2019, written notice of any such proposal or nomination must be received by the Company no earlier than December 28, 2019 and no later than January 27, 2020. In addition, such proposal or nomination must meet certain other requirements and provide such additional information as provided in the Company’s Bylaws. A copy of the Company’s Bylaws may be obtained without charge from the Senior Vice President and Secretary of AT&T. Special notice provisions apply under the Bylaws if the date of the Annual Meeting is more than 30 days before or 70 days after the anniversary date.

Stockholder proposals intended to be included in the proxy materials for the 2020 Annual Meeting must be received by November 12, 2019. Such proposals should be sent in writing by courier or certified mail to the Senior Vice President and Secretary of AT&T at 208 S. Akard Street, Suite 2954, Dallas, Texas 75202. Stockholder proposals that are sent to any other person or location or by any other means may not be received in a timely manner.

Nominations for a Director intended for inclusion in the Company’s proxy materials for the 2020 Annual Meeting must be made in accordance with the proxy access provisions of the Company’s Bylaws and such nomination must be received by the Senior Vice President and Secretary of AT&T at 208 S. Akard, Suite 2954, Dallas, Texas 75202 not less than 120 days nor more than 150 days before the anniversary of the date that the Company mailed its Proxy Statement for the prior year’s Annual Meeting of Stockholders. Written notice of any such nomination must be received by the Company no earlier than October 13, 2019 and no later than November 12, 2019.

 

 

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R ELATED P ERSON T RANSACTIONS

 

 

Under the rules of the SEC, public issuers, such as AT&T, must disclose certain “Related Person Transactions.” These are transactions in which the Company is a participant where the amount involved exceeds $120,000, and a Director, Executive Officer, or holder of more than 5% of our common stock has a direct or indirect material interest.

AT&T has adopted a written policy requiring that each Director or Executive Officer involved in such a transaction notify the Corporate Governance and Nominating Committee and that each such transaction be approved or ratified by the Committee.

In determining whether to approve a Related Person Transaction, the Committee will consider the following factors, among others, to the extent relevant to the Related Person Transaction:

 

   

whether the terms of the Related Person Transaction are fair to the Company and on the same basis as would apply if the transaction did not involve a related person,

 

   

whether there are business reasons for the Company to enter into the Related Person Transaction,

 

   

whether the Related Person Transaction would impair the independence of an outside director, and

 

   

whether the Related Person Transaction would present an improper conflict of interest for any of our Directors or Executive Officers, taking into account the size of the transaction, the

   

overall financial position of the Director, Executive Officer or other related person, the direct or indirect nature of the Director’s, Executive Officer’s or other related person’s interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the Committee deems relevant.

A Related Person Transaction entered into without the Committee’s pre-approval will not violate this policy, or be invalid or unenforceable, so long as the transaction is brought to the Committee as promptly as reasonably practical after it is entered into or after it becomes reasonably apparent that the transaction is covered by this policy.

The employment of the following persons was approved by the Corporate Governance and Nominating Committee under the Company’s Related Party Transactions Policy. The rate of pay for each of these employees is similar to those paid for comparable positions at the Company. During 2018, a sister-in-law of John Stankey, Chief Executive Officer, Warner Media, LLC, was employed by a subsidiary with an approximate rate of pay, including commissions, of $132,530. Also during 2018, a brother of John Donovan, Chief Executive Officer, AT&T Communications, LLC, was employed by a subsidiary with an approximate rate of pay, including commissions, of $197,376. In addition, during 2018, a son of William Blase, Senior Executive Vice President – Human Resources, was employed by a subsidiary with an approximate rate of pay, including commissions, of $127,943.

 

 

D IRECTOR C OMPENSATION

 

 

The compensation of Directors is determined by the Board with the advice of the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee is composed entirely of independent Directors. None of our employees serve on this Committee. The Committee’s current members are Matthew K. Rose (Chair), Richard W. Fisher, William E. Kennard, Beth E. Mooney and Joyce M. Roché. Under its charter, the Committee annually reviews the compensation and benefits provided to Directors for their service and makes recommendations to the Board for changes. This includes not only Director retainers, but also Director compensation and benefit plans.

The Committee’s charter authorizes the Committee to employ independent compensation and other consultants to assist in fulfilling its duties. From time to time, the Committee engages a compensation consultant to advise the Committee and to provide information regarding director compensation paid by other public companies, which may be used by the Committee to make compensation recommendations to the Board. In addition, the Chief Executive Officer may make recommendations to the Committee or the Board about types and amounts of appropriate compensation and benefits for Directors. Directors who are employed by us or one of our subsidiaries receive no separate compensation for serving as directors or as members of Board committees.

 

 

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CORPORATE GOVERNANCE

 

 

The Company offers Directors both cash and equity compensation. Cash compensation comes in the form of an annual cash retainer that may be deferred and earn interest at the election of a Director. Equity is offered both as an annual grant and as an opportunity to defer the cash compensation into deferred stock units. The value of deferred stock units is based on the stock price and is converted to a cash payout after retiring from the Board.

 

  2018 Compensation  

Amount    

($)     

 

 

  Annual Retainer

 

 

 

 

140,000    

 

 

 

  Lead Director Retainer

 

 

 

 

60,000    

 

 

 

  Chair Retainer

       

 

    Audit Committee

 

 

 

 

25,000    

 

 

 

    Human Resources Committee

 

 

 

 

25,000    

 

 

 

Corporate Development and Finance Committee

 

 

 

 

15,000    

 

 

 

Corporate Governance and Nominating Committee

 

 

 

 

15,000    

 

 

 

Public Policy and Corporate Reputation Committee

 

 

 

 

15,000    

 

 

 

  Annual Award

 

 

 

 

170,000    

 

 

 

  Communications Equipment and Services

 

 

 

 

up to 25,000    

 

 

Under the Non-Employee Director Stock and Deferral Plan (the Director Plan ) each non-employee Director annually receives a grant of deferred stock units. Each deferred stock unit is equivalent to a share of AT&T stock and earns dividend equivalents in the form of additional deferred stock units. The annual grants are fully earned and vested at issuance and are distributed beginning in the calendar year after the Director leaves the Board. At distribution, the deferred stock units are converted to cash based on the then price of AT&T stock and are paid either in a lump sum or in up to 15 annual installments. Beginning in 2016, the deferred stock units had a grant date value of $170,000. To determine the number of deferred stock units granted, we calculate the nominal value of the award, which is the value that would yield the grant date value after applying an illiquidity discount. We

use the average remaining tenure of the non-employee Directors as the discount period. We then divide the nominal value by the price of AT&T stock on the grant date to determine the number of deferred stock units issued. The nominal value of the award before application of the discount was $231,924 in 2018. Beginning in 2019, the Company will annually issue Directors $220,000 in deferred stock units without an illiquidity discount and the Chair Retainers will increase by $5,000 for the Audit, Corporate Governance and Nominating, and Corporate Development and Finance Committees.

Additionally, Directors may defer the receipt of their retainers into either additional deferred stock units or into a cash deferral account under the Director Plan. Directors purchase the deferred stock units at the fair market value of AT&T common stock. Deferrals into the cash deferral account under the plan earn interest during the calendar year at a rate equal to the Moody’s Long-Term Corporate Bond Yield Average for September of the preceding year ( Moody’s Rate ). Directors may annually choose to convert their cash deferral accounts into deferred stock units at the fair market value of our stock at the time of the conversion. Directors may also use all or part of their retainers to purchase AT&T stock at fair market value under the Non-Employee Director Stock Purchase Plan.

To the extent earnings on cash deferrals under the Director Plan exceed the interest rate specified by the SEC for disclosure purposes, they are included in the “Director Compensation” table on page 28 under the heading “Nonqualified Deferred Compensation Earnings.”

Non-employee Directors may receive communications equipment and services pursuant to the AT&T Board of Directors Communications Concession Program. The equipment and services that may be provided to a Director, other than equipment at his or her primary residence, may not exceed $25,000 per year. All concession services must be provided by AT&T affiliates, except that the Director may use another provider for the Director’s primary residence if it is not served by an AT&T affiliate.

 

 

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CORPORATE GOVERNANCE

 

 

2018 D IRECTOR C OMPENSATION T ABLE

 

The following table contains information regarding compensation provided to each person who served as a Director during 2018 (excluding Mr. Stephenson, whose compensation is included in the Summary Compensation Table and related tables and disclosure).

 

  Name   

Fees Earned
or Paid in Cash
($)

(a)

    

Stock
Awards
($)

(b)

    

Nonqualified
Deferred
Compensation
Earnings

($)

(c)

    

All Other
Compensation
($)

(d)

    

Total

($)

 

 

 

  Samuel A. Di Piazza, Jr.

 

  

 

 

 

 

$  165,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$  15,000

 

 

 

 

  

 

$

 

 

350,000

 

 

 

 

 

  Richard W. Fisher

 

  

 

 

 

 

$  140,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$     982

 

 

 

 

  

 

 

 

 

$           0

 

 

 

 

  

 

$

 

 

310,982

 

 

 

 

 

  Scott T. Ford

 

  

 

 

 

 

$  155,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$           0

 

 

 

 

  

 

$

 

 

325,000

 

 

 

 

 

  Glenn H. Hutchins

 

  

 

 

 

 

$  140,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$           0

 

 

 

 

  

 

$

 

 

310,000

 

 

 

 

 

  William E. Kennard

 

  

 

 

 

 

$  140,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$           0

 

 

 

 

  

 

$

 

 

310,000

 

 

 

 

 

  Michael B. McCallister

 

  

 

 

 

 

$  140,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$  14,655

 

 

 

 

  

 

$

 

 

324,655

 

 

 

 

 

  Beth E. Mooney

 

  

 

 

 

 

$  140,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$           0

 

 

 

 

  

 

$

 

 

310,000

 

 

 

 

 

  Joyce M. Roché

 

  

 

 

 

 

$  165,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$  17,700

 

 

 

 

  

 

$

 

 

352,700

 

 

 

 

 

  Matthew K. Rose

 

  

 

 

 

 

$  215,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$   14,113

 

 

 

 

  

 

$

 

 

399,113

 

 

 

 

 

  Cynthia B. Taylor

 

  

 

 

 

 

$  140,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$  23,145

 

 

 

 

  

 

$

 

 

333,145

 

 

 

 

 

  Laura D’Andrea Tyson

 

  

 

 

 

 

$  155,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$  5,153

 

 

 

 

  

 

 

 

 

$  30,000

 

 

 

 

  

 

$

 

 

360,153

 

 

 

 

 

  Geoffrey Y. Yang

 

  

 

 

 

 

$  140,000

 

 

 

 

  

 

 

 

 

$  170,000

 

 

 

 

  

 

 

 

 

$         0

 

 

 

 

  

 

 

 

 

$  15,000

 

 

 

 

  

 

$

 

 

  325,000

 

 

 

 

Note (a). Fees Earned or Paid in Cash

The table below shows the number of deferred stock units purchased in 2018 by each Director with their retainers under the Non-Employee Director Stock and Deferral Plan.

 

  Director    Deferred Stock Units
Purchased in 2018

  Samuel A. Di Piazza, Jr.

   4,998

  Scott T. Ford

   4,695

  Glenn H. Hutchins

   4,241

  Beth E. Mooney

   4,241

  Joyce M. Roché

   2,499

  Matthew K. Rose

   6,512

In addition, the table below shows the number of shares of AT&T common stock purchased in 2018 by each Director with their retainers under the Non-Employee Director Stock Purchase Plan.

 

  Director    Shares Purchased
in 2018

  Michael B. McCallister

   2,119

  Geoffrey Y. Yang

   4,238
 

 

Note (b). Stock Awards

Amounts in this column represent the annual grant of deferred stock units that are immediately vested but are not distributed until after the retirement of the Director. The grant date value was determined by applying an illiquidity discount of 26.7%. The illiquidity discount was determined by taking the average expected remaining tenure of the Directors (8.2 years) and then using that average to calculate the illiquidity discount under FASB ASC Topic 718. The nominal value of each award (before applying the discount) was $231,924. The deferred stock units will be paid out in cash in the calendar year after the Director ceases his or her service with the Board, at the times elected by the Director. The aggregate number of stock awards outstanding at December 31, 2018, for each Director can be found in the “Common Stock Ownership” section beginning on page 29.

 

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CORPORATE GOVERNANCE

 

 

Note (c). Nonqualified Deferred Compensation Earnings

Amounts shown represent the excess earnings, if any, based on the actual rates used to determine earnings on deferred compensation over the market interest rates determined pursuant to SEC rules.

 

Note (d). All Other Compensation

Amounts in this column include personal benefits for Directors that in the aggregate equal or exceed $10,000, which for 2018 consisted of communications equipment and services provided under the AT&T Board of Directors Communications Concession Program (described on page 27) and gifts, as follows: Mr. McCallister ($13,397 and $1,258, respectively), Mr. Rose ($13,305 and $808, respectively), and Ms. Taylor ($12,337 and $808, respectively).

All Other Compensation also includes charitable matching contributions of up to $15,000 per year made by the AT&T Foundation on behalf of Directors and employees under the AT&T Higher Education/Cultural Matching Gift Program. Charitable contributions were made on the Directors’ behalf under this program as follows:

 

  Name    Matching Gifts

 

  Samuel A. Di Piazza, Jr.

  

 

$15,000

 

  Joyce M. Roché*

  

 

$17,700

 

  Cynthia B. Taylor

  

 

$10,000

 

  Laura D’Andrea Tyson*

  

 

$30,000

 

  Geoff Y. Yang

  

 

$15,000

*

For Ms. Roché and Dr. Tyson, $3,000 and $15,000, respectively, relate to contributions made in 2017.

 

 

C OMMON S TOCK O WNERSHIP

 

Certain Beneficial Owners

The following table lists the beneficial ownership of each person holding more than 5% of AT&T’s outstanding common stock as of December 31, 2018 (based on a review of filings made with the Securities and Exchange Commission on Schedules 13D and 13G).

 

  Name and Address of Beneficial Owner    Amount and Nature

 

of Beneficial Ownership

   Percent of Class

  BlackRock, Inc.

  55 East 52nd St., New York, NY 10055

 

   454,818,785 (1)    6.2%

  The Vanguard Group

  100 Vanguard Blvd., Malvern, PA 19355

 

   548,446,423 (2)    7.53%
1.

Based on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 4, 2019, which reported the following: sole voting power of 389,628,303 shares; shared voting power of 0 shares; sole dispositive power of 454,818,785 shares, and shared dispositive power of 0 shares.

2.

Based on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 11, 2019, which reported the following: sole voting power of 8,439,370 shares; shared voting power of 1,688,764 shares; sole dispositive power of 538,488,124 shares, and shared dispositive power of 9,958,299 shares.

 

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CORPORATE GOVERNANCE

 

 

 

Directors and Officers

The following table lists the beneficial ownership of AT&T common stock and non-voting stock units as of December 31, 2018, held by each Director, nominee, and officer named in the “Summary Compensation Table” on page 62. As of that date, each Director and officer listed below, and all Directors and Executive Officers as a group, owned less than 1% of our outstanding common stock. Except as noted below, the persons listed in the table have sole voting and investment power with respect to the securities indicated.

 

  Beneficial Owner

    


Total AT&T
Beneficial

Ownership
(including

options) (1)

 
 

 
 

 

    

Non-Voting
Stock

Units (2)

 
 

 

  Samuel A. Di Piazza, Jr.

     34,480      33,961  

  Richard W. Fisher

     10,000      19,462  

  Scott T. Ford

     81,319      52,757  

  Glenn H. Hutchins (3)

     167,651      41,369  

  William E. Kennard

     0      24,687  

  Michael B. McCallister

     41,221      35,403  

  Beth E. Mooney

     28,700      46,805  

  Joyce M. Roché

     11,860      192,400  

  Matthew K. Rose

     208,050      92,675  

  Cynthia B. Taylor

     5,718      30,035  

  Laura D’Andrea Tyson

     0      145,736  

  Geoffrey Y. Yang

     205,530      13,320  

  Randall L. Stephenson

     2,253,739      402,639  

  John J. Stephens

     667,836      78,212  

  John M. Donovan

     343,518      14,608  

  David R. McAtee II

     35,677      18,763  

  John T. Stankey

     591,643      47,605  

  All Executive Officers and Directors as a group (consisting of 21 persons, including those named above)

     5,207,952      1,353,895  

Note 1.

The table to the left includes presently exercisable stock options as well as stock options that became exercisable within 60 days of the date of this table. The following Executive Officers held the following numbers of options:

 

  Beneficial Owner     
Number of Stock
Options Held

  Randall L. Stephenson

     474,444  

  John J. Stephens

     122,174  

  John T. Stankey

     10,098  

  All Executive Officers

     608,820  

In addition, of the shares shown in the table to the left, the following persons share voting and investment power with other persons with respect to the following numbers of shares:

 

  Beneficial Owner     

Number of
Shared Voting and
Investment Power Shares


  John M. Donovan

     251,844  

  Glenn H. Hutchins

     167,651  

  Michael B. McCallister

     33,290  

  David R. McAtee II

     32,736  

  Beth E. Mooney

     28,700  

  Matthew K. Rose

     208,050  

  Randall L. Stephenson

     1,772,935  

  John T. Stankey

     573,787  

  John J. Stephens

     376,502  

  Cynthia B. Taylor

     196  

  Geoffrey Y. Yang

     131,035  

Note 2.

Represents number of vested stock units held by the Director or Executive Officer, where each stock unit is equal in value to one share of AT&T stock. The stock units are paid in stock or cash depending upon the plan and the election of the participant at times specified by the relevant plan. None of the stock units listed may be converted into common stock within 60 days of the date of this table. As noted under “Compensation of Directors,” AT&T’s plans permit non-employee Directors to acquire stock units (also referred to as deferred stock units) by deferring the receipt of retainers into stock units and through a yearly grant of stock units. Officers may acquire stock units by participating in stock-based compensation deferral plans. Stock units carry no voting rights.

Note 3.

Mr. Hutchins disclaims beneficial ownership of 3,322 shares held in trust for his siblings.

 

 

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CORPORATE SOCIAL RESPONSIBILITY

 

 

 

   
LOGO  

 

Governance 

 

 

 

 

AT&T’s commitment to CSR means integrating it into every aspect of our business, starting with governance.

   

 

LOGO

 

 

CSR INTEGRATION

Our corporate social responsibility (CSR) approach is based on the foundational belief in the interconnection of our long-term business success with the strength of our communities and the world. CSR oversight rests with the Public Policy and Corporate Reputation Committee of the AT&T Board of Directors. Our CSR Governance Council is led by our Chief Sustainability Officer and comprises senior executives representing business areas linked to CSR topics we and our stakeholders deem important. Our Code of Business Conduct puts our values into action and details our commitments to ethics, diversity, privacy, the environment, and our communities. Our Principles of Conduct for Suppliers outlines expectations for working with AT&T, including environmental stewardship, diversity, conflict minerals, ethics, labor, and human rights – and every new supplier contract requires acknowledgement. In addition, as members of the Joint Audit Cooperation, we work with other telecoms to ensure suppliers uphold our values, and we audit and measure progress regularly.

LOGO

 

 

 

OUR NETWORK

 

 

Our 8 Security

Operations Centers

are monitored

24/7/365 – addressing approximately 110 billion potential vulnerability probes on an average business day.

 

LOGO

 

We are using the power of our network to build a better tomorrow, and foundationally that means maintaining strong governance systems to manage network reliability and the security of our customers’ data. Connecting millions of devices, we continually enhance our network to drive service improvements – investing more than $105 billion in the last 5 years alone.

We safeguard data using approaches such as encryption, anonymization, and other security controls, as well as maintaining strict privacy and security policies and systems.

 

 

   
LOGO  

 

 

Environment 

 

 

 

 

AT&T is demonstrating corporate leadership on climate change by setting strong goals and taking purposeful action in and outside our company.

   

 

LOGO

 

 

CLIMATE CHANGE

 

On top of our continuous improvements in network energy efficiency, last year we signed agreements to purchase 820MW of wind power annually, making AT&T one of the largest corporate purchasers of renewable energy in the U.S. In 2019, we plan to build on our leadership in renewable energy as well as take steps to improve our company’s climate resiliency.

 

 

LOGO

 

 

AT&T’s wind projects are expected to reduce greenhouse gas emissions equivalent to taking more than 530,000 cars off the road or providing electricity for more than 372,000 homes per year.

 

LOGO

 

 

CUSTOMER SOLUTIONS

 

AT&T has a goal to enable carbon savings 10x the footprint of our own operations by 2025. We will reach that goal by enhancing the efficiency of our network and delivering sustainable customer solutions. To highlight progress on how our customers are using our technology to reduce carbon emissions, we are developing a portfolio of 10x Case Studies, available at att.com/10x .

 

LOGO

 

 

OPERATIONAL IMPACTS

 

Striving to better manage our operational impacts, including energy, water and waste, is a key focus. We are taking proactive measures to reduce our footprint and be a better steward of the environment.

 

 

   In 2018 we set a goal to achieve “zero waste” 1 at 100
   AT&T facilities – including our AT&T Global

 

LOGO

  

Headquarters in Dallas – by the end of 2020. This includes strategies to reduce waste and increase recycling and composting, with a goal of diverting 90% or more of our waste from landfills.

 

 

 

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CORPORATE SOCIAL RESPONSIBILITY

 

 

Progress Toward 2020 Goals 2

 

LOGO

60% energy intensity reduction 75% of goal completed

 

    

  

LOGO

30% fleet emissions reduction 66% of goal completed

         

LOGO

Refurbish, reuse or recycle 200m devices 73% of goal completed

 

     
LOGO    

 

 

Social 

 

 

 

 

AT&T is focused on issues important to our business and our communities, including safety, education, diversity and inclusion, and the welfare of our fellow citizens.

     

 

LOGO

 

 

RESPONSIBLE USE

 

One of our top priorities is empowering customers to use our products and services in a safe and responsible manner.

 

 

 

LOGO

 

 

 

 

Since inception, our It Can Wait ® campaign has generated more than 33 million pledges to never drive distracted.

 

 

 

The AT&T Digital You ® website includes a collection of resources that educate customers about online safety. Our #LaterHaters movement helps teens find positive reinforcement and the tools they need to boost positivity online and offline. We’re working to elevate the gaming experience through technology, and in doing so, our new #GreatGame campaign encourages good sportsmanship among gamers. And in 2018 we launched ScreenReady, an online safety pilot program, in our greater New York City retail stores.

 

LOGO

 

 

EDUCATION AND UPSKILLING

 

We are building a stronger business and a more dynamic workforce for all companies as we prepare individuals for the workforce demands of tomorrow.

 

 

 

$450

million

 

 

 

 

In 2018, we celebrated 10 years of our Aspire program, through which we’ve provided more than $450M toward student success and career readiness, with an emphasis on STEM-related fields.

 

 

 

Internally, we invested approximately $200 million and 16 million hours training our employees last year, and we contributed $23 million to their tuition aid.

Through the end of 2018, 60 percent of AT&T’s management workforce had enrolled in reskilling programs provided or subsidized by the company. And more than 50,000 learners worldwide, including more than 5,000 AT&T employees, had enrolled in nanodegree credential programs, a new pathway to higher education pioneered by Udacity and AT&T.

 

LOGO

 

 

DIVERSITY AND INCLUSION

 

Our efforts to create a culture in which all employees can learn and grow are led by the Chairman’s Diversity Council and our Chief Diversity Officer.

 

 

AT&T U.S.

workforce

diversity:

 

 

LOGO

 

LOGO

 

AT&T’s 24 Employee Resource Groups and Employee Networks help advance our professional development and represent cultures, genders, generations, veterans, individuals with disabilities, and members of the LGBTQ+ community. Our ERG and EN membership totals more than 133,000. Additionally, in 2018 WarnerMedia announced a new Diversity & Inclusion Policy that is an industry-pioneering commitment to give more opportunities to more

women and people of color – both in front of and behind the cameras. This is aided by WarnerMedia’s OneFifty initiative, a platform that disrupts the way content is developed and places diverse storytellers in the spotlight.

 

LOGO

 

 

COMMUNITY ENGAGEMENT

 

AT&T employees donated $29 million to more than 30,000 charities in 2018 to help make our communities stronger and have pledged to give $27.8 million in 2019. Our culture of giving provides resources to support employees’ charitable interests through AT&T Foundation grants, resulting in an additional $4.4 million in 2018. Employees also donated time in their communities, volunteering more than 1 million hours valued at more than $25 million.

 

 

1 AT&T utilizes the 90% threshold standard for “zero waste” as defined by the Zero Waste International Alliance, http://zwia.org/standards/zw-business-principles/b/

2 Represents progress through end of year 2017

3 Represents total U.S. workforce numbers, excluding WarnerMedia, through end of year 2018

 

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AUDIT COMMITTEE

 

 

AT&T has a separately designated standing Audit Committee. The Board has adopted a written charter for the Audit Committee, which may be viewed on the Company’s web site at www.att.com. The Audit Committee performs a review and reassessment of its charter annually. The Audit Committee oversees the integrity of AT&T’s financial statements, the independent auditors’ qualifications and independence, the performance of the internal audit function and independent auditors, and AT&T’s compliance with legal and regulatory matters.

The Audit Committee is composed entirely of independent Directors in accordance with the applicable independence standards of the New York Stock Exchange and AT&T. The members of the Audit Committee are Mr. Di Piazza (Chairman), Mr. McCallister, Ms. Taylor, and Dr. Tyson, each of whom

was appointed by the Board of Directors. The Board of Directors has determined that Mr. Di Piazza and Ms. Taylor are “audit committee financial experts” and are independent as defined in the listing standards of the New York Stock Exchange and in accordance with AT&T’s additional standards. Although the Board of Directors has determined that these individuals have the requisite attributes defined under the rules of the SEC, their responsibilities are the same as those of the other Audit Committee members. They are not AT&T’s auditors or accountants, do not perform “field work” and are not full-time employees. The SEC has determined that an audit committee member who is designated as an audit committee financial expert will not be deemed to be an “expert” for any purpose as a result of being identified as an audit committee financial expert.

 

 

P RIMARY R ESPONSIBILITIES

 

The Audit Committee is responsible for oversight of management in the preparation of AT&T’s financial statements and financial disclosures. The Audit Committee relies on the information provided by management and the independent auditors. The Audit Committee does not have the duty to plan or conduct audits or to determine that AT&T’s financial statements and disclosures are complete and accurate. AT&T’s Audit Committee charter provides that these are the responsibility of management and the independent auditors.

 

Independent Auditor Oversight

The Audit Committee has oversight of the Company’s relationship with the independent auditor and is directly responsible for the annual appointment, compensation and retention of the independent auditor. The independent auditor reports directly to the Audit Committee.

Financial Reporting Review

The Audit Committee reviews and discusses with management and the independent auditor:

 

   

the annual audited financial statements and quarterly financial statements;

 

   

any major issues regarding accounting principles and financial statement presentations; and

 

   

earnings press releases and other financial disclosures.

Internal Audit Oversight

The Audit Committee oversees the activities of the Company’s senior internal auditing executive, including internal audit’s assessment of operational and financial risks and associated internal controls. Significant internal audit reports and corrective action status are regularly discussed with the Audit Committee.

Risk Review

The Audit Committee reviews and discusses with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. This includes, among other matters, evaluating risk in the context of financial policies, counterparty and credit risk, and the appropriate mitigation of risk, including through the use of insurance where appropriate.

Compliance Oversight

The Audit Committee meets with the Company’s Chief Compliance Officer ( CCO ) regarding the CCO’s assessment of the Company’s compliance and ethics risks, the effectiveness of the Company’s Corporate Compliance Program, and any other compliance related matters that either the Committee or the CCO deems appropriate. The Audit Committee oversees the administration and enforcement of the Company’s Code of Business Conduct, Code of Ethics, and Corporate Compliance Program.

 

 

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AUDIT COMMITTEE

 

 

P RINCIPAL A CCOUNTANT F EES AND S ERVICES

 

 

Ernst & Young LLP acts as AT&T’s principal auditor and also provides certain audit-related, tax and other services. The Audit Committee has established a pre-approval policy for services to be performed by Ernst & Young. Under this policy, the Audit Committee approves specific engagements when the engagements have been presented in reasonable detail to the Audit Committee before services are undertaken.

This policy also allows for the approval of certain services in advance of the Audit Committee being presented details concerning the specific service to be undertaken. These services must meet service definitions and fee limitations previously established by the Audit Committee. Additionally, engagements exceeding $500,000 must receive advance concurrence from the Audit Committee Chairman. After an auditor is engaged under this authority, the services must be described in reasonable detail to the Audit Committee at the next meeting.

All pre-approved services must commence, if at all, within 14 months of the approval.

The fees for services provided by Ernst & Young (all of which were pre-approved by the Audit Committee) to AT&T in 2018 and 2017 are shown below.

 

Principal Accountant Fees (dollars in millions)

 

  Item      2018        2017 (e)  

  Audit Fees (a)

   $ 49.3        $ 37.3    

  Audit Related Fees (b)

     5.6          3.5    

  Tax Fees (c)

     10.1          9.3    

  All Other Fees (d)

     0.0          0.0    

Note (a). Audit Fees.

Included in this category are fees for the annual financial statement audit, quarterly financial statement reviews, audits required by Federal and state regulatory bodies, statutory audits, and comfort letters.

Note (b). Audit Related Fees.

These fees, which are for assurance and related services other than those included in Audit Fees, include charges for employee benefit plan audits, due diligence associated with acquisition and disposition activity, control reviews of AT&T service organizations, and consultations concerning financial accounting and reporting standards.

Note (c). Tax Fees.

These fees include charges for various Federal, state, local and international tax compliance and research projects, as well as tax services for AT&T employees working in foreign countries.

Note (d). All Other Fees.

No fees were incurred in 2018 or 2017 for services other than audit, audit related and tax.

Note (e). Time Warner Inc. Principal Accountant Fees for 2017.

Time Warner Inc. disclosed the following principal accountant fees for 2017 (dollars in millions), which are not included in this column: Audit - $19.6; Audit Related - $0.5; Tax - $1.8; and All Other - $0.0. 2017 was the last full calendar year prior to AT&T’s acquisition of Time Warner Inc.

 

 

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AUDIT COMMITTEE

 

 

A UDIT C OMMITTEE R EPORT

 

 

 

The Audit Committee: (1) reviewed and discussed with management AT&T’s audited financial statements for the year ended December 31, 2018; (2) discussed with the independent auditors the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees; (3) received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the Audit Committee concerning independence; and (4) discussed with the auditors the auditors’ independence.

 

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements for the year ended December 31, 2018, be included in AT&T’s Annual Report on Form 10-K for filing with the Securities and Exchange Commission.

 

 

 

February 13, 2019

  

The Audit Committee

  
  

 

Samuel A. Di Piazza, Jr., Chairman

  
  

Michael B. McCallister

  
  

Cynthia B. Taylor

  
  

Laura D’Andrea Tyson

  

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Table of Contents

 

 

37

 

 

   Executive Summary

 

40

 

 

   Role of the Human Resources Committee

 

40

 

 

   Guiding Pay Principles

 

41

 

 

   Checklist of Compensation Practices

 

41

 

 

   Stockholder Engagement

 

42

 

 

   Elements of 2018 Compensation

 

43

 

 

   Determining 2018 Target Compensation

 

44

 

 

   2018 Performance

 

44

 

 

   Return to Stockholders

 

45

 

 

   Determination of Award Payouts for Performance Periods Ending December 31, 2018

 

51

 

 

   Named Executive Officer Compensation

 

56

 

 

   2018 Long Term Grants

 

57

 

 

   Risk Mitigation

 

57

 

 

   Clawback Policy

 

58

 

 

   Benefits and Policies

 

60

 

 

   Equity Retention and Hedging Policy

 

60

 

 

   Role of the Compensation Consultant

Acronyms Used

 

CAM

 

  

Career Average Minimum

 

CDP

 

  

Cash Deferral Plan

 

CEO

 

  

Chief Executive Officer

 

DOJ

 

  

U.S. Department of Justice

 

EBITDA

 

  

Earnings Before Interest, Taxes, Depreciation, and Amortization

 

EPS

 

  

Earnings Per Share

 

EY

 

  

Ernst & Young LLP

 

FCF

 

  

Free Cash Flow

 

MCB

 

  

Management Cash Balance

 

NEO

 

  

Named Executive Officer

 

NYSE

 

  

New York Stock Exchange

 

ROIC

 

  

Return on Invested Capital

 

RSU

 

  

Restricted Stock Unit

 

SEC

 

  

Securities and Exchange Commission

 

SERP

 

  

Supplemental Employee Retirement Plan

 

SRIP

 

  

Supplemental Retirement Income Plan

 

SPDP

 

  

Stock Purchase and Deferral Plan

 

SRIP

 

  

Supplemental Retirement Income Plan

 

TSR

  

Total Stockholder Return

 

 

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Executive Summary

Our Human Resources Committee ( Committee ) takes great care to develop and refine an executive compensation program that recognizes its stewardship responsibility to our stockholders while ensuring the availability of talent to support a culture of growth, innovation, and performance in an extraordinarily large and complex organization.

In this section, we summarize the elements of our compensation program, how our program supports pay for performance, and our key performance achievements.

 

Topic        Overview    More
Information

The foundation of

our program

  

Our Committee believes that our programs should:

   Page 40
  

–  be aligned with stockholder interests,

  
  

–  be competitive and market-based,

  
  

–  pay for performance,

  
  

–  balance both short- and long-term focus, and

  
  

–  be aligned with generally accepted approaches.

  
  

To that end, we incorporate many best practices in our compensation program and avoid ones that are not aligned with our guiding pay principles.

    
Stockholder Engagement   

Each year, we engage with large stockholders to understand their views on executive compensation. In light of their feedback, results of the stockholder advisory vote on our executive compensation program, and market trends, the Committee adjusts our compensation program periodically as it determines to be appropriate.

   Page 41

Our compensation program elements and percentage of pay tied to performance and stock

price

  

–  Our program includes a number of different elements, from fixed compensation (base salaries) to performance-based variable compensation (short- and long-term incentives), to key benefits, which minimize distractions and allow our executives to focus on our success.

   Page 42
  

–  Each element is designed for a specific purpose, with an overarching goal of encouraging a high level of sustainable individual and Company performance well into the future.

  
  

–  For NEOs, the combination of short- and long-term incentives ranges from 86% to 93% of target pay. Payouts are formula-driven for:

•   90% of short-term incentives; and

•   100% of Performance Shares (which represent 75% of the long-term incentive).

  
  

–  All long-term grants are tied to our stock price performance.

  
  

–  Our Committee retains the authority to increase or decrease final award payouts, after adjustment for financial performance, to ensure pay is aligned with performance.

    
How we make compensation decisions   

The starting point for determining Executive Officer compensation is an evaluation of market data. Our consultant compiles compensation information for our Peer Group companies and then presents this information to our Committee for it to consider when making compensation decisions. Our Peer Group companies were chosen based on their similarity to AT&T on a number of factors, including alignment with our business, scale, and/or complexity.

   Page 43

 


 

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  2018 C OMPANY P ERFORMANCE H IGHLIGHTS

 

 

 

 

S TRATEGIC E XECUTION

 

 

•   Successfully defended our acquisition of Time Warner in U.S. v. AT&T, the first litigated challenge to a vertical merger by the DOJ in decades. Obtained a comprehensive order from the U.S. District Court categorically rejecting each of DOJ’s claims and permitting the transaction to close promptly without any divestitures of assets.

 

•   Closed the acquisitions of Time Warner, now WarnerMedia, and AppNexus, creating a modern media company built around premium content, direct-to-consumer relationships, advertising technology, and high-speed wireless and wireline networks.

 

 

 

•   Revenues of $170.8 billion, up 6.4%.

•   Reported diluted EPS was $2.85, down 40.1% from $4.76 in 2017 (2017 impacted by tax reform remeasurement). Adjusted diluted EPS of $3.52, up 15.4% from 2017. 1

•   Strong Cash from Operations of $43.6 billion with record FCF of $22.4 billion. 1

•   Dividend increased for 35 th consecutive year.

•   Full-year dividend payout ratio of 60%. 2

•   Ranked #1 among telecom companies in the 2018 Fortune Most Admired Companies rankings and among the 50 Most Admired Companies across any industry.

 

 

 

O PERATIONAL A CCOMPLISHMENTS

 

 

AT&T Communications

•   Returned to revenue growth in Mobility, with full-year total revenues up 2.1% and service revenues up 0.9%, both on a comparable basis.

•   Recognized as having the best wireless network video streaming quality, quickest loading times and best voice retainability by Global Wireless Solutions, America’s biggest test. 3

•   First to introduce standards-based mobile 5G service, ending 2018 with 5G in parts of 12 cities.

•   Ended the year 6 months ahead of schedule on the FirstNet deployment and with more than 425,000 FirstNet subscribers across 5,250 agencies.

•   Covered more than 11 million customer locations with our fiber network.

•   Extended the company’s high-speed fiber network to nearly 2.2 million U.S. business customer locations.

 

Xandr

•   Acquired AppNexus, bringing expertise in automation, engineering and advanced advertising to Xandr.

•   Including AppNexus, revenues grew by 26.7%.

 

 

 

WarnerMedia

•   Continued CNN’s run as the #1 digital news destination. 4

•   Had 3 of the top 5 ad-supported cable networks— TNT, TBS, and Adult Swim—in primetime among adults 18-49 for the full year.

•   Saw Warner Bros. films gross more than $5.5 billion in global box office receipts, making 2018 the studio’s biggest year ever, led by hits including Aquaman, Crazy Rich Asians, Fantastic Beasts, The Crimes of Grindelwald, Ready Player One, and A Star is Born.

 

AT&T Latin America

•   Vrio, a leader in the Latin America prepaid video segment, grew subscribers by 1.5%.

•   Added 3.2 million wireless subscribers in Mexico to reach a total of 18.3 million, up 21.3% year over year. AT&T has added more subscribers in Mexico than any other wireless provider each of the last 10 quarters.

 

Notes

1   See Annex A for EPS and FCF reconciliation.

2  FCF dividend payout ratio is dividends divided by FCF.

3   Based on OneScore Sept. 2018 report. Excludes crowdsourced studies.

4  Based on multiplatform unique visitors and video starts for the 12 th and 15 th consecutive quarters, respectively.


 

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 S UMMARY OF I NCENTIVE P AYOUTS

 

2018 C ORPORATE S HORT T ERM A WARDS *

 

Metric      Type of
Metric
     Metric
Weight
       Attainment        Payout%

2018 EPS

     Quantitative      60%        92%              81%

2018 FCF

     Quantitative      30%        98%              98%

Collaboration

     Qualitative      10%        n/a            100%

Weighted Average Payout

                                88%

* Mr. Donovan’s Award payout is based on a mix of corporate and business unit performance attainment. Please see page 45 for more information.

L ONG T ERM A WARD – P ERFORMANCE S HARE C OMPONENT

2016-2018 P ERFORMANCE P ERIOD

 

Metric      Metric
Weight
       Attainment        Payout%

3-Year ROIC

     75%        7.56%            101%

3-Year Relative TSR

     25%        Level 6                0%

Weighted Average Payout

                         76%

After the impact of change in stock price over the 2016 – 2018 performance period, our NEOs received approximately 64% of their original Performance Share grant value.

2019 P ROGRAM E NHANCEMENT

 

The Committee has approved the use of Net-Debt-to-Adjusted-EBITDA as a performance metric with a 20% weighting for determining 2019 short-term incentive awards (payable 2020) for all Executive Officers.

The narrative on the following pages more fully describes how the Committee, with the input of its consultant, has designed and evolved our Executive Officer compensation and benefits program using the Committee’s guiding pay principles as the pillars of the program. We also outline how we establish pay targets and how actual Executive Officer pay is determined. Finally, we provide a description of other benefits.

 


 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

R OLE OF THE H UMAN R ESOURCES C OMMITTEE

 

The Committee’s charter is available on our website at www.att.com. Our Committee is composed entirely of independent Directors. The current members of the Committee are: Ms. Roché (Chairman), Mr. Ford, Mr. McCallister, Mr. Rose, and Mr. Yang. Our Committee is responsible for:

 

  Compensation-related Tasks    Organizational Tasks

 

  

 

  –Determining the compensation for our Executive Officers, including salary and short- and long-term incentive opportunities;

  –Reviewing, approving, and administering our executive compensation plans, including our stock plans;

  –Establishing performance objectives under our short- and long-term incentive compensation plans;

  –Determining the attainment of those performance objectives and the awards to be made to our Executive Officers;

  –Evaluating Executive Officer compensation practices to ensure that they remain equitable and competitive; and

  –Approving employee benefit plans, as needed.

  

– Evaluating the performance of the CEO;

– Reviewing the performance and capabilities of the other Executive Officers, based on input from the CEO; and

– Reviewing succession planning for Executive Officer positions including the CEO’s position.

G UIDING P AY P RINCIPLES

 

Our Committee has designed an executive compensation program that encourages our leaders to produce outstanding financial and operational results, create sustainable long-term value for our stockholders, and lead the company with ethics and integrity. Our guiding pay principles are:

Alignment with Stockholders

Provide compensation elements and set performance targets that closely align executives’ interests with those of stockholders. For example, approximately 69% of target pay for NEOs is tied to stock price performance. In addition, we have executive stock ownership guidelines and stock holding requirements, as described on page 60.

Competitive and Market Based

Evaluate all components of our compensation and benefits program in light of appropriate peer company practices to ensure we are able to attract and retain world-class talent with the leadership abilities and experience necessary to develop and execute business strategies, obtain superior results, and build long-term stockholder value in an organization as large and complex as AT&T.

Pay for Performance

Tie a significant portion of compensation to the achievement of predetermined goals and recognize individual accomplishments that contribute to our success. For example, in 2018, 93% of the CEO’s target compensation (and, on average, 89% for other NEOs) was variable and tied to short- and long-term performance incentives, including stock price performance.

Balanced Short- and Long-Term Focus

Ensure that the compensation program provides an appropriate balance between the achievement of short- and long-term performance objectives, with a clear emphasis on managing the sustainability of the business and mitigating risk.

Alignment with Generally Accepted Approaches

Provide policies and programs that fit within the framework of generally accepted approaches adopted by leading major U.S. companies.

 

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These guiding pay principles serve as the pillars of our compensation and benefits program and any potential changes to the program are evaluated in light of their ability to help us meet these goals.

C HECKLIST OF C OMPENSATION P RACTICES

 

Our compensation program is designed around the following market-leading practices:

 

PRACTICES WE USE       PRACTICES WE DON’T USE

 

Pay for Performance: Tie compensation to performance by setting clear and challenging performance goals. The vast majority of Executive Officer compensation is tied to performance metrics and/or stock price performance.

 

Multiple Performance Metrics and Time Horizons: Use multiple performance metrics and multi-year vesting timeframes to discourage unnecessary short-term risk taking.

 

Stock Ownership and Holding Period Requirements: NEOs must comply with stock ownership guidelines and hold the equivalent of 25% of post-2015 stock award distributions until retirement.

 

Regular Engagement with Stockholders: We engage with large stockholders no less than annually regarding executive compensation matters.

 

Dividend Equivalents: Paid at the end of the performance period on earned Performance Shares.

 

Compensation-Related Risk Review: Performed annually to confirm that our programs do not encourage excessive risk taking and are not reasonably likely to have a material adverse effect on the Company.

 

Clawback Policy: Provides for the recovery of previously paid executive compensation for any fraudulent or illegal conduct.

 

Severance Policy: Limits payments to 2.99 times salary and target bonus.

 

     

 

û    No “Single Trigger” Change in Control Provisions: No accelerated vesting of equity awards upon a change in control.

 

û    No Tax Gross-Ups: No excise tax gross-up payments; no other tax gross-ups, except in extenuating circumstances.

 

û    No Credit for Unvested Shares when determining compliance with stock ownership guidelines.

 

û   No Repricing or Buy-Out of underwater stock options.

 

û    No Hedging or Short Sales of AT&T stock.

 

û   No Supplemental Executive Retirement Benefits for officers promoted/hired after 2008.

 

û    No Guaranteed Bonuses.

 

û   No Excessive Dilution: Our annual equity grants represent less than 1% of the total outstanding Common Stock each year. As of July 31, 2018, our total dilution was 1.4% of outstanding Common Stock.

S TOCKHOLDER E NGAGEMENT

 

The Committee has taken into account feedback from our annual outreach to large stockholders when evaluating our program. Of the votes cast at the 2018 Annual Meeting of Stockholders, over 90% were in favor of the advisory vote on executive compensation.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

E LEMENTS OF 2018 C OMPENSATION

 

It is in our stockholders’ interest that our compensation program be structured to make attraction, retention, and motivation of the highest quality talent a reality. Our executive compensation and benefits program includes a number of different elements, designed for different purposes, with an overarching goal to encourage a high level of sustainable individual and Company performance well into the future:

 

Current Year Performance       +       Multi-Year Performance       +       Attraction & Retention

Salary and

Short-Term Incentives

 

Long-Term Incentives

(75% Performance Shares

and 25% Restricted Stock

Units)

 

Retirement, Deferral/Savings

Plans, Benefits, and

Personal Benefits

The chart below more fully describes the three elements of total direct compensation and their link to our business and talent strategies.

 

                                                Weightings  
          Reward
Element
         Form        

Link to Business

and Talent Strategies

         CEO      

Average for

Other

NEOs

 
                     
   

Base Salary

 

    

 

Cash

 

     

Provides compensation to
assume the day-to-day
responsibilities of the position.

    

 

 

 

7%

 

 

 

 

 

 

11%

 

 

      

A portion may be

contributed to AT&T

stock and cash

deferral plans.

     
         

 Fixed 

Pay

         

Pay level recognizes experience, skill, and performance, with the goal of being market-competitive.

 

 
         
         
          Adjustments may be made based on individual performance, pay relative to other executives, and  
         
         
                   

pay relative to market.

                  
                                                                       
                     
          

 

Cash

 

     

Aligns pay with the achievement of short-term objectives.

 

                  
          

 

A portion may be

contributed to AT&T

stock and cash

deferral plans.

            
   

Short-Term

Incentives

 (see page 45) 

 

              

 

                

        

    

          Payouts based on achievement of goals, with potential for upward or downward adjustment by the Committee to align pay with performance.     

 

 

 

23%

 

 

 

 

 

 

24%

 

 

         
                

 At Risk 

Pay

                                             
                                                               
                     
          

 

Stock

 

                     70%       65%  
   

Long-Term

Incentives

(see page 48)

    

 

75% Performance Shares

(paid 34% in stock, 66% in cash)

 

  25% Restricted Stock Units  

(paid in stock)

     

Motivates and rewards the achievement of long-term performance.

 

 
         
         
          Aligns executive and stockholder interests.  
         
                            

 

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D ETERMINING 2018 T ARGET C OMPENSATION

 

The starting point for determining Executive Officer compensation begins with an evaluation of market data. The consultant compiles data for the Peer Group companies from both proxy and third-party compensation surveys.

 

How the Peer Group was chosen

 

The Committee’s compensation consultant developed the Peer Group with input from the Committee and management based on the following criteria:

•  similarity to AT&T in terms of size, organizational and business complexity, and/or industry,

•  global scope of operations and/or diversified product lines,

•  ability of the company to compete with AT&T for talent, and

•  similarity to jobs at AT&T in terms of complexity and scope of positions.

Following is the Peer Group our consultant used to assess market-based compensation for Executive Officers in 2018.

 

  2018 Peer Group

 

•  21st Century Fox

•  Alphabet

•  Amazon

•  Apple

•  Boeing

•  CBS

 

 

•  Charter

•  Chevron

•  Cisco

•  Comcast

•  Exxon Mobil

•  General Electric

 

 

•  Intel

•  IBM

•  Microsoft

•  Oracle

•  Sprint

•  T-Mobile US

 

 

•  Verizon Communications

•  Viacom

•  Wal-Mart

•  Walt Disney

 

 

Note: These same 22 companies are also used to determine our relative TSR performance for the 2018 Performance Share grant.

 

 

The consultant reviewed the market data for the Peer Group with members of management and the CEO (for Executive Officers other than himself) to confirm the job matches and scoping of market data based on the relative value of each position and differences in responsibilities between our jobs and those in the comparator groups. After completing this review, the consultant presented the market data to the Committee.

The Committee used the market data and the CEO’s compensation recommendations for the other Executive Officers and then applied its judgment and experience to set Executive Officer compensation for the coming year. When setting compensation, the Committee may determine that Executive Officers with significant experience and responsibilities or who demonstrate exemplary performance have higher target compensation, while other Executive Officers may have lower target compensation.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

2018 P ERFORMANCE

 

AT&T is a global leader in telecommunications, media, entertainment, and technology. We are transforming into a truly modern media company that will work to create the best entertainment and communications experiences in the world. 2018 was a transformational year as we completed the acquisition of Time Warner, and we continued to successfully execute on our strategic goals.

To put in perspective the scale, scope, and complexity of our business as compared to our 22 compensation benchmark companies (as shown on page 43), below is a comparison of market cap, revenues, and net income:

Comparison of Scope and Scale

AT&T and Peer Group 1 ($M)

 

 

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For more information on our financial and operational performance, please see our Annual Report at www.att.com.

R ETURN TO S TOCKHOLDERS

 

We continue to deliver positive returns to our stockholders over the long-term and have a long history of increasing dividends.

 

 

35

 

—Years—

 

Consecutive Increase in

 

Quarterly Dividend

 

   

 

2.0

 

—Percent—

 

Increase in Quarterly

 

Dividend in 2018

 

 

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D ETERMINATION OF A WARD P AYOUTS FOR P ERFORMANCE P ERIODS E NDING D ECEMBER  31, 2018

 

2018 Short-Term Incentive Plan Metrics and Performance Attainment

After reviewing our business plan and determining the business metrics on which our Executive Officers should focus, the Committee established the following performance targets applicable to payment of short-term awards for 2018:

2018 SHORT-TERM INCENTIVE PLAN METRICS

 

Mr. Stephenson, Mr. McAtee,

Mr. Stankey, and Mr. Stephens

     Mr. Donovan
                             Metric    Weight                  Metric    Weight            

 

 EPS

   60%                 

 

EPS

   10%            

 FCF

   30%                  Collaboration    10%            

 Collaboration

   10%                  AT&T Communications FCF    40%            
       

AT&T Communications

Operating Contribution

   40%            
       

AT&T Communications Revenue

Kicker (see below)

   0 to + 75%            

2018 SHORT TERM INCENTIVE AWARD PAYOUT STRUCTURE

 

 Name/(Metric Set)   Performance Metrics   Relevance of Metric   Threshold

Performance

Payout%

  Target

Performance

Payout%

  Maximum

Performance

Payout% 1

 

 Mr. Stephenson

 Mr. Stephens

 Mr. McAtee

 Mr. Stankey

 Mr. Donovan (EPS only)

 

 (Corporate)

  EPS  

 

Indicator of profitability

and a window into our

long-term sustainability

 

 

Performance
achievement of

80% of target
results in a 50%
payout

 

100%

  Performance
achievement
of 120% of
target results
in a 150%
payout
  FCF  

 

Important to continue to

invest, pay down debt,

and provide strong

 

 Mr. Donovan

 

 (AT&T

 Communications)

  AT&T Communications FCF  

dividends to our

stockholders

  No payout for
performance
below 80% of
target
 

 

AT&T Communications Operating Contribution

 

 

Incorporates a focus on

revenues and expense

control/reduction

 

 

AT&T Communications Revenue Kicker

 

 

Top and bottom line

growth of largest

subsidiary to drive

stockholder returns

 

 

Potential for up to an additional 75% payout for revenue growth in excess of 1.25% and operating contribution of 110% or higher of target

 

 All NEOs

 

 

Collaboration

 

 

Leverage robust

portfolio of assets to

benefit stockholders

 

 

Qualitative assessment by the Committee

 

1  

In each case, an overall payout cap of 125% applies to the final, weighted payout before any applicable AT&T Communications Revenue Kicker (Mr. Donovan only).

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

The following charts show the performance goals, actual performance attainment and payout percentage for each short-term performance metric.

 

 

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Short-Term Incentive Performance Goals and Attainment Corporate Financial Metrics Earnings Per Share 60% Weighting Free Cash Flow 30% Weighting Payout %125% 100% 75% 50% 25% 0%Payout 81% $3.50 $3.21 92% of Goal Performance Goal Attainment (after performance adjustments) 1Payout 98% $21.5B $21.1B98% of Goal Performance Goal Attainment (after performance adjustments) 2 1. EPS results were adjusted as follows: Reported EPS Adjustments per per-established award terms: M&A Pension Plan Gains/Losses Tax Reform Discretionary Reductions: Asset Revaluation EPS for Compensation $2.85 .94(.43)(.10)(.05) $3.21 2. Free Cash Flow is net cash from operating activities minus capital expenditures. Free Cash Flow results were adjusted as follows: Reported Free Cash Flow Adjustments per pre-established award terms: M&A Excess Benefit Plan Contributions Free Cash Flow for Compensation $22.4B (1.6) 0.4 $21.1B

 

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Short-Term Incentive Performance Goals and Attainment AT&T Communications Financial Metrics Free Cash Flow 40% Weighting Operating Contribution 40% Weighting Payout %125% 100% 75% 50% 25% 0% Payout 78% $24.5B $22.2B91% of Goal Performance Goal Attainment Payout 87% $34.5B $32.3B 94% of Goal Performance Goal Attainment Mr. Donovan was also eligible for an AT&T Communications 2018 Revenue Kicker. This kicker provided for a potential payout of up to an additional 75% of Mr. Donovans short-term target. However, AT&T Communications revenue and operating contribution did not meet the criteria for a payout.

Collaboration - 10% Weighting

The Committee reviewed the ways the executive team and four operating entities worked together to leverage AT&T assets to drive results that benefit stockholders. The Committee determined that each of the NEO’s earned a payout of 100% based on the following accomplishments (among others):

 

   

Our merger synergies remain on target to achieve a $2.5B billion run rate by the end of 2021.

 

   

Launch of the first, large-scale integrated marketing campaign between WarnerMedia and AT&T Communications.

 

   

More relevant advertising across Turner’s TV networks, through the combined efforts of Xandr, AT&T Communications, and WarnerMedia.

 

   

Creation of the WarnerMedia Innovation Lab that will combine emerging technologies such as AT&T’s 5G services, Xandr’s advanced ad tech platform capabilities, and content from WarnerMedia to create new and innovative business and consumer experiences.

 

   

Deployment of a low cost Direct to Consumer Video service in AT&T Latin America that delivered 85+ live channels, Video on Demand, and multi-language capabilities, with the assistance of Turner’s iStreamPlanet.

 

   

Because of the Time Warner acquisition, AT&T was able to launch WatchTV, a 30+ channel, live-TV streaming service.

Final Award Determination

The NEOs whose awards are based on corporate performance metrics each received a performance-adjusted award payout of 88%, and Mr. Donovan’s performance-adjusted award payout was 84%. The Committee maintains the ability to make adjustments to the formula-driven payout as it deems appropriate in order to ensure alignment of Executive Officer pay with performance.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Long-Term Incentive Plan Metrics and Performance Attainment –Performance/Restriction Periods Ending in 2018

The following chart describes the structure and terms of long-term awards with performance or restriction periods ending in 2018 or early 2019:

 

   Form of Award

 

 

Weight

 

 

Performance Metrics and

Vesting Period

 

 

Description

 

     
Performance Shares Granted in 2016   50%  

3-year performance period (2016-2018)

 

Performance metrics:

–  75% ROIC

–  25% Relative TSR

 

Payout value based on combination of performance attainment and stock price performance.

 

   Each Performance Share is equal in value to a share of stock, which causes the value of the award to fluctuate directly with changes in our stock price over the performance period.

 

   Performance Shares are paid in cash based on our stock price on the date an award payout is approved.

 

   Because awards are based on a 3-year performance period, they maximize the leverage of both short- and long-term performance. The impact of a single year’s performance is felt in each of the three Performance Share grants that are outstanding at any given time, so that strong performance must be sustained every year in order to provide favorable payouts.

 

   Dividend equivalents are paid at the end of the performance period, based on the number of Performance Shares earned.

     

RSUs Granted in 2015

  50%  

4-year restriction period

 

Payout value based on stock price performance.

 

 

We structure RSUs to be paid in stock at the end of the restriction period, regardless of whether they vest earlier. RSUs vest 100% after four years or upon retirement eligibility, whichever occurs earlier.

ROIC Payout Table and Actual Performance Attainment – 2016-2018 Performance Period

Determination of Performance Goal

  

Performance Below Target Range

We established a performance target range of 6.50% to 7.50% at the beginning of the 3-year performance period. This target range does not reward or penalize Executive Officers for performance achievement within close proximity to the midpoint of the range. The lower end of the performance target range was set so that it exceeded our internally calculated cost of capital (determined, in part, based on input from banks) by 75 basis points, ensuring a reasonable return is delivered to stockholders before Executive Officers are eligible for full payout of their target award.

  

No payout is earned if less than 65% of the performance target range is achieved. Achievement below the target range results in decreasing levels of award payout. The payout drops to 0% of the Performance Shares tied to this metric if less than 65% of the low end of the target range is achieved.

 

Performance Within Target Range

 

100% payout if performance falls within the target range.

 

Performance Above Target Range

 

Maximum payout of 150% is earned if 137% or more of the performance target range is achieved. Achievement above the target range provides for higher levels of award payout, up to the maximum payout.

 

Actual Performance

  

After conclusion of the performance period, the Committee determined (using the ROIC payout table) that we achieved 7.56%, which was above the ROIC target range, and 181 basis points above the cost of capital we established based on input from banks. As a result, the Committee directed that 101% of the related Performance Shares be distributed in accordance with the payout table as follows. Our actual performance attainment is also shown:

 

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ROIC Performance metric (2016-2018 performance period) Performance adjustments used in ROIC calculation Adjustments per pre-established award terms: Reported amount Net Income Plus Interest Expense was adjusted as follows: $ 67.2B 1. M&A Transaction Costs $ 10.5B 2. Asset Abandonments and Impairments (Gains)/Losses$ 2.3B 3. Natural Disasters $ 0.4B 4. Pension Remeasurementc (Gains)/Losses $ 0.3B 5. Changes in Accounting Principle$ (2.9)B 6. Tax Reform $ (20.3)B Adjusted Net Income Plus Interest Expense $ 57.4B Performance Range For100% Payout ACTUAL PERFORMANCE Weighted Average Cost of Capital 8.00% 7.75% 6.75% 6.00%

TSR Payout Table and Actual Performance Attainment – 2016-2018 Performance Period

At the beginning of the performance period, the Committee established the following table for determining payout of the Performance Shares tied to the TSR metric.

Our actual performance attainment is also shown:

 

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TSR Performance metric (2015-2017 performance period) AT&T Return vs. S&P 100 Index Payout %* If AT&T is top company 200% Level 1 (82-99.99%) 150% Level 2 (63-81.99%) 125% Level 3 (44-62.99%) 100% Level 4 (25-43.99%) 50% Level 5 (<25%) 0% * Payouts are capped at 90% of the target award if absolute AT&T 3-year TSR is negative, regardless of relative performance. Our 3-year TSR of 35.15% ranks us at the 54th percentile of the S&P 100 Index

 

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TSR was measured relative to the following 37 companies, as determined when the grant was established in 2016*:

 

  Alphabet

  Amazon

  Apple

  Boeing

  CenturyLink

  Charter Communications

  Chevron

  Cisco

  Coca-Cola

  Comcast

  

Exxon Mobil

Facebook

General Electric

Gilead Sciences

Hewlett Packard

Home Depot

Honeywell

IBM

Intel

  

Johnson & Johnson

Johnson Controls

Lockheed Martin

Merck

Microsoft

Oracle

PepsiCo

Pfizer

Phillip Morris Intl

  

Procter & Gamble

Qualcomm

Twenty-First Century Fox

United Technologies

Verizon

Walt Disney

Wal-Mart

Sprint

T-Mobile

*Time Warner Inc. was included in this group; AT&T completed its acquisition of Time Warner Inc. in 2018.

 

PERCENT OF GRANT VALUE REALIZED – 2016 PERFORMANCE SHARE GRANT (2016-2018 PERFORMANCE PERIOD)

As a result of the combined ROIC and TSR performance attainment, each NEO received 76% of the number of shares granted.

 

                                                     
   

75% of

Performance

Shares Granted

  Ó    

Payout

Percentage of

101% for ROIC

      Ì      

25% of

Performance

Shares Granted

  Ó    

Payout

Percentage of

0% for TSR

       

 

76% of Shares

to be Paid

                                                     

However, the Performance Shares were also subject to stock price fluctuation over the 3-year performance period as another element of our long-term incentive pay-for-performance design. Based on the $5.47 decrease in our stock price from $35.53 at grant to $30.06 at payout, the value of the shares actually payable decreased 15.4% over the 3-year performance period.

 

                                     
   

Ending

Stock Price of

$30.06*

    -    

Beginning

Stock Price of

$35.53**

      ÷    

Beginning

Stock Price of

$35.53**

  =    

15.4%

Decline in Stock

Price

                                     

As a result of both ROIC and relative TSR performance and the absolute change in our stock price, our NEOs realized approximately 64% of their original performance share grant value.

 

NEOs Received

64% of Original

Grant Value

 

PERCENT OF GRANT VALUE REALIZED – 2015 RSUs

Our 2015 RSUs had a 4-year vesting period and were paid in early 2019. The final value delivered from these awards was based on our stock price. Over the 4-year restriction period, the stock price decreased $2.26 per share, delivering 93% of the original grant value.

 

                                     
   

Ending

Stock Price of

$30.70*

    -    

Beginning

Stock Price of

$32.96**

      ÷    

Beginning

Stock Price of

$32.96**

  =    

6.9%

Decline in Stock

Price

                                     

 

NEOs Received

93% of Original

Grant Value

 

*

Stock price when award payout is approved for Performance Shares (typically the first Committee meeting after the end of the performance period), or the stock price on the last date of the restriction period for RSU grants.

** Stock price used to determine the number of shares to be granted (target award value is divided by this stock price).

 

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N AMED E XECUTIVE O FFICER C OMPENSATION

 

 

 

In this section we detail how each NEO’s compensation was impacted by performance attainment. The following tables summarize the compensation our NEOs realized in 2018. The long-term values below do not align to what is reported in the 2018 Summary Compensation Table ( SCT ) because the SCT reflects long-term grant values for 2018 whereas these tables show the values of the long-term distributions for awards with performance/restriction periods ending in 2018 or early 2019.

AT&T’s 2018 performance highlights are summarized on page 38.

 

 

Randall Stephenson

Chairman of the Board, Chief Executive Officer, and President

 

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Mr. Stephenson has served as Chairman of the Board, Chief Executive Officer, and President since 2007. Throughout his career at the Company, he has held a variety of high-level finance, operational, and marketing positions, including serving as Chief Operating Officer from 2004 until his appointment to Chief Executive Officer in 2007, and as Chief Financial Officer from 2001 to 2004. He began his career with the Company in 1982.

2018 Realized Compensation

Element of Compensation

 

 

Compensation

Amount

 

 

Rationale

 

 

2018 Base Salary

 

 

 

$1,800,000

 

 

 

Mr. Stephenson’s salary did not increase in 2018.

 

 

 

 

2018 STIP

 

Target Award = $5,900,000

 

Final Award Paid = $5,192,000

 

88% of target award value realized

 

 

 

Mr. Stephenson’s STIP payout was based on:

•   A formulaic payout of 78% of his target award based on EPS and FCF performance attainment, plus 100% of the qualitative collaboration goal.

•   The Committee did not make any discretionary adjustment to the formulaic results.

 

Performance Share Payout (2016-2018 Performance Period)

 

 

Target Award = $7,750,000

 

Final Award Paid = $4,983,219

 

64% of grant value realized

 

 

 

Mr. Stephenson’s performance share payout was based on:

•   A formulaic payout of 76% of the 218,126 shares granted, based on the Company’s performance achievement for ROIC and relative TSR, plus

•   The company’s stock price change over the 3-year performance period, which decreased the value of the shares earned by 15.4%.

 

Performance Shares were paid in cash.

 

 

RSU Payout (2015 Grant)

 

 

Target Award = $7,375,000

 

223,756 shares paid; valued at $6,869,309

 

93% of grant value realized

 

 

 

The company’s stock price change over the 4-year vesting period decreased the value of the units granted by 6.9%.

 

RSUs were paid in stock.

 

 

Total Realized Compensation

 

 

 

 

$18,844,528

 

   

 

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John Stephens

Senior Executive Vice President and Chief Financial Officer

 

 

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John Stephens has 26 years of service with the Company. Mr. Stephens was appointed to his current position in 2011. He has responsibility for financial planning, corporate development, accounting, tax, auditing, treasury, investor relations, corporate real estate and shared services. Prior to his current position, Mr. Stephens held a series of successive positions in the finance department. Before joining the Company, Mr. Stephens held a variety of roles in public accounting.

 

2018 Realized Compensation

 

Element of Compensation  

Compensation

Amount

  Rationale

Commensurate with the close of the Time Warner merger, the Committee increased Mr. Stephens’ compensation to reflect the expanded scope and complexity of his position after the merger. In addition, the Committee determined that Mr. Stephens’ unique skills and experience are critical to executing the Company’s post-close strategic plan. In setting his compensation, the Committee used data provided by its independent consultant for comparable positions in the marketplace.

 

2018 Base Salary    

  $1,096,875  

 

Mr. Stephens received a base salary increase to $1,100,000 effective March 1, 2018. Effective June 16, 2018, Mr. Stephens received an increase to $1,125,000 to reflect the increased scope and complexity of his role following the merger with Time Warner.

 

2018 STIP

 

Target Award = $2,338,542

 

Final Award Paid = $2,057,917

 

88% of target award value realized

 

 

Mr. Stephens’ target STIP was increased to $2,000,000 effective January 1, 2018, and to $2,625,000 effective June 16, 2018. His award targets were applied to the associated time periods and the resulting weighted STIP target award for 2018 was $2,338,542.

 

Mr. Stephens’ STIP payout was based on:

•   A payout of 78% of his target award based on formulaic performance attainment of EPS and FCF goals, plus 100% of the qualitative collaboration goal.

•   No discretionary adjustment was made by the Committee.

 

Performance

Share Payout (2016-2018 Performance Period)

 

Target Award = $2,575,000

 

Final Award Paid = $1,655,712 

 

64% of grant value realized

 

 

Mr. Stephens’ performance share payout was based on:

•   A formulaic payout of 76% of the 72,474 shares granted, based on the Company’s performance achievement for ROIC and relative TSR, plus

•   The company’s stock price change over the 3-year performance period, which decreased the value of the shares earned by 15.4%.

 

Performance Shares were paid in cash.