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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.        )

 

 

Filed by the Registrant                               Filed by a Party other than the Registrant  

Check the appropriate box:

 

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to § 240.14a-12

Sanderson Farms, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGO

2020 Proxy Statement


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LOGO

Sustainable Organic Growth Across Market Cycles Poultry Pounds Processed (millions) Poultry Pounds Sold (millions) Earnings Per Share company snapshot $3.43billion* market Cap $3.4 billion FY 2019 Revenue $53.3million FY 2019 Net Income $2.41 FY 2019 EPS 17,000 Employees 623million chickens processed in FY 2019 *October 31, 2019


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LOGO

 

Letter from the Chairman
and Chief Executive Officer
   LOGO

Dear Stockholder:

I am pleased to invite you to attend Sanderson Farms’ annual meeting of stockholders on February 13, 2020. Details about the time, location, and purposes of the meeting are contained in this proxy statement and the notice of the meeting.

We introduced a new format for our proxy statement last year, using bulleted lists, tables and graphics. We also included a summary of our achievements in meeting our environmental, social and governance responsibilities, or ESG.

This year we are pleased to focus on two specific ESG achievements of which we are very proud – our investment in our employees and in water recycling and conservation measures.

As always, our Board believes that it is essential to have an ongoing and open dialogue with our stockholders. To that end, in 2019, we met with stockholders holding approximately 60.8% of our stock and received input on topics important to them. You can read more about our stockholder engagement in this proxy statement.

It is important that your shares be represented and voted at the annual meeting. Whether or not you plan to attend in person, we encourage you to vote your shares using one of the methods described in this proxy statement.

Thank you for your support and continued ownership of Sanderson Farms.

Cordially,

 

 

LOGO

Joe F. Sanderson, Jr.

Chairman and Chief Executive Officer




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LOGO

 

Letter from the Lead Independent Director

 

Dear Fellow Stockholders:

 

On behalf of the Board of Directors, it is my privilege to share some of the ways the Board has been working to provide strong governance and independent oversight of Sanderson Farms.

 

Stockholder Engagement

 

The Board is committed to an on-going and open dialog with our stockholders. In the Fall of 2019, the three Board committee chairs and I once

   LOGO

again joined senior management in meetings with our stockholders. We value this opportunity to engage directly with stockholders, and the entire Board discusses the feedback we receive. We have taken several actions in response to this feedback over the past three years, including refreshing the Board with four highly qualified new directors, modifying our antibiotics practices, and enhancing the disclosures in our proxy statement.

Director Refreshment and On-Boarding

We are delighted to have new directors who have added diversity in gender, age, and ethnicity to our already diverse Board. Most recently, we welcomed telecommunications executive Sonia Pérez to the Board, the Company’s first Hispanic director. We were also recognized in November 2019 by the Women’s Forum of New York as a Corporate Champion for having over 40 percent of our board seats filled by women. In addition, our director on-boarding process is designed for new directors to gain an in-depth understanding of our business as quickly as possible.

Risk Management Oversight

The Board continued during 2019 to execute and expand its risk management oversight program. Some of the topics on which we focused particular attention were food safety risk and compliance, cyber security, and the evolution of consumer preferences and associated marketing risk.

Succession Planning

We recognize that planning for management succession is one of our most important duties, and we continued during 2019 to meet this responsibility. Directors had numerous opportunities to engage with Company managers who are potential future leaders and received feedback from the officers about managers who could be candidates to succeed them. Additionally, several years ago, the Board tasked me with the duty of attending, from time to time, the regular weekly meeting of our senior management team so directors could have first-hand reports on the performance of potential succession candidates.

Company Culture

The Company’s management has nurtured an outstanding corporate culture that is integral to our strategic plan for internal growth. The key elements of our culture are ethical and responsible business practices; a commitment to being the best, most efficient producer in our industry; and dedication to the success of each member of our team. Our CEO and other officers work every day to reinforce this culture throughout the organization with all our people. The Board monitors and promotes this “tone from the top” through visits to our corporate office and our processing plants and hatcheries, where directors can interact with our employees.

In 2020, the other directors and I are committed to maintaining diligence in overseeing the Company’s performance, risk management, and investment in our people and communities. We look forward to your participation at our annual meeting, and thank you for your support of Sanderson Farms.

Cordially,

 

 

LOGO

Phil K. Livingston

Lead Independent Director




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LOGO

SANDERSON FARMS, INC.

P.O. Box 988

Laurel, Mississippi 39441

 

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

 

TIME AND DATE

 

 

 

10:00 a.m. Central Time on Thursday, February 13, 2020

 

 

 

PLACE

 

 

The Multi-Purpose Room of the Company’s General Office, 127 Flynt Road, Laurel, Mississippi 39443.

 

 

 

ITEMS OF BUSINESS

 

 

1.   To elect nominees to the Board of Directors as follows:

 

  Five Class A directors to serve until the 2023 annual meeting

 

  One Class C director to serve until the 2022 annual meeting

 

2.   To approve the Sanderson Farms, Inc. and Affiliates Amended and Restated Stock Incentive Plan;

 

3.   To approve, in a non-binding advisory vote, the compensation of the Company’s named executive officers;

 

4.   To determine, in a non-binding advisory vote, the frequency with which the Company should hold future non-binding advisory votes on executive compensation like Item 3 above;

 

5.   To consider and act upon a proposal to ratify and approve the appointment of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending October 31, 2020;

 

6.   To consider and act upon a stockholder proposal to request that the Board of Directors report annually on water resource risks and related metrics, if presented at the meeting;

 

7.   To consider and act upon a stockholder proposal to request that the Board of Directors report on the Company’s human rights due diligence process, if presented at the meeting; and

 

8.   To transact such other business as may properly come before the meeting or any postponement or adjournment.

 

 

 

RECORD DATE

 

 

You can vote if you were, or if a nominee through which you hold shares was, a stockholder of record on December 19, 2019.

 

 

 

ANNUAL REPORT AND PROXY STATEMENT

 

 

Our 2019 Annual Report, which is not “proxy soliciting” material, is enclosed. Details of the business to be transacted at the annual meeting are more fully described in the accompanying proxy statement.

 

 



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PROXY VOTING

 

 

It is important that your shares be represented and voted at the meeting. You can vote your shares by completing and returning the proxy card sent to you. Most stockholders also have the options of voting their shares on the Internet or by telephone. If Internet or telephone voting is available to you, voting instructions are printed on your proxy card included with your proxy materials. You can revoke your proxy before it is voted at the meeting by following the instructions in the accompanying proxy statement.

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 13, 2020

The Notice of Annual Meeting of Stockholders, the proxy statement, and our 2019 Annual Report are also available on-line at:

http://ir.sandersonfarms.com/financial-information/annual-reports

BY ORDER OF THE BOARD OF DIRECTORS:

 

 

LOGO

Timothy F. Rigney

Secretary




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Proxy Statement Summary

This summary provides highlights of information in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting your shares. For more complete information regarding the Company’s 2019 performance, please review the Company’s Annual Report on Form 10-K for the year ended October 31, 2019. The Notice of the Annual Meeting of Stockholders, this proxy statement, the accompanying proxy card, and our 2019 Annual Report were first sent or given on or about January 10, 2020, to stockholders of record as of December 19, 2019, which is the record date of the annual meeting.

Annual Meeting Information

 

DATE & TIME

 

Thursday, February 13, 2020

10:00 a.m. – Central Time

 

LOCATION

 

The Multi-Purpose Room

of the Company’s General

Office:

127 Flynt Road

Laurel, Mississippi 39443

 

 

RECORD DATE

 

You can vote if you were, or if

a nominee through which you

hold shares was, a

stockholder of record on

December 19, 2019.

 

Summary of Matters to be Voted Upon at the Annual Meeting

The following table summarizes the items that will be brought for a vote of our stockholders at the meeting, along with the Board’s voting recommendations and the required vote for approval.

 

Proposal  
No.

      Description of Proposal      

Required Vote

for Approval

    

Board’s
       Recommendation      

 

1

   

 

To elect six director nominees

 

For more information, see page 2.

   

 

For each director, a majority of the shares present in person or by proxy and entitled to vote

    

 

FOR

Each

Nominee

  

 

  

 

2

   

 

To approve the Sanderson Farms, Inc. and Affiliates Amended and Restated Stock Incentive Plan

 

For more information, see page 66.

 

   

 

Majority of the votes cast

    

 

FOR

  

 

  

 

3

   

 

To approve, in a non-binding advisory vote, the compensation of our named executive officers

 

For more information, see page 78.

 

   

 

Majority of the votes cast

    

 

FOR

  

 

  

 

4

   

 

To determine, in a non-binding advisory vote, the frequency with which the Company should hold future non-binding advisory votes on executive compensation like Item 3 above

 

For more information, see page 79.

 

   

 

Plurality of the votes cast

    

 

EVERY

YEAR

  

 

  



 

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Proposal  
No.

      Description of Proposal      

Required Vote

for Approval

    

Board’s
       Recommendation      

 

5

   

 

Ratification of the appointment of Ernst & Young LLP as our independent auditors for fiscal 2020

 

For more information, see page 80.

 

   

 

Majority of the votes cast

    

 

FOR

  

 

  

 

6

   

 

Stockholder proposal requesting annual report on water resource risks and related metrics, if presented at the meeting

 

For more information, see page 82.

 

   

 

Majority of the votes cast

    

 

AGAINST

  

 

 X 

 

7

   

 

Stockholder proposal requesting report on the Company’s human rights due diligence process, if presented at the meeting

 

For more information, see page 87.

 

   

 

Majority of the votes cast

    

 

AGAINST

  

 

 X 

Environmental, Social and Governance Highlights

ESG is not a recent concept at Sanderson Farms. We believe our success over the past 70 years is due to the way we have conserved natural resources, treated our people, and managed our company. In our proxy statement last year, and in our Corporate Responsibility Report for the past five years, we have presented highlights of many of our ESG accomplishments. In this year’s proxy statement, we are pleased to showcase two areas in which we believe we are leaders in our industry: our investment in our employees and our water resource initiatives. You can read more about these and our other ESG programs in our most recent Corporate Responsibility Report which is located on our website at http://ir.sandersonfarms.com/corporate-governance.

Our Employees are our Most Valuable Assets

Since our founding in 1947, our corporate culture has been based on the principle that everyone in our organization, regardless of seniority, must be devoted to the success of his or her associates in fulfilling their potential in all aspects of life. This means we are committed not only to providing competitive compensation and benefits, but also to diversity, equal treatment, cutting edge training, technological innovation, superior safety practices, and other measures to promote our employees’ quality of life.

 

 

We think our commitment to our people is why they voted us one of

Forbes Magazine’s best large employers for 2019.

 

 



 

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Wages and Benefits

 

   

We raised the wages of our hourly employees across the board in fiscal 2019 and again in fiscal 2020. Our pay increases are part of our effort to recruit and retain quality employees across our company.

 

 

2020 Hourly Pay Rates

 

         

$14.00

 

 

$15.45

 

 

$16.45

 

 

$20.40-$27.90

 

 

$19.45-$23.35

 

         

Starting wage for line workers

 

 

After 90 days (increasing $0.25/hr. every five years of tenure)

 

 

Highest wage for line workers

 

 

Maintenance employees

 

 

Hourly paid truck drivers

 

 

   

Our health benefit plans are among the most comprehensive and affordable in our industry, which helps ensure our people have access to health care.

 

 

Employee Health Plan—Fiscal 2019

 

         

75%

 

 

$56 million

 

 

12,100+

 

 

$15.00 or Less

 

 

9,200+

 

         

Portion of premiums paid by Sanderson Farms for employees and family

 

 

Premiums paid by Sanderson Farms for our employees and their families

 

 

Employees who participated in the health plan

 

 

Cost of most prescriptions

 

 

Employees who received free preventative health screenings

 

 

   

Other features of our health plan include:

 

o  Free basic life insurance

 

o  Smoking cessation programs

o  Affordable dental insurance

 

o  Weight loss program

o  Health and wellness classes

 

o  Exercise plans and annual 5K races

o  Affordable vision insurance

 

 

   

We were among the first in our industry to adopt an Employee Stock Ownership Plan, or ESOP, which gives our employees a stake in our company at no cost to them. The ESOP is now one of our largest stockholders. Employees are eligible to participate in the plan after one year of service.

 

 

Employee Stock Ownership Plan

 

     

$3 million

 

 

$86.5 million

 

 

$192 million

 

     

Company contribution for fiscal 2019

 

 

Company contributions over the last 10 years

 

 

Total value of the ESOP as of fiscal 2019 year end

 

 

   

We help employees reach their goal of a fiscally sound future by offering a 401(k) retirement plan with both traditional and Roth IRA plan options. Employees are eligible to participate in the plan after 90 days of service and employees with one year of service are eligible for Company



 

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matching contributions. We match employee contributions dollar-for-dollar for the first 3% of salary contributed, and fifty cents on the dollar for the next 2% contributed.

 

 

401(k) Retirement Plan

 

     

78%

 

 

$10.8 million

 

 

$194 million

 

     

Percent of employees eligible for matching contributions who participated in fiscal 2019

 

 

Company matching contributions in fiscal 2019

 

 

Total value of plan assets as of fiscal 2019 year end

 

 

   

We provide a comprehensive employee training program with a team of 16 professional trainers to create personal and professional development opportunities for employees at every level. Training is provided in both English and Spanish. Topics include:

 

o  Animal welfare

 

o  Company culture

o  Good manufacturing practices

 

o  Communications skills

o  Food security and safe handling

 

o  Safety

o  Harassment

 

o  Sustainable practices

 

   

Hourly employees are paid to participate in three hours of training each year. They also receive safety training specific to their positions every month.

 

 

In fiscal 2019, we invested more than

$3.7 million

in employee training and development

 

 

 

   

We offer reimbursement of our employees’ college tuition and high school equivalency exam fees after one year of service.



 

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HOW WE LISTEN TO OUR EMPLOYEES

 

We greatly value our over 17,000 employees and want and appreciate their feedback. In many cases, our direct engagement with our employees has not only allowed us to improve work conditions for our people, but also has helped us solve supervisory problems and inefficiencies in our operations.

We have several processes through which employees can make their voices heard. Our hourly employees must complete three paid hours of training each year. At the end of the training, employees are asked to fill out an evaluation indicating their understanding of the training they received and any comments they wish to make to our senior management on any subject.

We also conduct “intervention interviews” with hourly employees in departments and divisions that have experienced a higher than normal employee turnover rate. Our Organizational Development team holds one-on-one meetings with hourly staff on an anonymous basis to get their perspectives on measures we could take to improve employee retention. For example, the interviews could reveal that a supervisor is not engaging well with the line workers who report to him. With leadership training from our Training staff, the supervisor can address a weakness in his management style, which can lead to greater job satisfaction for his direct reports and advancement opportunities for the supervisor.

Our intervention interviews have also helped us identify instances where our pay levels were not keeping pace with the market as well as opportunities for new employee experiences. Some of these experiences, like our employee family days, have become company traditions.

Our salaried employees have a formalized performance review process in which they complete a self-evaluation about their attainment of their personal goals. In this process, both employees and their supervisors provide feedback on their working relationship. Employees can indicate areas where they feel they were not supported by their supervisor or where they lacked resources to achieve their potential. This feedback is reviewed by the supervisor’s superiors and is used in making salary and advancement decisions.

Finally, all our employees have an anonymous tip line available to them 24 hours a day to report matters of which they believe management and the board should be aware. We advertise the tip line in both English and Spanish in our internal newsletter. The line is a toll-free telephone line that comes straight to Company headquarters on a line with no caller ID. Every single call is reported to the Board’s Audit Committee, along with the disposition of the matter raised on the call. While our preference is to dialogue with employees one on one, we recognize that are times when an employee would prefer anonymity.

 


 

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Safety

 

   

We invest heavily in the wellbeing of our workforce. We have five in-house certified safety professionals, and employees are trained extensively on process safety management, lockout/tagout, hazard communication, confined space entry, use of fire extinguishers and ergonomics.

 

 

We keep our line speeds at the slowest rate in our industry—

75 bpm

to reduce employee stress and injuries.

 

 

 

   

Our 75 bpm line speed is well below the maximum USDA-approved line speed of 175 bpm.

 

   

We have among the fewest OSHA citations per 1,000 employees for companies in our industry and have reduced our OSHA injury rates by 90% since 1973 and 49% since 1999.

 

   

Over the last ten years, our OSHA injury rates declined 16% even though we hired an additional 7,000+ employees.

 

   

We have a strict policy against retaliation for reporting injuries and illness.

Diversity and Retention

 

   

A vital part of our strategic plan is maintaining a company culture of mutual respect, collaboration, trust and fairness among all our team members. We have a strict, written policy prohibiting discrimination based on race, color, religion, gender, pregnancy, disability, medical condition, national origin, ancestry, age, veteran status, marital status, sexual orientation, and gender identity.

 

   

In addition, we have made diversity and inclusion of women and minorities a top priority at all levels of our company.

 

   

We believe the culture we have created and imparted to our team is one reason for our high level of employee retention, which has been essential for our significant and successful internal growth over the last 25 years.

 

 

Employee Retention

(December 2019)

 

   

39%+

 

 

23%+

 

   

 

Percent of our workforce whom we have
employed for FIVE OR MORE YEARS

(excludes facilities operating fewer than five years)

 

 

 

Percent of our workforce whom we have employed for TEN OR MORE YEARS

(excludes facilities operating fewer than ten years)

 



 

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DIVERSITY AND INCLUSION AT SANDERSON FARMS

 

To be the best in our industry and successfully implement our growth plan, we continually strive to attract, develop and retain a high quality and diverse workforce. In 2011, our senior management created a Diversity and Inclusion Committee and charged it to develop a plan to increase the participation of women and minorities in management.

The committee formulated a Diversity and Inclusion Strategic Plan as a framework for identifying and advancing talented job applicants and employees with different backgrounds and life experiences. We believe this initiative is one of the ways that we have created a work environment where differences are understood, appreciated and leveraged, and an atmosphere that inspires innovation, creative thinking, collaboration, and devotion to the success of each other.

The committee is composed of the heads of our three operating divisions—production, processing and sales; our General Counsel; our Director of Administration, who manages our human resource function; and other members of management. The committee’s three, over-arching objectives are to:

 

    Recruit from a diverse, qualified group of job applicants;

 

    Foster a company culture that values inclusion and mutual respect; and
    Develop processes to make our managers accountable, help measure results, and refine our approach based on the data we gather.

The committee meets quarterly to review our salaried hiring by location and division, along with trends in diverse hires; our diversity recruitment initiatives; data on the diversity of participants in our management and leadership training programs; the media we use to advertise our job openings and trainee programs and whether they are reaching a diverse pool of potential applicants; and other data. The committee also investigates and reports quarterly to our CEO and other senior officers any under-utilization and/or under-selection of women and minorities among new hires and promotions at each of our locations.

Our Chief Financial and Legal Officer, who is a member of the Board of Directors, attends the committee’s meetings from time to time as a liaison to the Board and its Nominating and Governance Committee, which monitors diversity at the Board level.

Among the measures that the Diversity and Inclusion Committee has implemented as a result of its work is a highly successful program targeting recruits at Historically Black Colleges and Universities. We are also building relationships with and targeting universities that have high concentrations of Hispanic and Native American students.

 

 

 

 

 

Employee Diversity

(December 2019)

 

       

88%+

 

 

47%+

 

 

57%+

 

 

26%+

 

       

Percent of our employees who are minorities

 

 

Percent of our employees who are women

 

 

Percent of our management employees who are minorities

 

 

Percent of our

management

employees who are

women

 


 

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Management Training

 

   

We have several training programs to help us develop future company leaders, which is essential to implementing our internal growth plan.

 

   

Our beginning and advanced trainee programs expose participants to every department within our organization so that we and the participants can learn their particular strengths and interests.

 

   

Our “Leading with Vision” program is a professional development program covering approximately 1,000 salaried employees every year. There are 10 levels of training lasting one year each, so normally each participant spends 10 years in the program. The program is the primary means by which we inculcate our mangers with our corporate culture of respect, integrity, honesty and hard work. The program emphasizes collaboration, communication and trust-building, which are the areas where we encounter most leadership problems.

 

   

Our corporate mentoring program for upper level managers pairs participants with managers from a different area of our business. The program is intended to teach established managers other aspects of our operations across both geographic and division lines.



 

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OUR CORPORATE CULTURE

 

We believe our company culture is the foundation of our success. It is unique within our industry and distinguishes us from our competitors. Its cornerstone is respect—respect for each member of our team, respect for the long-term value of our company for our shareholders, and respect for our communities.

This fundamental value of respect affects our business in many ways. At the individual level, it has inspired us to create a workplace where every employee is valued and everyone is encouraged to maximize their potential in both their personal and professional lives. Similarly, we have built our relationships with our contract poultry producers by focusing in part on their personal success.

We have found that when we are devoted to supporting and helping our team to do their personal best, we are strategically positioned to do our best as an organization for our shareholders, customers and communities. As a commodity business, our profitability is affected to a large degree by forces that are beyond our control—in particular, the market prices for poultry and feed grains, our primary input costs. But even when there are cyclical downturns across our entire industry, our culture still emphasizes out-performing our peers. This “be the best” philosophy underlies every aspect of our operations and is an essential part of our strategic plan.

Our CEO and other senior managers work tirelessly to foster and promote our culture throughout our organization. At the beginning of each fiscal year, managers from each

division at each of our locations meet at our general corporate office with our executive team to review our past year’s performance relative to our peers. We identify specific areas of our business where we did not perform at our best and establish goals to improve our operating performance for the next year.

Throughout the year, our Organizational Development, Training and Communications departments are responsible for instilling this tone from the top in all of our people—hourly and salaried—at all of our locations. They have designed training courses, leadership and mentoring programs, community volunteer opportunities and other initiatives that emphasize excellent performance, treating people well, honesty, integrity, hard work, personal responsibility and cooperation.

Our senior management has implemented processes to monitor whether our culture is effectively permeating our business. Oftentimes, inefficiencies in our operations at a particular location or department are the direct result of a failure to impart or adhere to our culture. Our management team is skilled at quickly identifying these stumbling blocks and making the adjustments necessary to realign operations with our culture.

Our culture is one of our most important strategic assets. We feel confident that continuing to run our business consistent with our core values will sustain our company and enhance its long-term value for our shareholders.

 

We Work Every Day to Conserve Water Resources

We believe strongly that we have a responsibility to be stewards of the environment and to minimize the impact that our operations have on the environment. This is critical for the long-term sustainability of our company and our many stakeholders. In 2010, we formalized our environmental sustainability efforts by launching a corporate responsibility program. Since 2014, we have reported on this program and our progress in our Corporate Responsibility Report, which can be found on our website at http://ir.sandersonfarms.com/corporate-governance.



 

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A significant part of our program has been focused on initiatives to conserve and recycle water.

 

   

We track the daily water usage at our facilities against base line levels established in 2008. We measure our water use per saleable pound of chicken.

 

   

Since 2008, we have reduced our water usage per saleable pound by 44%, or 3.37 billion total gallons. We have achieved this savings through innovation, continuous monitoring and measurement, employee training and accountability, and promoting a mindset of conservation and sustainability throughout our operations.

 

   

We have set a goal to reduce our water usage in fiscal year 2020 by three percent compared to fiscal 2019.

 

   

We conduct regular visual inspections of water sources in our facilities both during operations and downtime to ensure that water is not wasted.

 

   

Our environmental supervisors at each of our processing facilities have historical data on water use trends in an average 24-hour period. They monitor water usage against this data for abnormal increases.

 

   

Each processing plant submits a daily log of utility use to our corporate office so that we can compare rates of use across our locations.

 

WATER RENOVATION AT SANDERSON FARMS

 

At four of our locations, we have adopted a state-of-the-art system for applying treated wastewater to land. The process is based on scientific research that has demonstrated the success of this technology at over 2,000 sites in the United States. When properly designed and managed, the advantage of a land application system over direct discharge is that it repurposes treated wastewater to irrigate hay and grain crops and standing timber.

We apply treated water to land using a slow-rate irrigation process that causes water to infiltrate the soil with no runoff or accumulation of standing water. After absorption into the soil, nutrients from the treated wastewater are managed by the growth of vegetative crops or

timber. Harvesting the crops and trees removes and recycles the nutrients in the treated water. Additionally, hay and grain crops can be used by local farmers to feed their livestock. Therefore, the use of standard farming practices provides an indefinite life cycle for wastewater land application.

To ensure the integrity of our land application systems, we install groundwater monitoring wells before we spray any treated water to establish baseline quality readings. Once our land application systems are operational, we have seen significant improvement in the quality of the local groundwater.

 

 

 

   

We treat and reuse the wastewater at our processing plants at innovative wastewater treatment facilities located on site at our complexes. Through biological treatment, oxygenation, clarification and ultra violet disinfection, we safely treat our wastewater before it is discharged.

 

   

Each wastewater facility is managed by a specially trained environmental supervisor licensed in wastewater and drinking water supply operation.

 

   

We report to the Environmental Protection Agency the amount of nitrate compounds and other chemicals in our wastewater, and all of our discharged wastewater meets EPA guidelines.

 

   

We also repurpose and reuse water in our processing facilities.



 

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Because of our aggressive internal growth, we have opened eight new poultry complexes in four states since 1992. We perform extensive due diligence before selecting a new site to assess the long-term viability of the water resources in the area. We do not locate new facilities in areas with high baseline water stress.

 

RENEWABLE ENERGY FROM WASTEWATER

 

Through an innovative technology, we leverage our wastewater treatment process to generate renewable energy that can power our own facilities.

We accumulate the wastewater from our processing plants in anaerobic lagoons at our sites. Through a natural fermentation process, biogas is generated from fat in the wastewater and is captured under a cover. We pipe the biogas to a pressure swing absorption system where it is treated and converted to 98 percent methane, which is pipeline quality gas. The gas can be sent back to the processing facility’s service line and used as an energy source in place of natural gas.

We have incorporated this technology at each new poultry complex we have built since 2005. Each biogas production system takes three years to fully mature and achieve maximum efficiency. Our company-wide renewable energy production has gradually increased to a level that could fuel one poultry complex for over one year. Over time, our biogas production will increase and further reduce our dependency on natural gas.

We are proud to use these and other sustainability measures at our company to help protect our environment.

 


 

Sanderson Farms | 2020 Proxy Statement xi


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Corporate Governance

Director Nominees and Continuing Directors

Here is a summary of information about our director nominees and directors continuing in office. We have included the Board’s determination about the independence of each nominee and continuing director under the NASDAQ Stock Market listing rules. Our Board is divided into three classes, and directors in a class are elected at our annual meeting to serve a term of three years until their successors are elected. Ms. Pérez was appointed by the Board in fiscal 2019 to fill a vacancy and to serve until the 2020 annual meeting. If re-elected at the meeting, she will serve the remainder of her class’s term.

NOMINEES

 

Name

   Primary Occupation   Term
Ending
  Age   Director
Since
  Independent     Committee
Membership
 
 

 

AC

    CC     NGC  

Class A

 

David Barksdale

  

Principal, Alluvian Capital

 

2023

 

43

 

2018

 

 

 

 

 

 

 

 

 

 

 

Lampkin Butts

  

 

President and Chief Operating Officer, Sanderson Farms, Inc.

 

 

 

2023

 

 

68

 

 

1998

       

 

Beverly W. Hogan

  

 

President Emerita, Tougaloo College

 

 

 

2023

 

 

68

 

 

2004

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

Phil K. Livingston

 

(Lead Independent Director)

  

 

Retired Chairman and Chief Executive Officer, Deposit Guaranty National Bank of Louisiana

 

 

 

2023

 

 

76

 

 

1989

 

 

 

 

 

 

 

 

 

VC,
FE

 

 
 

 

 

 

 

 

 

 

 

 

 

 

Joe F. Sanderson, Jr.

 

(Chairman of the Board)

 

  

 

Chairman and Chief Executive Officer, Sanderson Farms, Inc.

 

 

 

2023

 

 

72

 

 

1984

       

Class C

 

 

Sonia Pérez

  

 

President, AT&T Southeast States

 

 

 

2022

 

 

63

 

 

2019

 

 

 

 

 

     

 

     

C =

VC =

FE =

 

 Chair

 Vice-Chair

 Financial Expert            

  

AC =

CC =

NGC =

 

 Audit Committee

 Compensation Committee

 Nominating and Governance

 Committee



 

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DIRECTORS CONTINUING IN OFFICE

 

Name

   Primary Occupation   Term
Ending
  Age   Director
Since
  Independent   Committee
Membership
 

 

AC

  CC   NGC

Class B

John H. Baker III

  

 

Proprietor, John H. Baker Interests

 

 

2021

 

78

 

1994

 

 

 

 

 

John Bierbusse

  

 

Retired Vice President and Manager of Research Administration, A.G. Edwards

 

 

2021

 

 

64

 

 

2006

       

Mike Cockrell

  

 

Treasurer, Chief Financial Officer and Chief Legal Officer, Sanderson Farms, Inc.

 

2021

 

62

 

1998

       

 

Edith Kelly-Green

  

 

Partner, The KGR Group

 

 

2021

 

 

67

 

 

2018

 

 

 

 

FE

   

 

VC

Suzanne T. Mestayer

  

 

Owner and Managing Principal, ThirtyNorth Investments, LLC

 

2021

 

67

 

2017

 

 

C,
FE

   

 

Class C

Fred L. Banks, Jr.

  

 

Senior Partner, Phelps Dunbar LLP

 

2022

 

77

 

2007

 

 

 

 

C

Toni D. Cooley

   Chief Executive Officer, the Systems Group companies  

2022

 

59

 

2007

 

   

VC

 

Gail Jones Pitman

  

 

Chief Executive Officer, Gail Pittman, Inc.

 

2022

 

66

 

2002

 

 

 

C

 

 

     

C =

VC =

FE =

 

 Chair

 Vice-Chair

 Financial Expert                

  

AC =

CC =

NGC =

 

 Audit Committee

 Compensation Committee

 Nominating and Governance
 Committee

Robert C. Khayat, who had been a Class C director since 2007, retired from the Board on December 31, 2019.



 

Sanderson Farms | 2020 Proxy Statement xiii


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Board of Directors Snapshot

The information below describes the attributes of our Board following the annual meeting, assuming all the nominees are re-elected:

 

 

LOGO

 

 

In November 2019, the Women’s Forum of New York recognized us

as a Corporate Champion

for having over 40 percent of our board seats filled by women.

 

 

Board Highlights

 

   

Strong diversity of gender, race, age, ethnicity and experience

 

   

71% of the Board, and all Board committee members, are independent directors

 

   

Lead Independent Director with active role and authority, including representing the Board to our stockholders and facilitating communication between the Board and management

 

   

Demonstrated refreshment of the Board, with four new directors elected in less than three years

 

   

Active and robust director succession and nomination process has identified talented and diverse new directors

 

   

Review and discussion of our strategic plan at least annually, and on-going oversight of development and implementation of the plan with consideration of ESG matters

 

   

Discussion of executive officer and director succession plans throughout the year, including Board adoption of written management succession policy

 

   

Candid and in-depth Board self-assessments annually, with an opportunity for directors to assess fellow directors



 

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Rigorous director education program including an in-depth “teach-in” session every April, director visits to our poultry complexes, and reimbursement of fees for corporate director seminars

 

   

Ongoing oversight and monitoring of enterprise risk and risk management

 

   

Stock ownership guidelines encourage directors to hold 4,000 shares of our stock

 

   

Directors engage with our senior management team, “next generation” company managers, and other Company personnel on an on-going basis, both inside and outside the boardroom

Governance Highlights

 

   

Written corporate governance principles reviewed and reassessed by the Board annually

 

   

Majority voting for directors

 

   

Holders of 10% of our common stock may demand a special meeting of stockholders

 

   

No Company political action committee (PAC); corporate policy prohibits the Company from endorsing political candidates, making independent expenditures advocating for or against candidates, and making contributions to PACs formed to benefit a particular candidate or political party

 

   

Proxy access by-law with standard “3/3/20/20” structure

 

   

No poison pill

 

   

Insider trading policy prohibits:

 

  o   

pledging of Company stock without clear demonstration of ability to repay loan without pledged securities;

 

  o   

hedging transactions;

 

  o   

purchases on margin;

 

  o   

purchases and sales of Company stock within six months of each other

 

   

Annual Say-on-Pay vote

 

  

 

 

STOCKHOLDER ENGAGEMENT

IN FISCAL 2019

 

  

 

100+

 

 

Number of one-on-one meetings with stockholders and investment community

    
 

 

We conducted an active stockholder engagement program in 2019 to meet with our stockholders and the investment community, hear their concerns and answer their questions about our Company and our practices. Topics discussed include our corporate governance, our compensation philosophy, human capital and other ESG matters, and director independence.

  

 

13

 

 

Number of stockholder meetings attended by Lead Independent Director or other Board leaders

 
  

 

60.8

 

 

Percentage of shares represented at stockholder engagement meetings

 
  

 

14

 

 

Number of non-deal roadshows and investor conferences management attended

 
  

 

Oct. 17-18

 

 

Date of Company’s annual investor day

 

 


 

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Compensation Highlights

 

LOGO

 

LOGO

 

What We Do

 

Continually set challenging performance targets

 

Link pay to relevant performance metrics

 

Balance short and long-term incentives

 

Prioritize absolute performance across market cycles

 

Grant equity-based awards with milestone-based vesting

 

Rigorous stock ownership guidelines

 

Robust compensation recoupment (clawback) policy

What We Don’t Do

 

X

No options

 

X

No excessive perquisites

 

X

No tax gross-ups

 

X

No hedging or pledging

 

X

No single-trigger change-in-control provisions for executive severance pay

 

X

No excessive golden parachute payments

 

X

No guaranteed bonuses

 


 

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Sanderson Farms, Inc.

2020 Proxy Statement

Table of Contents

 

The Sanderson Farms Annual Meeting

     1  

Information about this Proxy Statement

     1  

Matters to be Voted on at the Annual Meeting

     1  

Item 1—Election of Directors

     3  

Director Criteria, Qualifications, and Experience

     3  

Board Diversity

     4  

Board Tenure

     4  

Director Biographies

     5  

Corporate Governance

     19  

Long-Term Strategic Plan

     19  

Process for Selecting Directors

     19  

Proxy Access, Stockholder Nominations and Recommendations of Director Candidates

     20  

Committees of the Board of Directors

     21  

Director Attendance

     22  

Director Independence

     22  

Independent Director Meetings

     23  

Board and Committee Self-Evaluation

     23  

Board Leadership

     23  

Risk Oversight

     24  

Succession Planning

     25  

Communications Between Stockholders and the Board of Directors

     25  

Stockholder Engagement

     26  

Corporate Responsibility

     27  

Hedging Policy

     27  

Review and Approval of Certain
Transactions

     27  

Compensation Discussion and Analysis

     29  

Executive Summary

     29  

Principles and Objectives of the Executive Compensation Program

     30  

Benchmarking and Competitive Analyses

     31  

The Compensation Committee Process and the Role of Management and Compensation Consultants

     32  

Elements of Executive Compensation

     33  

Base Salaries

     35  

Annual Cash Bonus Awards

     35  

Long-Term Equity Incentive Awards

     38  

In-Service and Post-Employment Benefits

     41  

Perquisites

     43  

Compensation Recoupment Policy

     43  

Stock Ownership Guidelines; Hedging and Pledging

     43  

Tax and Accounting Considerations

     45  

Evaluation of Executive Performance

     45  

Director Compensation

     47  

Compensation Committee Report

     49  

2019 CEO Pay Ratio

     49  

Executive Compensation Tables

     50  

Potential Payments Upon Termination or Change-in-Control

     57  

Compensation and Risk Management

     64  

Item 2—Amended and Restated Stock Incentive Plan

     66  

Authorized Shares

     66  

Summary of Amended and Restated Plan

     67  

Eligibility and Administration

     67  

Types of Awards

     67  

Performance Measures

     69  

Shares Available

     70  

Other Terms

     71  

Federal Income Tax Consequences

     72  

Interest of Certain Persons in this Proposal

     76  

Plan Benefits

     76  

Item 3—Advisory Vote on Executive Compensation

     78  

Item  4—Advisory Vote on Frequency of Future Votes on Executive Compensation

     79  

Item 5—Ratification of the Appointment of Independent Auditors

     80  

Fees Paid to Ernst & Young

     80  

Audit Committee Pre-Approval Policies and Procedures

     80  

Report of the Audit Committee

     81  

Item 6—Stockholder Proposal—Report on Water Resource Risks

     82  

We Already Report on Our Sustainability Efforts

     83  

Water Risk Management is Essential to Our Business

     84  

Conclusion

     86  

Item 7—Stockholder Proposal—Human Rights Due Diligence

     87  

Our Human Rights Values

     88  

Our Employees

     89  

Our Growers

     89  

Our Communities

     90  

Our Feed Grain Suppliers

     90  

Consultations with Community Stakeholders

     90  

Conclusion

     91  

Voting Securities and Principal Holders

     92  

Delinquent Section 16(a) Reports

     95  

General Information About the Meeting

     96  

Voting Instructions and Information

     96  
 


 

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The Sanderson Farms Annual Meeting

Information about this Proxy Statement

Our Board is furnishing this proxy statement in connection with the solicitation of proxies to vote on matters to be considered at our 2020 annual meeting of stockholders, which will be held on February 13, 2020, at 10:00 a.m. Central Time, at our General Office at 127 Flynt Road, Laurel, Mississippi 39443, and at any adjournment or postponement of the meeting.

Throughout this proxy statement, unless the context shows otherwise:

 

   

references to the “Board” or the “Board of Directors” mean the Board of Directors of Sanderson Farms, Inc.

 

   

references to the “meeting” or the “annual meeting” mean our 2020 Annual Meeting of Stockholders

 

   

references to “we,” “us,” “our,” the “Company,” or “Sanderson Farms” mean Sanderson Farms, Inc. and its subsidiaries

Matters to be Voted on at the Annual Meeting

The following table describes the matters to be considered at the annual meeting, the vote required for the matter to be adopted, the treatment of abstentions and broker non-votes for each matter, and the Board’s recommendation on each matter:

 

Proposal
No.

 

      

Description of
Proposal

 

      

Required Vote

for Approval

 

      

Treatment
of
Abstentions

 

      

Treatment
of Broker
Non-Votes

 

      

Board’s
Recommendation

 

 

1

 

    

To elect six

director

nominees

 

    

For each director,

a majority of the

shares present in

person or by

proxy and entitled

to vote

 

    

As a vote

AGAINST

 

    

No effect on

the vote

 

    

FOR

Each

Nominee

 

 

2

 

    

To approve the

Sanderson Farms, Inc. and

Affiliates Amended

and Restated

Stock Incentive

Plan

 

    

Majority of the

votes cast

 

    

No effect on

the vote

 

    

No effect on

the vote

 

    

FOR

 

 

3

 

      

To approve, in a

non-binding

advisory vote, the

compensation of

our named

executive officers

 

      

Majority of the

votes cast

 

      

No effect on

the vote

 

      

No effect on

the vote

 

      

FOR

 



 

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Proposal
No.

 

      

Description of
Proposal

 

      

Required Vote

for Approval

 

      

Treatment
of
Abstentions

 

      

Treatment
of Broker
Non-Votes

 

      

Board’s
Recommendation

 

 

4

 

    

To determine, in

a non-binding

advisory vote, the

frequency with

which the

Company should

hold future

non-binding

advisory votes on

executive

compensation

like Item 3 above

 

    

Plurality of the

votes cast

 

    

No effect on

the vote

 

    

No effect on

the vote

 

    

EVERY YEAR

 

 

5

 

    

Ratification of the

appointment of

Ernst & Young,

LLP as the

Company’s

independent

auditors for fiscal

2020

 

    

Majority of the

votes cast

 

    

No effect on

the vote

 

    

No effect on

the vote

 

    

FOR

 

 

6

 

    

Stockholder

proposal

requesting

annual report on

water resource

risks and related

metrics, if

presented at the

meeting

 

    

Majority of the

votes cast

 

    

No effect on

the vote

 

    

No effect on

the vote

 

    

AGAINST

 

 

7

 

      

Stockholder proposal requesting report on the Company’s human rights due diligence process, if presented at the meeting

 

      

Majority of the

votes cast

 

      

No effect on

the vote

 

      

No effect on

the vote

 

      

AGAINST

 



 

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Item 1—Election of Directors

Our Board of Directors has nominated six directors for election at the annual meeting. Each nominee has agreed to be named in the proxy statement and serve if elected. Our Board is divided into three classes, and directors in a class are elected at our annual meeting to serve a term of three years until their successors are elected. If re-elected at the annual meeting, the nominees for Class A director will serve until the 2023 annual meeting. Ms. Pérez (Class C) was appointed by the Board in fiscal 2019 to fill a vacancy, but under Mississippi law she may only serve until the next stockholders’ meeting at which directors are elected. If re-elected at the meeting, Ms. Pérez will serve until the 2022 annual meeting.

Pursuant to our by-laws, the Board has fixed the total number of directors at 14. The board may name substitute nominees to replace any of the named nominees who become unavailable to serve for any reason. We have no reason to believe that any of the nominees will be unavailable to serve if elected. Under our Corporate Governance Principles, directors are expected to tender their resignations if they fail to receive the required number of votes for re-election.

Director Criteria, Qualifications, and Experience

We have sought director candidates with a diverse range of business, personal, and geographic backgrounds, and the experience and perspective necessary to oversee effectively a multi-state operation of our size and type. The Nominating and Governance Committee and the Board expect each director to have the following minimum qualifications:

 

   

significant business experience and achievement in production, preferably related to agriculture, or in marketing, finance, accounting, or other professional disciplines relevant to the Company;

 

   

prominence and a highly respected reputation in his or her profession;

 

   

a global business and social perspective;

 

   

a proven record of honest and ethical conduct, personal integrity, and good business judgment;

 

   

a commitment to congeniality with and mutual respect for other members of the Board and management;

 

   

concern for the long-term interests of our stockholders; and

 

   

significant time available to devote to Board activities and to enhance his or her knowledge of our industry.

The Nominating and Governance Committee also considers candidates’ independence and financial literacy, and for incumbent directors, attendance, past performance on the Board, and contributions to the Board and their committees.

Our emphasis on director collegiality is consistent with our company culture. The Board believes that an effective board process depends on mutual trust among directors and a respectful atmosphere that encourages candor. Candid discussion among directors and with management is critical for the Board to properly exercise its oversight responsibility and its decision-making.



 

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Board Diversity

Although the Board does not have a formal policy on director diversity, it has sought to identify director candidates who represent a diverse range of personal and business backgrounds. Following the annual meeting, assuming all the nominees are re-elected, 43% of our directors will be women, 29% will be African-American, and 7% will be Hispanic. Our directors have also worked in a variety of fields, including finance, banking, investment management, law, higher education, heavy industry, agriculture, publishing, technology, transportation, and telecommunications. We believe our directors’ diverse professional backgrounds and experience have resulted in a highly qualified Board.

Board Tenure

The Board also does not have a formal policy with respect to director tenure. This flexibility has allowed the Board to benefit from balancing the experience and institutional knowledge of our longer-tenured directors with the service of relatively newer directors who have brought new perspectives, skills, and ideas to the board process. This balance has been an asset in managing our Company through the cyclical downturns that characterize our industry. It has ensured that during down cycles, the Board has the benefit of directors who have historical experience with our operations and the fluctuations in our industry.

 

 

The Board of Directors recommends that stockholders vote “FOR” each of the nominees.

 

 



 

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Director Biographies

Below are biographical summaries current as of the date of this proxy statement for each of our director nominees and directors continuing in office.

Nominees for Class A Director (term expiring in 2023)

 

LOGO

 

David Barksdale

 

Independent Director

 

Age:  43

 

Director Since:  2018

 

Committees:

 

    Audit

    Compensation

   

Business Experience:

 

   Principal, Alluvian Capital, a private investment office with diversified holdings in the telecommunications and software industries, since 2014

 

   Co-Chairman from 2015 to 2018, and Chief Executive Officer from 2009 to 2014, Spread Networks, LLC, a provider of low-latency fiber optic services to financial and enterprise customers, until its acquisition by Zayo Group Holdings, Inc.

 

   Board Member, Servato Corp., a leading supplier of active battery management solutions to telecommunications, power, transportation, and solar companies, from 2014 to 2019

 

   Attorney, Cleary Gottlieb Steen & Hamilton LLP, from 2005 to 2007

 

   Principal, Barksdale Management Corporation, a private family office, from 2007 to 2014

 

Other Positions:

 

   Member, Board of Trustees of Tulane University, since 2007

 

   Board Treasurer of the Greater New Orleans Foundation, a non-profit that links philanthropists with needy charitable, environmental, cultural, and economic development organizations in the New Orleans community, since 2011

 

   Board Member, the Idea Village, a globally recognized non-profit dedicated to supporting local entrepreneurs, since 2017

 

Education:

 

   Bachelor of Arts, Tulane University

 

   Juris Doctor, New York University School of Law

 

Experience and Qualifications to Serve on the Board:

 

   Mr. Barksdale’s career as CEO and Chairman of a telecommunications and IT firm, from its start-up through the completion of its groundbreaking Chicago to New Jersey low-latency fiber optic network and expansion of lit fiber services in Chicago and New York, makes him a valuable member of the Board in its oversight of IT and cyber security risks and challenges.

 

   The Board also draws on Mr. Barksdale’s extensive investment management experience and his leadership in the negotiation and sale of his company to a publicly traded holding company in overseeing the development and implementation of our strategic plan.

 

   Mr. Barksdale has been active in many civic and charitable organizations, making him an excellent fit in our corporate culture.

 

 


 

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LOGO

 

Lampkin Butts

 

President, Chief Operating Officer and Director

 

Age:  68

 

Director Since:  1998

   

Business Experience:

 

   President and Chief Operating Officer of the Company, since 2004

 

   Vice President – Sales of the Company from 1996 to 2004, and various other positions at the Company from 1973 to 1996

 

Other Positions:

 

   Director, Federal Reserve Bank of Atlanta, New Orleans Branch, since 2015

 

   Director, National Chicken Council, since 1995

 

   Director, Mississippi Poultry Association, since 1995

 

   Director, Southeast Poultry & Egg Association, from 2000 to 2003

 

Education:

 

  Bachelor of Business Administration, University of Mississippi

 

Experience and Qualifications to Serve on the Board:

 

   Mr. Butts’ extensive knowledge of our business from his over 45-year tenure with the Company makes him an extremely valuable director. He has served the Company in most every aspect of our operations, with roles ranging from shift manager, sales representative, and division manager, to his current role as head of our operations.

 

   Mr. Butts has worked at the Company and served as a director throughout several of the profitability cycles that are characteristic of a commodity business like ours. His experience in managing the business through the volatility of our industry is especially helpful to our less senior directors whose tenures have not included a profitability downcycle.

 

   Mr. Butts has had leadership roles at several poultry industry organizations, which enable him to share with the Board valuable insights into industry dynamics, developments, and innovations, as well as government and regulatory relations.

 

 


 

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LOGO

 

Beverly W. Hogan

 

Independent Director

 

Age:  68

 

Director Since:  2004

 

Committees:

 

Compensation

Nominating and

Governance

   

Business Experience:

 

   President Emerita, President from 2002 to 2019, and various other positions from 1997 to 2002, Tougaloo College, a private, historically black, liberal arts college in Jackson, Mississippi

 

   Commissioner, Mississippi Workers’ Compensation Commission, from 1987 to 1997

 

   Executive Director, Governor’s Office of Federal State Programs, from 1984 to 1987

 

   Executive Director, Mental Health Associations of Hinds County and the State of Mississippi, from 1974 to 1983

 

Other Positions:

 

   Institutional Director, United Negro College Fund, since 2002

 

   Chair, Board of Directors of the Jackson Medical Mall Foundation, which manages a redeveloped facility that houses healthcare providers for the underserved, since 2017

 

   Appointed by President Obama to The President’s Board of Advisors on Historically Black Colleges and Universities, from 2009 to 2016

 

   Chair, National Advisory Board, HBCU Capital Financing Program

 

   Founding Member and former president, Central Mississippi Chapter, National Coalition of 100 Black Women

 

Education:

 

   Bachelor of Arts, Tougaloo College

 

   Master of Public Policy and Administration, Jackson State University

 

   Doctoral studies in clinical psychology and human and organizational development

 

   Honorary doctoral degrees from four universities, including Brown University

 

Experience and Qualifications to Serve on the Board:

 

   As the first woman and the 13th president of a liberal arts college founded in 1869, Dr. Hogan is known as a visionary and trailblazer in Mississippi higher education. The Board has benefitted from her experience in the leadership, management, and growth of this historic college.

 

   Dr. Hogan’s educational and professional experience in the public policy, government, and mental health fields has been valuable to the Board in its efforts to make Sanderson Farms a leader in environmental, social and governance best practices.

 

   The Board has also benefitted from Dr. Hogan’s insights from her active involvement for many years in state and national civic and political affairs.

 

 


 

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LOGO

 

Phil K. Livingston

 

Lead Independent Director

 

Age:  76

 

Director Since:  1989

 

Committees:

 

Audit (Vice-Chair)

Compensation

Nominating and

Governance

   

Business Experience:

 

   Retired Consultant, AmSouth Bank of Alabama, from 1998 to 2001

 

   President of South Louisiana, First American Bank of Tennessee, 1998

 

   Chairman and Chief Executive Officer, Deposit Guaranty National Bank of Louisiana, from 1995 to 1998

 

   Chief Executive Officer, from 1973 to 1995, President from 1975 to 1995, and Chairman from 1987 to 1995, Citizens National Bank

 

Other Positions:

 

   President, Louisiana Bankers Association, 1985

 

   Founding Director, from 1997 to 2006, and President, from 2006 to 2015, University Facilities, Inc., a non-profit corporation formed to finance and contract for major campus improvements for Southeastern Louisiana University; completed projects during service totaled $115 million

 

   Executive in Residence, Southeastern Louisiana University College of Business, since 2016

 

   Member, Patient Family Advisory Council, North Oaks Health System

 

   Member, Area Advisory Council, Mary Bird Perkins Cancer Center

 

Education:

 

  Bachelor of Science, Mississippi State University

 

Experience and Qualifications to Serve on the Board:

 

   Mr. Livingston’s extensive career in the banking industry, coupled with his leadership roles in a variety of industry and organization boards, make him a valuable member of our Board.

 

   His bank executive career included the growth and sale of a community bank of which he was CEO, and involvement in four subsequent bank acquisitions. This experience has been valuable to the Board in its oversight and monitoring of our financial and borrowing risk, accounting and internal controls, and strategic plan.

 

   Mr. Livingston also has significant experience in management training and formulation of executive pay structures. He has worked closely with compensation consultants and has been instrumental in the development of our performance-based pay programs.

 

 


 

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LOGO

 

Joe F. Sanderson, Jr.

 

Chairman of the

Board and Chief

Executive Officer

 

Age:  72

 

Director Since:  1984

   

Business Experience:

 

   Chairman of the Board of the Company since 1998, and Chief Executive Officer of the Company since 1989

 

   Continuously employed in various positions at the Company since 1969

 

Other Positions:

 

   Co-Chair, Capital Campaign for Children’s of Mississippi (umbrella organization for University of Mississippi Medical Center pediatric hospital and clinics), since 2016

 

   Member, Board of Trustees of the National WWII Museum, since 2016

 

   Past President, Mississippi Manufacturers’ Association, from 1992 to 1993

 

   Past Chair, National Chicken Council, from 1993 to 1994

 

Education:

 

   Bachelor of Arts, Millsaps College

 

Experience and Qualifications to Serve on the Board:

 

   Mr. Sanderson is the grandson of one of our Company’s founders. Under his outstanding leadership of our Company since 1989, the Company has grown exponentially, including growth in annual revenues from $184 million in 1989 to over $3.4 billion in 2019. Also during his tenure, the Company has opened seven new plants in three states.

 

   Mr. Sanderson is primarily responsible for the overall operation and strategic vision of our business. His role as Chairman of the Board has been key to our long-term success and growth in stockholder value.

 

   Adhering to the values of our founders – integrity and ethical business practices, excellence in operations, and conservative financial management – Mr. Sanderson is directly responsible for setting the “tone at the top” of our Company that has been a significant driver of our success.

 

 


 

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Nominee for Class C Director (term expiring in 2022)

 

LOGO

 

Sonia Pérez

 

Independent Director

 

Age:  63

 

Director Since:  2019

   

Business Experience:

 

   President, AT&T Southeast States, since 2018

 

   President, AT&T Louisiana, from 2010 to 2018

 

   Vice-President, AT&T Houston, from 2005 to 2010

 

   General Manager, South Texas, SBC Southwest, from 1997 to 2005

 

Other Positions:

 

   Immediate Past Chair, Xavier University of Louisiana

 

   Chair, Board of Directors, Louisiana Association of Business and Industry

 

   Regent, Louisiana Board of Regents, since 2017

 

   Member, Board of Trustees of the National WWII Museum, since 2013

 

Education:

 

   Bachelor of Journalism with Honors, University of Texas at Austin

 

Experience and Qualifications to Serve on the Board:

 

   As President of AT&T Southeast States, Ms. Pérez is responsible for the development of the company’s overall strategic plan in the Southeast region. In Louisiana, she leads a workforce of 3,500 employees and a roll of 6,500 retirees. Her executive leadership of an organization of that size with multi-state operations makes her eminently qualified for our Board.

 

   The Board also benefits from her expertise with the deployment of AT&T’s 5G technology and infrastructure and leadership of teams responsible for matters affecting public policy, government affairs and philanthropy.

 

   Ms. Pérez’s commitment to public service, as well as her professional experience working with communities in Texas, Louisiana, and North Carolina, are valuable to the Board as it evaluates our corporate social responsibility initiatives.

 

 


 

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Directors Continuing in Office

Class B Directors (term expiring in 2021)

 

LOGO

 

John H. Baker III

 

Independent Director

 

Age:  78

 

Director Since:  1994

 

Committees:

 

Audit

Compensation

   

Business Experience:

 

   Proprietor, John H. Baker Interests, a real estate and development company in Houston, Texas that built, owns and previously managed office buildings and shopping centers throughout southeast Texas, including the Houston area, since 1968

 

   Proprietor, JCB Ranch, a 1,500-acre ranch in southeast Texas that maintains an active cow-calf operation producing registered calves for market and cultivates hay and other crops

 

Other Positions:

 

   Board Member Emeritus, and previous Board Member for over 30 years, Board of Trustees of Baylor College of Medicine

 

   Advisory Trustee, Board of Trustees of Houston Baptist University

 

   Numerous directorships for over 40 years with community banks throughout Texas

 

Education:

 

   Bachelor of Business Administration, Mississippi State University

 

Experience and Qualifications to Serve on the Board:

 

   Mr. Baker is a successful entrepreneur who founded and has grown his own business specializing in real estate development and management. He provides the Board with valuable insights into the oversight and monitoring of the development and implementation of our strategic plan and greenfield expansion.

 

   Mr. Baker has an active cattle and farming operation and brings to the Board his experience in livestock management and associated agri-business matters.

 

   Mr. Baker has been active in the business and political communities in Texas and Mississippi and provides the Board with an important perspective when it considers our internal expansion plans and associated personnel needs, as well as the needs of our local communities.

 

 


 

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LOGO

 

John Bierbusse

 

Outside Director

 

Age:  64

 

Director Since:  2006

   

Business Experience:

 

   Retired Vice President and Manager of Research Administration, from 2002 to 2004, Assistant Manager, Securities Research, from 1999 to 2002, and prior positions from 1987, A.G. Edwards

 

   Vice President, Duff & Phelps, Inc., from 1981 to 1987

 

   23 years’ experience as an equity research analyst in the packaged food and agri-products industries

 

   One of the original authors of the NYSE’s Series 86/87 qualification examination required for publishing equity research analysts (committee member 2003-2007)

 

Other Positions:

 

   Board member, Third Coast Percussion, a Grammy-award winning quartet based in Chicago, Illinois

 

   Board member, Riot Ensemble, a contemporary chamber music ensemble based in London, England

 

   Pro bono consultant to arts organizations in strategic planning, board development, financial forecasting, and executive coaching

 

Education:

 

   Bachelor of Arts, Northwestern University

 

   Master of Management, Northwestern University – Kellogg School of Management

 

   Certified Financial Analyst

 

Experience and Qualifications to Serve on the Board:

 

   Mr. Bierbusse’s experience as a sell-side equity research analyst brings to the Board substantial expertise in capital markets, strategic analysis, risk oversight, and financial modeling in our industry.

 

   As a manager, Mr. Bierbusse also has extensive experience in hiring, mentoring, and evaluating finance professionals, which has benefitted the Board in management performance and succession oversight responsibilities.

 

   He also has managerial experience in compliance and financial regulation, which has been valuable to the Board in evaluating and overseeing compliance risk.

 

 


 

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LOGO

 

Mike Cockrell

 

Treasurer, Chief

Financial Officer,

Chief Legal Officer,

and Director

 

Age:  62

 

Director Since:  1998

   

Business Experience:

 

   Treasurer, Chief Financial Officer and Chief Legal Officer of the Company, since 1993

 

   Shareholder, Wise Carter Child & Caraway, Professional Association, Jackson, Mississippi, practicing securities and business transaction law, from 1984 to 1993

 

   Associate, Nail McKinney Tate & Robinson, CPAs, from 1979 to 1980

 

Other Positions:

 

   Chair, National Chicken Council Communication Committee, from 2013 to 2014

 

   Member, Board of Directors, Mississippi Manufacturing Association, from 2007 to 2008

 

   Numerous directorships over 30 years with various community and philanthropic organizations

 

Education:

 

   Bachelor of Business Administration, University of Mississippi

 

   Juris Doctor, University of Mississippi School of Law

 

   Certified Public Accountant (inactive)

 

Experience and Qualifications to Serve on the Board:

 

   Mr. Cockrell’s more than 20 years of experience as the CFO of our Company during our significant internal growth, and his management of our financial condition through the cycles of profitability that characterize our industry, provide the Board with a depth of knowledge about our financial management.

 

   Mr. Cockrell oversees or has a key role in many aspects of our operations and management that are not typical for chief financial officers of public companies, including legal matters, investor relations, corporate responsibility reporting, our grain purchasing strategy, and risk management. He contributes a broad perspective on our operations to the Board process.

 

   Mr. Cockrell has played a key role in the mentoring and training of our “next generation” of managers, which has assisted the Board in its oversight of management succession issues.

 

 


 

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LOGO

 

Edith Kelly-Green

 

Independent Director

 

Age:  67

 

Director Since:  2018

 

Committees:

 

Audit

Nominating and

Governance (Vice-Chair)

   

Business Experience:

 

   Partner, The KGR Group, whose primary interests are investments in quick service restaurant franchises in Memphis, Tennessee, since 2005

 

   Vice President-Strategic Sourcing and Supply and Chief Sourcing Officer from 1993 to 2003, FedEx Express, the world’s largest express transportation company and a subsidiary of FedEx Corporation (NYSE)

 

   Vice President-Internal Audit and Quality, FedEx Corporation, from 1991 to 1993 and numerous other positions from 1977 to 1991 at both FedEx Corporation and FedEx Express

 

   Interim Chief Executive Officer, Aeroxchange, Ltd., a multi-airline-owned business-to-business e-marketplace, 2000

 

   Director, BULAB Holdings, Inc., a privately held, specialty chemical company, since 2012

 

   Senior Auditor, Deloitte, from 1973 to 1977

 

Past Public Company Boards:

 

   Applied Industrial Technologies, Inc. (NYSE), from 2002 to 2019

 

Other Positions:

 

   Director, Methodist Health Care Systems, Memphis, since 2018

 

   Director, Hatiloo Theater, Memphis, since 2014

 

   Founding Member, Philanthropic Black Women of Memphis, since 2006

 

   Founding Chair and Member, Ole Miss Women’s Council for Philanthropy, since 2000

 

   Member, Advisory Board, Baptist Women’s Hospital, since 2011

 

Education:

 

   Bachelor of Business Administration, University of Mississippi

 

   Master of Business Administration, Vanderbilt University

 

   Certified Public Accountant (inactive)

 

Experience and Qualifications to Serve on the Board:

 

   Ms. Kelly-Green’s success as an entrepreneur and experience managing a large chain of restaurants in one of our key consumer markets are tremendous assets to our Board in overseeing risks related to marketing and consumer preferences.

 

   Her professional experience in corporate operations, supply chain management, logistics, public accounting, and auditing complements the skill sets of our Board.

 

   Ms. Kelly-Green’s service on another public company board for 17 years, including her role as chair of its corporate governance committee, and her service on numerous civic and charitable organization boards, provide our Board with further depth of experience in governance best practices.

 

 


 

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LOGO

 

Suzanne T. Mestayer

 

Independent Director

 

Age:  67

 

Director Since:  2017

 

Committees:

 

Audit (Chair)

Nominating and

Governance

   

Business Experience:

 

   Owner and Managing Principal, ThirtyNorth Investments, LLC, a registered investment advisory firm providing investment management services to individuals, benefit plans, for-profit and non-profit businesses and trusts, since 2010

 

   Managing Member, Advisean Partners, LLC, a private investment and business consulting company, since 2008

 

   Executive Vice President and President – New Orleans Market, Regions Bank, from 2000 to 2008

 

   Partner, from 1983 to 1991, and other positions from 1973, Arthur Andersen & Co.

 

Past Public Company Boards:

 

   McMoRan Exploration Co. (NYSE), from 2007 to 2013

 

Other Positions:

 

   Member, Board of Directors of Pan American Life Insurance Company, since 2017

 

   Past Chair and current member, Board of Directors of Ochsner Health System, the largest healthcare system in Louisiana, since 2004

 

   Interim Treasurer and member, Board of Trustees of the National WWII Museum, since 2012

 

   Former director, Federal Reserve Bank of Atlanta, New Orleans Branch, from 2014 to 2018

 

Education:

 

   Bachelor of Science, Louisiana State University

 

   Certified Investment Management Analyst®

 

   Certified Public Accountant (inactive)

 

Experience and Qualifications to Serve on the Board:

 

   Ms. Mestayer’s successful and distinguished career in investment management, banking, and accounting eminently qualify her to serve on our Board. Her professional expertise allows her to contribute a broad skill set to the Board.

 

   Ms. Mestayer has served on over 20 public and private boards, presiding as chair for seven, and has served on the audit and compensation committees of several organizations. Her governance experience is extremely valuable in matters of board process and oversight.

 

   Additionally, Ms. Mestayer’s professional and board experience make her an asset to our Board in its oversight of accounting and financial risk, internal controls, and executive compensation.

 

 


 

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Class C Directors (term expiring in 2022)

 

LOGO

 

Fred L. Banks, Jr.

 

Independent Director

 

Age:  77

 

Director Since:  2007

 

Committees:

 

Audit

Compensation

Nominating and

Governance (Chair)

   

Business Experience:

 

   Senior Partner since 2008, and Partner from 2001 to 2008, Phelps Dunbar LLP, Jackson, Mississippi, practicing general commercial litigation

 

   Presiding Justice from 1999 to 2001, and Justice from 1991 to 1999, Mississippi Supreme Court

 

   Circuit Court Judge, Hinds and Yazoo Counties, Mississippi, from 1985 to 1991

 

   Representative, Mississippi House of Representatives, from 1976 to 1985

 

   Managing Partner, Anderson, Banks, Nichols and Leventhal and successor firms, from 1968 to 1985

 

Other Positions:

 

   National Board Member, NAACP, since 1982 (chair, legal committee and member of executive, finance, and audit committees)

 

   Chairman, Mississippi Civil Rights Museum Advisory Commission, since 2014

 

   Chairman, Capitol City Convention Center Commission, since 2006

 

   Chairman, Community Foundation for Greater Jackson, from 2007 to 2008

 

Education:

 

   Bachelor of Arts, Howard University

 

   Juris Doctor, cum laude, Howard University School of Law

 

Experience and Qualifications to Serve on the Board:

 

   Mr. Banks’ extensive experience in law as a legislator, judge, and practicing lawyer allow him to provide valuable insight to the Board in overseeing legal risk management and adopting and implementing governance best practices.

 

   His active legal career in Mississippi, where we are incorporated and have our principal office, makes him eminently qualified to chair the Board’s Nominating and Governance Committee.

 

   Mr. Banks has been a leader in numerous civic and philanthropic organizations in Mississippi and nationally. His experience and perspective in the areas of civil rights and equality of opportunity are invaluable to the Board in fulfilling the Company’s social responsibilities.

 

 


 

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LOGO

 

Toni D. Cooley

 

Independent Director

 

Age:  59

 

Director Since:  2007

 

Committees:

 

Compensation (Vice-Chair)

Nominating and

Governance

   

Current Other Public Company Boards:

 

   Trustmark Corporation (NASDAQ), since 2013

 

Business Experience:

 

   Chief Executive Officer since 2016, and Founder and President from 2011 to 2016, Systems Automotive Interiors, L.L.C., a Tier One supplier of upholstered seats to Toyota Motor Manufacturing

 

   Chief Executive Officer since 2016, and Co-Founder and President from 2001 to 2016, Systems Electro Coating, LLC, a Tier One supplier to Nissan of electrocoated vehicle frames and components

 

   Chief Executive Officer since 2011, and President from 2002 to 2011, Systems IT, Inc., an IT training and consulting company

 

   Chief Executive Officer since 2016, and President from 1994 to 2016, Systems Consultants Associates, Inc., a management training and consulting firm

 

Other Positions:

 

   Director, Trustmark National Bank, since 2005

 

   Director, Federal Reserve Bank of Atlanta, New Orleans Branch, since 2019

 

   Mentor and Benefactor, Center for Social Entrepreneurship, since 2016

 

Education:

 

   Bachelor of Business Administration, Stephens College

 

   Juris Doctor, University of Minnesota

 

Experience and Qualifications to Serve on the Board:

 

   Ms. Cooley’s experience in founding and growing the Systems Group companies provides the Board with significant executive expertise in the manufacturing sector, including in programs designed to protect the environment from industrial activity.

 

   Ms. Cooley’s service on the board of a publicly traded financial institution, including as chair of that company’s enterprise risk management committee, assists our Board in identifying and overseeing risk in areas such as compliance, insurance, employee relations and human resource management.

 

   Her leadership at her family-owned management training firm, established with the express purpose of assisting minority businesses with capacity building, provides the Board with valuable insight into promoting diversity and organizational development.

 

 


 

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LOGO

 

Gail Jones Pittman

 

Independent Director

 

Age:  66

 

Director Since:  2002

 

Committees:

 

Audit

Compensation (Chair)

   

Business Experience:

 

   Founder and Chief Executive Officer, Gail Pittman Inc., a design company of hand painted dinnerware and home accessories, since 1979

 

   Creative Director, Southern Living at Home, from 2005 to 2010

 

Other Positions:

 

   Alliance Member, Ole Miss Women’s Council for Philanthropy, since 2002

 

   Member, International Women’s Forum, Mississippi Chapter, since 2015

 

   Chair, Metro Jackson Chamber of Commerce, 1999

 

   Chair, Madison County Foundation, from 2009 to 2012

 

   Member, Advisory Board, Regions Bank, Central Mississippi, from 1998 to 2003

 

   Member, Business Advisory Council, University of Mississippi, from 2000 to 2005

 

Education:

 

   Bachelor of Arts, University of Mississippi

 

Experience and Qualifications to Serve on the Board:

 

   Ms. Pittman’s skill, experience and perspective as a successful entrepreneur makes her exceptionally valuable to the Board. She is recognized by many as Mississippi’s preeminent female business executive.

 

   The Board benefits from her manufacturing and production experience in its oversight and monitoring of our operational performance, and from her experience in the areas of brand growth and management, product development and sourcing, marketing, and business development.

 

   A noted philanthropist, Ms. Pittman provides meaningful insights to the Company on a variety of areas in the Company’s ESG efforts and community involvement.

 

 


 

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Corporate Governance

We are committed to good corporate governance, which helps us to operate efficiently, sustain our business, and build long-term stockholder value. The Board has adopted Corporate Governance Principles to provide a framework for effective governance of our Company.

The Board reviews and reassesses the Corporate Governance Principles at least annually and updates them as appropriate. The Board has also adopted a Corporate Code of Conduct and a Code of Ethics for our Chief Executive Officer and senior financial personnel governing their responsibility for internal controls and full, fair, accurate, timely, and understandable disclosure in our periodic reports. The Corporate Governance Principles, Code of Conduct, Code of Ethics, our by-laws, and the charters of each of the Audit, Compensation, and Nominating and Governance Committees can be found at http://ir.sandersonfarms.com/corporate-governance.

Governance is a continuing focus of Sanderson Farms, starting with the Board and extending to management and our employees. The Board advises and counsels the CEO and the other executive officers who manage the Company’s business. Additionally, we have solicited feedback from our stockholders on governance matters and improvements, as well as on executive compensation and risk management.

Long-Term Strategic Plan

One of the Board’s primary responsibilities is to oversee the development and implementation of our long-term strategic plan. Determining the strategic course of the Company requires a high level of constructive engagement between management and the Board. Our entire Board acts as a strategy committee and regularly discusses our long-term business plan.

 

   

The Board reviews the plan with management at least annually and considers whether adjustments should be made given global economic, customer, and other trends, as well as changes in our industry and commodities markets.

 

   

The Board receives regular reports from management on management’s progress in implementing the plan.

 

   

Management regularly reports to the Board on its operational goals and level of success in achieving those goals, our capital budget, and our capital structure.

 

   

The independent directors hold regular executive sessions without management present, at which strategy is discussed.

 

   

The Board’s annual, in-house director “teach-in” session provides another opportunity for directors to discuss strategy in-depth and receive presentations from the heads of each of our production, processing, and sales divisions.

 

   

The Board also discusses and reviews feedback on strategy from our stockholders.

Process for Selecting Directors

The Board and the Nominating and Governance Committee have made planning for director succession a priority. They believe maintaining a system of overlapping tenures between veteran and newer directors is important for director succession. The Board and the Committee annually assess the composition of the Board during their self-evaluation process, as well as the Board’s effectiveness at assembling a diverse



 

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and qualified group of directors. The self-evaluation allows directors to comment discretely but candidly on the effectiveness of other directors and to propose any skill sets or experience that the Board should look for in new director candidates.

The Nominating and Governance Committee considers the skills and experience needed for the Board to exercise its responsibilities properly. Focusing on those needs, it then screens and recommends candidates for nomination by the full Board.

 

 

LOGO

Proxy Access, Stockholder Nominations and Recommendations of Director Candidates

Our by-laws permit a stockholder or group of up to 20 stockholders who have owned at least 3% of our outstanding stock for at least three years to submit nominees for the greater of two directors, or 20% of the Board, for inclusion in our proxy statement. The stockholder(s) and nominee(s) must meet the requirements of our by-laws.

Stockholders who wish to nominate directors for inclusion in the proxy statement or directly at an annual meeting in accordance with the requirements of the by-laws can find more information under “Submission of Stockholder Proposals and Director Nominations for Inclusion in the Proxy Statement for the 2021 Annual Meeting” and “Other Proposals or Director Nominations for Presentation at the 2021 Annual Meeting” in this proxy statement.

Stockholders who wish to recommend director candidates for consideration at an annual meeting should send their recommendations by September 15 of the year before the annual meeting in writing to:

Chair, Nominating and Governance Committee

Board of Directors

Sanderson Farms, Inc.

Post Office Box 988

Laurel, Mississippi 39441

Stockholders should include the following information in their written notice:

 

   

the stockholder’s name and address;

 

   

a representation that the stockholder is a holder of record or a beneficial owner (in which case evidence of beneficial ownership must be submitted if requested by the Nominating and Governance Committee) of shares of the Company’s common stock as of the date of the notice;



 

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the name, age, business and residence addresses, and principal occupation and experience of each candidate;

 

   

such other information regarding each candidate that the stockholder wishes the Nominating and Governance Committee to consider;

 

   

the consent of each candidate to serve as director of the Company if elected; and

 

   

a representation signed by each candidate that states that the candidate meets all of the qualifications set forth in Article IV of our by-laws, which requires that directors be at least 21 years old and citizens of the United States.

The Nominating and Governance Committee will evaluate director candidates recommended by stockholders on the same basis as recommendations received from any other source. Anyone recommending candidates to the Nominating and Governance Committee should consider the minimum qualifications, skills, and qualities that the Nominating and Governance Committee believes are necessary for a director of the Company, as set forth above under “Director Criteria, Qualifications, and Experience.”

Committees of the Board of Directors

It is the general policy of the Company that all major decisions be considered by the Board as a whole. However, the Board has established three committees to assist in discharging its duties, which are the Audit, Compensation, and Nominating and Governance Committees. The primary responsibilities of each of the committees are set forth below, together with their current membership and the number of meetings held in 2019. Committee charters can be found on our website at http://ir.sandersonfarms.com/corporate-governance. The Board has determined that each member of the Audit, Compensation, and Nominating and Governance Committees is independent for purposes of the NASDAQ Stock Market listing standards. In addition, directors who serve on the Audit Committee and the Compensation Committee meet additional, heightened independence and qualification criteria applicable to directors serving on these committees under the NASDAQ listing standards and SEC rules.

 

Committees

 

  

Members in 2019

 

  

Description

 

Audit Committee

 

Meetings in 2019: 8

  

Suzanne T. Mestayer

(Chair)

Phil K. Livingston

(Vice-Chair)

John H. Baker III

Fred L. Banks, Jr.

David Barksdale

Edith Kelly-Green

Robert C. Khayat

Gail Jones Pittman

  

The Audit Committee oversees the Company’s accounting and financial reporting and disclosure processes, the adequacy of the systems of disclosure and internal controls established by management, and the audit of the Company’s financial statements. The Audit Committee oversees insurance risk and operational risks, risks related to financial controls and legal, regulatory, and compliance matters, and oversees the overall risk management governance structure and function.

 

Among other things, the Audit Committee:

 

(1)  appoints the independent auditor and evaluates its independence and performance;

 

(2)  reviews the audit plans for and results of the independent audit and internal audits; and

 

(3)  receives reports from the Company’s key managers about the primary risks to our business relevant to their departments and how they manage that risk.

 

The Board has determined that all of our Audit Committee members are financially literate and that Ms. Kelly-Green, Ms. Mestayer and Mr. Livingston are audit committee financial experts as defined by the SEC.

 



 

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Committees

 

  

Members in 2019

 

  

Description

 

 

Compensation Committee

 

Meetings in 2019: 6

  

 

Gail Jones Pittman (Chair)

Toni D. Cooley

(Vice-Chair)

John H. Baker III

Fred L. Banks, Jr.

David Barksdale

Beverly W. Hogan

Robert C. Khayat

Phil K. Livingston

 

  

 

The Compensation Committee oversees the Company’s executive compensation and stock incentive plan. For more information on the responsibilities and activities of the Compensation Committee, including the Committee’s processes for determining executive compensation, see the Compensation Discussion and Analysis section.

 

Nominating and Governance Committee

 

Meetings in 2019: 8

  

 

Fred L. Banks (Chair)

Edith Kelly-Green (Vice-Chair)

Toni D. Cooley

Beverly W. Hogan

Phil K. Livingston

Suzanne T. Mestayer

 

  

 

The Nominating and Governance Committee oversees the Board’s corporate governance procedures and practices, including the recommendation of individuals for the Board, making recommendations regarding director compensation, leading the Board in its annual self- evaluation process, and making recommendations concerning Board and management succession policies.

In addition to the above committee meetings, the Board held 10 meetings in 2019.

Director Attendance

All Board members are expected to attend our annual meeting of stockholders, all Board meetings, and meetings of committees on which they serve, unless an emergency or unavoidable conflict prevents them from doing so.

During 2019, every director attended at least 80% of the total of

 

   

all of the Board of Directors meetings held during the period for which he or she was a director, plus

 

   

all of the meetings held by the committees of the Board on which he or she served (during the period in which the director served).

All of our directors then serving attended our 2019 annual meeting of stockholders.

Director Independence

The current Board consists of 14 directors, three of whom are employed by the Company (Messrs. Sanderson, Butts, and Cockrell). The Board determined that Ms. Pérez was an “independent director” as that term is defined in the NASDAQ Stock Market listing standards at the time she was appointed to the Board in 2019. The Board conducted an annual review and affirmatively determined that all of the other non-employee directors other than Mr. Bierbusse (i.e., Mses. Cooley, Hogan, Kelly-Green, Mestayer, and Pittman and Messrs. Baker, Banks, Barksdale, Khayat, and Livingston) are “independent” under the NASDAQ standards.

Mr. Bierbusse does not meet the NASDAQ Stock Market’s definition of independent director because his brother is a “principal” in the business consulting division of Ernst & Young LLP, our independent registered public accounting firm. A “principal” is a partner who is not an accountant. Mr. Bierbusse’s brother is not involved in Ernst & Young LLP’s audit of our financial statements or any other services they provide to us and Ernst & Young LLP has concluded that his relationship to Mr. Bierbusse does not impair that firm’s independence. In addition, we believe that neither Mr. Bierbusse nor his brother have any



 

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interest in the fees we pay to Ernst & Young LLP, but if such an interest exists, it is not material. Therefore, we have not entered into a “related party transaction” that must be approved by a special committee of qualified, independent directors pursuant to the charter of the Audit Committee of our Board of Directors.

Independent Director Meetings

The independent directors meet regularly in executive session, usually in conjunction with each regular Board meeting, with the Lead Independent Director serving as Chair.

Board and Committee Self-Evaluation

The Board and each committee conduct a self-evaluation of their performance, composition, leadership structure, and governance at least annually. The evaluation format and process is supervised by the Nominating and Governance Committee. In 2019, the self-evaluation process was conducted through a personal, one-on-one interview of each director by either the Chair of the Nominating and Governance Committee or the Lead Independent Director.

The Nominating and Governance Committee provides directors with a list of suggested topic areas in advance of the interviews so that directors may begin reflecting on aspects of the Board’s and committee’s performance and need for improvement. Interviews are not limited to those subjects, however, and directors are encouraged to share all concerns they have about the Board and committee process and the Board’s governance during their interviews. The interviews also provide an opportunity for directors to assess or comment on individual directors.

Once the interviews are completed, the Chair of the Nominating and Governance Committee and the Lead Independent Director confer and compile a joint report that they present to the full Board. The Lead Independent Director is responsible for ensuring that there is follow-up on any action items that result from the evaluation process. For example, he may request that management provide a report to the Board on a particular topic.

Board Leadership

Currently, Joe F. Sanderson, Jr. serves as both our Chief Executive Officer and the Chairman of the Board of Directors. The Board reassesses its leadership structure annually and has affirmatively determined that Mr. Sanderson’s combined role as Chairman and Chief Executive Officer provides the Company and the Board with strong leadership and continuity of experience and is in our stockholders’ best interests. Chief among the factors the Board has considered are Mr. Sanderson’s leadership in setting a “tone at the top” that permeates all of our operations; his investor-driven viewpoint; the Company’s performance; his 50 years of experience with our Company; and his long-term vision for our strategic plan.

Our by-laws provide that if at any time the Chairman of the Board is also an officer of the Company, the independent directors must appoint a Lead Independent Director. The Lead Independent Director must be “independent” under the rules of the NASDAQ Stock Market and is appointed by the other independent directors for a one-year term. Our by-laws give our Lead Independent Director a robust role in our board process. He or she is responsible for:

 

   

presiding at all meetings of the Board of Directors at which the Chairman of the Board is not present, including executive sessions of the independent directors;

 

   

serving as a liaison between the Chairman of the Board, other senior managers, and the independent directors;



 

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approving information sent to the Board of Directors in preparation for meetings of the Board of Directors, and meeting agendas;

 

   

approving schedules for meetings of the Board of Directors to ensure that there is sufficient time for discussion of all agenda items;

 

   

having the authority to call meetings of the independent directors; and

 

   

being available for communications with our stockholders.

The independent directors have appointed Phil K. Livingston as the Company’s Lead Independent Director. In addition to actively fulfilling the responsibilities listed above, Mr. Livingston periodically attends senior management meetings to observe management decision-making and ensure that managers who report to the executive officers have access to the independent directors. He has also actively engaged with stockholders on important matters, and we expect he will continue to be available to meet with stockholders.

The proper discharge of the Board’s fiduciary duties to the Company and its stockholders requires it to retain the flexibility to determine the person or persons best suited for the role of Chairman and Chief Executive Officer. The Board believes its selection of Mr. Sanderson for both roles is consistent with its fiduciary duties because he is the person best suited for both positions. The Lead Independent Director role provides a necessary layer of independent oversight. The Lead Independent Director also helps to ensure effective communication between management and the independent directors and increases the independent directors’ understanding of management decisions and Company operations. Thus, the Board of Directors believes that its leadership structure is appropriate.

Risk Oversight

The Board takes very seriously its oversight role in the Company’s risk management. The Company’s senior management committee, called the Executive Committee, is primarily responsible for managing the day-to-day risks of the Company’s business, and is best equipped to assess and manage those risks. The Board or the Audit Committee receives reports on the Company’s exposure to risk and its risk management practices from the senior managers of the Company’s major divisions, as well as from third party experts, on topics such as:

 

   

information technology safeguards and cyber security

 

   

the Company’s biosecurity program

 

   

flock health and veterinary practices

 

   

quality control and safety of our products

 

   

crisis response and management, including climate-related disasters

 

   

our growth plans

 

   

financial and accounting controls and security measures

 

   

grain purchasing strategy

 

   

environmental compliance

 

   

human resources



 

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workplace conduct and related company policies

 

   

insurance coverages

 

   

legal matters

 

   

customer and product mix

 

   

consumer preferences and trends

The Board regularly receives updates about and reassesses the management of these risks throughout the year. For some matters, such as cyber security, the Board or the Audit Committee receives at least quarterly updates from the appropriate managers on measures the Company has taken to mitigate risk. In addition, the Board reviews the Company’s risk disclosures in its draft periodic reports before they are filed and has the opportunity to question management about those risks. Periodically, at the Board’s annual in-house director education session, management makes a comprehensive report to the Board on how it manages each of the risks disclosed in the periodic reports.

The Board is confident that the CEO, as the head of the Company’s Executive Committee, and other members of the Executive Committee, will promptly report new material risks or material changes in the Company’s risk profile to the Board. The Board feels that, together with the CEO, it has cultivated a corporate culture and board leadership structure in which managers who report to the CEO and the other top officers of the Company have access to the Lead Independent Director and the other independent directors, and can communicate freely and candidly about risks to the Company.

In addition, for at least the last 14 years, the Board has visited each of our new facilities and has personally observed our production and processing operations, including our hatcheries and processing lines, and our biosecurity, worker health and safety, quality control, food safety, and live production disease prevention measures, among others.

Succession Planning

The Board has adopted a written management succession policy pursuant to which it plans for succession to the positions of Chief Executive Officer, Chief Operating Officer and Chief Financial Officer (key officers). The policy requires the key officers to periodically provide the Nominating and Governance Committee of the Board and the Lead Independent Director with an assessment of senior managers and their potential to succeed the key officers. The key officers must also report on the Company’s training and recruiting efforts for other senior management positions.

The directors have many opportunities to interact with “next generation” managers, both formally and informally. High potential leaders are thus given exposure and visibility to the Board, and the Board has made it a priority to interact with internal management candidates.

Communications Between Stockholders and the Board of Directors

The Board of Directors has adopted a formal procedure that stockholders may follow to send communications to the Board of Directors. Stockholders may send communications to the Board by writing to:

Internal Audit Department

Sanderson Farms, Inc.

P. O. Box 988

Laurel, MS 39441-0988



 

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Stockholders desiring to send a communication to the full Board of Directors should mark the envelope “Attention: Board of Directors.” Envelopes intended for a committee of the Board should be marked to the attention of the particular committee. Stockholders may also communicate with directors who are “independent directors” under the rules of the NASDAQ Stock Market by marking the envelope “Attention: Independent Directors” at the address given above.

We will forward all communications we receive as addressed on a quarterly basis, unless management determines by individual case that a communication should be forwarded more promptly. However, any stockholder communication concerning employee fraud or accounting matters will be forwarded as addressed, with a copy to the Audit Committee, immediately upon receipt.

Stockholder Engagement

We are committed to engaging with our stockholders to communicate with transparency our strategy, performance, business practices, governance, and other matters. Throughout the year, our senior management team meets with holders of a significant portion of our outstanding stock across the country to discuss our Company and gain stockholder feedback.

 

 

How We Engage with Our Stockholders

 

Through Off-Season Outreach

 

Many of our stockholders engage with issuers primarily outside of annual meeting season, when conversations are less focused on a single voting issue. In the Fall of 2019, our management, Lead Independent Director, and Board committee chairs met with holders of a large percentage of our outstanding shares to engage on ESG issues, our compensation philosophy, the Board’s oversight of risk management, and other matters.

 

Through In-Season Outreach

 

Occasionally, such as when there is a stockholder proposal on the ballot, additional outreach may be helpful or necessary to discuss specific issues and answer stockholder questions. This supplements our ordinary course outreach.

 

Through Our Proxy Statement

 

Our proxy statement can be an important communications tool for our stockholders. We have re-formatted our proxy statement to make it more useful to stockholders and include more discussion of governance matters at our Company.

 

Through Investor Conferences and our Annual Investor Day

 

Our management team attends non-deal roadshows and investor conferences related to our industry, such as the Barclays Consumer Staples Conference, and others. We also host our own annual investor day where our management gives presentations on our strategy and performance, and third-party experts make presentations on poultry and grain markets and other matters affecting our Company. Members of our Board of Directors attend the investor day as well as our annual stockholders meeting and are available to engage with stockholders at those events.

 



 

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Corporate Responsibility

Conserving natural resources has been a core value of our Company since its founding. At each new complex we build under our internal growth plan, we strive to implement innovative environmental sustainability measures. Our Board receives reports from our Director of Development and other managers concerning our sustainability efforts at each new complex. In addition, the Board personally visits our new complexes and has observed our sustainability program firsthand.

We describe our sustainability program in more detail in our annual Corporate Responsibility Report, which can be found under the “Corporate Governance” tab of the “Investors” section of our website at www.sandersonfarms.com. The report also includes information related to our programs and achievements on worker training and safety, animal welfare, our relationships with our contract growers, and our food safety practices. It also discusses our involvement in the community, including our charitable activities that have been approved at the Board level.

Hedging Policy

We have a policy prohibiting hedging transactions by officers, directors, and any other person who is subject to our insider trading policy. See the Compensation Discussion and Analysis section for more information.

Review and Approval of Certain Transactions

The Audit Committee’s charter charges it with reviewing, on an on-going basis, certain transactions between the Company and its directors, officers, major stockholders and certain other persons for conflicts of interest. The types of transactions that are subject to this review are those “related party transactions” that must be disclosed in our proxy statement under the rules of the SEC, which are transactions, arrangements or relationships in which we or any of our subsidiaries was or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest. A “related person” means generally:

 

   

any of our executive officers, directors, or nominees for director;

 

   

any person who is known by us to be the beneficial owner of more than 5.0% of our common stock; and

 

   

any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of an executive officer, director, nominee for director, or a beneficial owner of more than 5.0% of our common stock, and any person (other than a tenant or employee) sharing the household of such person.

The Audit Committee must recommend to a special committee of qualified, independent directors whether or not the transaction should be approved. The special committee may retain independent legal, accounting, or other advisors to advise it in this process. In determining whether to approve or disapprove entry into a related party transaction, our Audit Committee takes into account, among other factors, whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction.



 

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During our 2019 fiscal year, the Audit Committee was appointed by the Board to serve as the special committee to review and consider the employment by the Company of Casey Butts and Norman Butts, who are related persons because they are the son and brother, respectively, of Director and COO Lampkin Butts. The Audit Committee approved their employment and compensation. The Company paid these related persons the following compensation in fiscal year 2019:

Fiscal 2019 Related Party Compensation1

 

Related Person/Title

   Salary ($)      Non-Equity
Incentive Plan
     Aggregate
Grant
Date Fair
Value of
Restricted
Stock ($)
     All
Other2 ($)
     Total ($)  
   Maximum
Opportunity
as % of
Salary
    Dollar
Amount
Paid
 

Casey Butts,

Corporate Processing Manager

     318,668        45     0        47,107        14,549        380,324  

Norman Butts,

Corporate Maintenance Manager

     179,096        40     0        26,414        9,552        215,062  

 

 

(1)

Does not include health plan benefits, which are paid according to the same criteria applicable to all salaried employees generally.

(2)

Consists of 401(k) Plan matching contribution, ESOP allocation, dividends paid on restricted stock and life insurance premium, in each case if applicable to the related person.

The Audit Committee will review the employment and compensation of Mr. Casey Butts and Mr. Norman Butts on an annual basis.



 

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Compensation Discussion and Analysis

In this section, we describe our compensation philosophy, the factors the Compensation Committee considered in developing our compensation packages, and the decision-making process it followed in setting compensation for our named executive officers for our 2019 fiscal year. You should read this section in conjunction with the tables and accompanying narratives that follow. We believe our executive compensation programs reflect our Company’s pay-for-performance philosophy, assist us in creating long-term value for our stockholders, and are effective in retaining and motivating our executives.

Our “named executive officers” as defined under the SEC’s proxy statement rules for 2019 were:

 

   

Joe F. Sanderson, Jr., Chairman of the Board and Chief Executive Officer (CEO);

 

   

Lampkin Butts, President and Chief Operating Officer (COO);

 

   

Mike Cockrell, Treasurer, Chief Financial Officer and Chief Legal Officer (CFO); and

 

   

Tim Rigney, Secretary and Controller (Secretary).

You can read the biographies of Messrs. Sanderson, Butts and Cockrell in this proxy statement under Item 1—Election of Directors. Mr. Rigney has served as Secretary and Controller since November 1, 2012, and was our Corporate Accounting Manager from December 2005 to November 1, 2012.

Executive Summary

Sanderson Farms has always had a pay-for-performance culture. We expect top performance from our people every year and are willing to pay for that success. Accordingly, a substantial part of the compensation package for each named executive officer is at risk and is only earned if performance warrants. In addition to base salary, we offer our named executive officers the opportunity to earn an annual cash bonus if the Company meets certain performance goals, and we also grant long-term incentives to our named executive officers to align their pay with the long-term success of our Company.

Our long-term equity incentives have a performance-based component and a time-based element to assist us in retaining our management team. Although we generally strive to appoint executives from within our Company, our compensation programs will allow us to attract top management candidates from outside our Company, should the need arise. We encourage our named executive officers, other members of management, and our Board of Directors to follow our stock ownership guidelines. In addition, our executives participate in our Employee Stock Ownership Plan and can elect to participate in our Management Share Purchase Plan, which further aligns their interests with those of our stockholders.

The Compensation Committee has retained Willis Towers Watson as its independent executive compensation consultant. We use a peer group recommended by Willis Towers Watson and appropriate published surveys (based on industry and revenue size comparisons) to set compensation levels. We do not target our compensation levels at any particular point in the range established by data we gather, but we do consider the median of those markets along with many other factors in setting our pay opportunity. However, with above-target performance, our named executive officers can earn above-market pay.

The Committee compares our executive officers’ total realizable pay against our total stockholder return for the past three years, to determine if there is alignment between our executive pay and our performance. Total realizable pay equals the sum of an officer’s base salary, actual bonus paid,



 

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performance-based awards paid out in the period, and the value of restricted stock awards at the Company’s current stock price. Based on this analysis, the Committee believes our executive compensation and our Company’s performance have been strongly aligned over time, with less alignment in some years due to cyclicality in the poultry industry.

For our annual cash bonus plan, we measure operational performance using Agristats, a private industry benchmarking service that analyzes performance data submitted by a significant majority of the poultry industry, and through earnings per share. Even if we meet the operational and earnings per share targets, our executives will not receive payments under the bonus award plan unless we also meet a return on equity threshold. For our long-term performance share plan, we measure performance by return on sales and return on equity, and our stock price also factors into the final amount of the award to the named executive officers.

Our CEO, at his request, received no equity awards under the long-term incentive program from 2005 through our 2009 fiscal year and no restricted stock awards for the 2013 fiscal year.

Our stockholders have approved the compensation of our named executive officers as disclosed in our proxy statement by at least 92.7 percent of the votes cast in every year in which we have held a Say-on-Pay vote. The Committee took these approvals into account in determining to follow the same policies, practices, and framework to set our executive pay as it has used in the past. Our Board has determined to hold a Say-on-Pay vote every year. However, we are required by law to hold a non-binding advisory vote on the frequency of our Say-on-Pay votes at our 2020 annual meeting.

Principles and Objectives of the Executive Compensation Program

The main objectives of our executive compensation programs have been to reward outstanding performance by our executives appropriately and to ensure that management and stockholder interests are closely aligned. The Committee strives to structure compensation packages that create incentives for our executives to maximize long-term stockholder value, rather than to maximize their individual pay. A significant portion of our executive compensation opportunity is related to factors that directly and indirectly influence stockholder value, including stock performance, earnings per share, operational performance, return on sales, and return on equity.

Another significant factor in the Committee’s decision-making is stockholder dilution, and the Committee strives to minimize the dilutive effect of equity awards on our stockholders. Our Board of Directors also adopted a share repurchase program under which we are authorized to repurchase up to two million shares of our common stock, in part to offset the dilutive effect of our equity compensation plans. During fiscal 2018, we repurchased 823,385 shares under this program.

We believe our executive culture is unique within our industry. Our management team is motivated by a strong “tone from the top” that has fostered our core mission to create returns for our stockholders. We believe our executives should be rewarded fairly for their loyalty to that mission, especially in years when we perform at the top of our industry.

Management, the Board of Directors, and the Compensation Committee recognize that our business is cyclical and seasonal, and often times factors beyond our control significantly influence our profitability. These factors include swings in the market prices for our primary product, fresh chicken, and our two primary input costs, corn and soybean meal. Supply and demand factors for poultry products and feed grains also play a role in the cyclicality of our industry and are influenced by global macroeconomic conditions and weather patterns. Accordingly, the Compensation Committee believes it is important to measure and reward outstanding performance as much by operational performance relative to our industry peers as in absolute dollars per share and other typical measuring tools. This concept of placing significant emphasis on operational performance relative to our industry peers permeates our overall compensation plans and philosophy.



 

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We expect top-level performance from our management team even during downturns in our industry and during periods of Company expansion. Accordingly, the criteria that the Committee has established for our performance-based awards have been historically very challenging to achieve. Nevertheless, even in years for which we have incurred a net loss, our Company has often performed better than most of our industry peers. The Committee has considered these factors in evaluating our compensation plans and has made adjustments to the plans or discretionary awards to take into account our strong performance relative to the industry and our significant Company growth.

The Committee intends to continue its strategy of using programs that emphasize performance-based incentive compensation, with a goal to achieve an appropriate balance between our short and long-term performance and between our performance and stockholder return.

Benchmarking and Competitive Analyses

The Committee uses information gathered by analyzing the compensation levels and programs of a peer group and, in some cases, composite survey data compiled from unidentified companies of appropriate size and industry. The peer group serves as the chief point of comparison of the level and structure of executive pay, and is composed of companies similar to Sanderson Farms in size, median revenue, industry, geographic location, and/or performance. The Committee also uses data from a reference group of direct competitors that are considerably larger than Sanderson Farms as a comparator for components of executive pay, but not for pay levels. Selection of the peer and reference groups is based on the research of Willis Towers Watson with input from the Committee. Each year, Willis Towers Watson considers whether the composition of the peer and reference groups continues to be appropriate and if not, recommends changes. However, the Committee and Willis Towers Watson strive to minimize churn in the composition of the groups so that yearly comparisons remain stable.

The comparator groups yield information about the general level and components of pay for comparable executive positions at other companies. The Committee uses this information as a general guide in its deliberations, but it does not target our executive compensation levels at any point in the range established by the comparisons. Instead, the Committee bases its final decisions on its business judgment, which may be influenced by the median level of that range, as well as a variety of other factors discussed below. The companies in the comparator groups that Willis Towers Watson used in 2018 to make recommendations about fiscal 2019 pay were:

 

  Peer Group

  

Reference Group

  B&G Foods, Inc.

  

Hormel Foods

  Brown-Forman Corp.

  

Pilgrims Pride

  Cal-Maine Foods, Inc.

  

Tyson Foods

  Central Garden & Pet Company

  

  Darling Ingredients, Inc.

  

  Dean Foods

  

  Flowers Foods, Inc.

  

  Hain Celestial Group Inc.

  

  JM Smucker Co.

  

  Lancaster Colony Corp.

  

  McCormick & Co.

  

  Pinnacle Foods Inc.

  

  Post Holdings, Inc.

  

  Seaboard Corp.

  

  Seneca Foods Corp.

  

  SunOpta, Inc.

  

  Treehouse Foods Inc.

  

  United Natural Foods Inc.

  


 

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In 2019, Willis Towers Watson used the same groups for its fiscal 2020 recommendations, except that Pinnacle Foods Inc. was removed from the peer group because it was acquired.

The Compensation Committee Process and the Role of Management and Compensation Consultants

Both management and the Compensation Committee recognize the importance of maintaining sound principles for the development and administration of compensation and benefit programs. Our Compensation Committee has taken steps to significantly enhance its ability to carry out its responsibilities effectively, as well as to ensure that the Company maintains strong links between executive pay and performance. Examples of actions that the Committee has taken include:

 

 

Retained an independent compensation consultant, Willis Towers Watson, to advise on executive and director compensation issues. The Committee selected Willis Towers Watson after considering the qualifications and proposals of several consulting firm candidates and interviews of the candidates with the Committee chair. The Committee periodically re-assesses whether Willis Towers Watson continues to be an appropriate choice.

 

 

Met regularly in executive sessions with the compensation consultant and legal and accounting advisors without Company management present.

 

 

Maintained important features of our executive and director compensation programs, including:

 

  o   

Establishing a peer group for primary comparisons of the level and structure of executive and director pay;

 

  o   

Establishing a broader reference group of companies with a business environment similar to ours to assist in comparing the elements of executive and director compensation (not levels of pay);

 

  o   

Developing a long-term incentive program for executives designed to offer a variety of equity-based awards that are linked to stockholder value, and making adjustments to the program where necessary to take into account our significant Company growth and strong performance relative to our peers;

 

  o   

Implementing incentive programs to promote increased Company stock ownership by management and non-employee directors;

 

  o   

Instituting share ownership guidelines for both management and non-employee directors;

 

  o   

Adopting a compensation recoupment policy for incentive-based compensation, discussed below; and

 

  o   

Undertaking a formalized annual review of executive compensation packages with advice from the compensation consultant in light of market standards; company, industry, and officer performance; and individual merit.

The Committee has the sole authority to retain or terminate Willis Towers Watson (or any other compensation consultant) and to approve the consultant’s fees and other terms and conditions of its engagement. In April 2019, as in prior years, the Committee directly engaged Willis Towers Watson to review its executive compensation components and levels and recommend any changes for fiscal 2020 necessary to bring our programs in line with market standards or Company performance. This included an assessment of the composition of the peer and reference groups for 2020, a review of compensation trends, development of specific compensation recommendations, review of our Stock Incentive Plan, and a presentation of its report to the Committee. The Company paid Willis Towers Watson a fee of



 

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approximately $77,500 for all of this work. For Willis Towers Watson’s work in fiscal 2018 related to fiscal 2019 executive pay, as well as a study of director pay and the goal setting for our annual and long term incentive plans, the Company paid fees of $115,000.

Our Human Resources department has engaged Willis Towers Watson’s brokerage and advisory division to identify carriers for the life insurance, disability and other plans that are ancillary to our health plan. While we do not pay Willis Towers Watson any fees for these services, they earned an estimated $510,000 in brokerage commissions for these services in fiscal 2019. For our 2020 plan year, the Compensation Committee approved the engagement of this division to secure stop-loss coverage for the health plan, in addition to coverage for the ancillary plans. Willis Towers Watson estimates that they will earn additional commissions of approximately $70,000 for the stop-loss coverage brokerage services.

In 2019, the Committee formally assessed the independence of its advisors, including Willis Towers Watson, based on specific information requested of the advisors, and determined that Willis Towers Watson and its other advisors are independent. The Committee will take measures to ensure that any future engagement of Willis Towers Watson by our Company does not impair Willis Towers Watson’s independence.

Typically, the Committee chair meets with representatives from Willis Towers Watson at the outset of any engagement to discuss the Committee’s goals and objectives and to outline the parameters of the review that Willis Towers Watson will undertake. Company personnel are sometimes present for those meetings as a liaison with management, and Willis Towers Watson uses Company personnel to gather internal information necessary for its work. The Committee chair also corresponds with Willis Towers Watson directly during an engagement as questions arise.

The CEO is the Committee’s chief source of information about the overall performance of the Company and of senior management. Therefore, the Committee or its chair typically meets privately with the CEO to seek his view of Willis Towers Watson’s recommendations and to receive his input about factors that the Committee might consider in making its determinations with respect to the COO and CFO, who are his direct reports. Although the CEO has substantial influence on the Company’s compensation and could contact or meet with Willis Towers Watson or the Committee if he chooses, he is not directly involved in the Committee’s decision-making process or in meetings with Willis Towers Watson.

When compensation questions arise for the Committee’s consideration, senior management may be present for Willis Towers Watson’s presentations and to answer any questions by directors. However, when the Committee sets levels and components of compensation, senior managers are ultimately excused from the meeting to permit the Committee to meet with Willis Towers Watson and legal and accounting advisors, and to deliberate and vote. The Committee may ask the CEO to be present for the deliberations on the compensation of the other named executive officers, but he is excused from the deliberations and vote on his own compensation.

The Compensation Committee may form and delegate its authority to subcommittees consisting only of persons who are members of the Compensation Committee.

Compensation Committee Interlocks and Insider Participation

During fiscal 2019, none of the members of the Compensation Committee was an officer or employee of the Company and no member of the Committee is a former officer of the Company. In addition, during fiscal 2019, none of our executive officers served on the board of directors of any entity whose directors or officers served on our Board of Directors.

Elements of Executive Compensation

The compensation of our executive officers consists of the following elements:

 

   

Base Salary



 

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Annual cash incentive (bonus) awards

 

   

Long-term equity incentive awards, including:

 

  o   

Restricted stock

 

  o   

Performance shares

 

  o   

Management share purchase rights

 

   

In-service and post-employment benefits

 

   

Perquisites

The Committee has used these elements of compensation to create a flexible package that reflects the cyclical nature of the poultry business and can reward both the short and long-term performance of the Company and the individual. Each item of compensation is considered individually, followed by consideration of the overall package, with the goal of treating executives equitably and rewarding and incentivizing outstanding performance. Generally, the Committee does not consider the amounts realizable from prior compensation in setting future benefits. However, the Committee has restructured our long-term performance incentives to reflect more fairly the conditions in our industry when past awards have failed to vest because of cyclical downturns in the poultry market and inefficiencies stemming from our significant internal growth. This is discussed in more detail below.

The CEO’s 2019 total compensation, as reported in the Summary Compensation Table below, was approximately 288% and 341%, respectively, higher than the total compensation for the COO and CFO because of his higher level of responsibility within our Company and his more pervasive influence over our performance. The compensation of the COO and CFO was likewise approximately 322% and 272%, respectively, higher than the Secretary’s for the same reasons.

In 2015, we entered into new employment agreements with the CEO, the COO, and the CFO. As described in more detail below under “Discussion of Summary Compensation and Grants of Plan-Based Awards Table,” the 2015 agreements superseded substantially similar agreements that we entered into during 2009. The agreements provide those executives will remain employed until their agreements are terminated either by the Company or the executive for any reason. Among other benefits, the agreements provide for a severance payment to be paid to the officers if:

 

   

before a change in control of our Company, the officers are terminated without cause, except in the case of poor performance;

 

   

at or after a change in control, the officers are terminated without cause; or

 

   

the officers resign for good reason.

The amount of the severance payments will be, in the case of Mr. Sanderson, three times, and in the case of Messrs. Butts and Cockrell, two times, the following amounts:

 

   

the officer’s annual base salary in effect at the time of his termination, plus

 

   

fifty percent of the maximum bonus available to the executive under the Company’s bonus program in effect for the year of termination.



 

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The Committee believes these benefits are important officer retention tools that will protect the Company and its stockholders against an unexpected departure of our most senior management. In addition, the commitment to pay severance is counterbalanced by an agreement from the officers not to disclose confidential information about us during and after their employment, and not to engage in certain competitive activity during their employment and for two years after the termination of their employment for any reason other than poor performance. The Committee also believed it was crucial to structure the agreements so that, except in the case of a change in control, the officers will not be paid severance if they are terminated for poor performance.

In the context of a change in control, the severance is not payable unless the officer is subsequently terminated without cause. This is sometimes referred to as a “double trigger.” In the case of a merger or other transaction that would allow our stockholders to profit from a sale of control of our Company, such provisions can help ensure that management will not be distracted in the transaction negotiations by concerns that they will be arbitrarily terminated by new management without any economic protection after the change of control is complete.

The agreements are discussed further below in the narrative following the table entitled, “Grants of Plan-Based Awards.”

Base Salaries

Salaries are used to provide a fixed amount of compensation for the executive’s regular work. The Committee reviews the salaries of the named executive officers annually in October, with input from the outside compensation consultant, and makes final salary decisions at that time. Salary increases are based on an evaluation of Company performance, the individual’s performance, and the individual’s level of pay compared to the pay levels for similar positions in the peer group. Although the peer group suggests a range of competitive levels for base salaries, exact levels are determined by the Committee based on each executive’s merit. The Committee also takes into account years of service, responsibilities, our future growth plans, industry conditions, and our current ability to pay.

For fiscal 2019, the Committee determined not to increase the salaries of the CEO, COO and CFO in light of our fiscal 2018 performance. The Committee also annually receives a recommendation from the CFO concerning the salary of Mr. Rigney, who reports directly to the CFO. For fiscal 2019, the Committee decided to increase Mr. Rigney’s salary by 3% to approximately $335,000 to bring his salary closer to the 75th percentile for his position in the peer group. For more information about the factors the Committee considered in setting fiscal 2019 compensation, see the subsection below entitled “Evaluation of Executive Performance.”

The effective date for salary increases typically is November 1 of each year. Salary increases can also occur upon an individual’s promotion.

Annual Cash Bonus Awards

We maintain a bonus award plan under which our salaried employees, including the named executive officers, are eligible for fiscal year-end cash incentive awards equal to a percentage of their base salary based on the Company’s performance (Bonus Award Program). These awards are designed to reward short-term performance and the achievement of designated operational results. For officers and key management employees, the total award has two components: a percentage based on our achieving certain target earnings per share goals, and a percentage based on our operational performance versus our industry peers as measured by Agristats.

The earnings per share goals under the Bonus Award Program are set annually, and reflect our growth and ability to generate earnings. We have experienced significant growth in production capacity over the



 

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past 20 years, and our ability to generate earnings has likewise grown significantly. As a result, the earnings per share targets established under the Bonus Award Program have moved higher over time to reflect our increased earnings capacity.

We have historically performed at or near the top of the industry in operational measures, and the targets set for operational goals under the Bonus Award Program reflect our culture and expectations of achieving superior performance relative to our peers. However, it is possible that even if we operate at the top of the industry, we still might not achieve an acceptable level of profitability due to factors such as the cyclical nature of the industry, external forces that are beyond the control of management, and short-term inefficiencies from our significant internal growth. Unless we achieve at least an 8% return on average stockholders’ equity (computed after taking into account any bonus to be paid), no payments are made under the Bonus Award Program even if the operational targets are reached, and payments are not cumulative.

For fiscal 2019, the Committee established the maximum earnings per share goal by reference to an earnings level that would result in a 21.53% return on average equity. This ROE level was slightly lower than the ROE level of 23% used to set the fiscal 2018 bonus plan goals. This is because the fiscal 2018 goals were much higher than our actual earnings per share in 2018, which was the result of our effective tax rate being much higher than management had estimated when the Committee set the 2018 goals.

While the Committee recognizes that there are many factors beyond the control of management that might affect our ability to achieve the plan goals, it has attempted to make the program competitive by awarding a relatively high percentage of salary payouts in years in which we achieve the plan’s aggressive targets. Likewise, the Committee sets aggressive targets when setting operational goals. The operational portion of the bonus is payable if the Company’s chickens rank in the top 30% of all chickens included in Agristats in bottom line profit per head. For participants to earn the top bonus, our chickens must rank in the top 10% of the industry.

The following table shows, for fiscal 2019, the percentage of base salary that the named executive officers were eligible to receive from each component of the bonus award.

2019 Bonus Award Opportunities

 

Position

   Bonus Opportunity as Percentage of
Base Salary from EPS Component
  Bonus Opportunity as
Percentage of Base
Salary from Operational
Component

CEO

  

100%

 

100%

COO

  

80%

 

80%

CFO

  

70%

 

70%

Secretary

  

40%

 

40%

The following table shows, for fiscal 2019, the earnings per share objectives and the corresponding percentages of the earnings per share component of a participant’s bonus award that could have been earned. The earnings per share component of the Bonus Award Program is based on our net income net of the bonus. The program provides that the earnings per share targets will be adjusted to reflect changes in the number of shares outstanding due to business combinations, recapitalizations, stock splits, or other changes in our corporate structure.



 

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2019 Bonus Awards—EPS Component

 

Per Share Return ($)*

   Percentage of
EPS Based Award

14.99

    

 

100.0

%

14.80

    

 

95.0

%

14.62

    

 

90.0

%

14.44

    

 

85.0

%

14.26

    

 

80.0

%

14.07

    

 

75.0

%

13.89

    

 

70.0

%

13.71

    

 

65.0

%

13.53

    

 

60.0

%

13.34

    

 

55.0

%

13.19

    

 

50.0

%

13.02

    

 

45.0

%

12.86

    

 

40.0

%

12.69

    

 

35.0

%

12.53

    

 

30.0

%

12.37

    

 

25.0

%

12.21

    

 

20.0

%

12.05

    

 

15.0

%

11.89

    

 

10.0

%

11.73

    

 

5.0

%

 

 

*

Net of bonus and net of extraordinary, non-recurring income items not related to the fiscal year’s operations.

The following table shows, for fiscal 2019, the performance objectives based on our performance versus our industry peers as reported by Agristats and the corresponding percentages of the operational component of a participant’s bonus award that could have been earned.

2019 Bonus Awards—

Operational Performance Component

 

Agristats Ranking—

Operating Profit per

Head of Chicken Sold

  

Percentage of

Operational

Performance Based

Award

Top 10%

  

100.0%

Top 20%

  

662/3%

Top 30%

  

331/3%

The following table shows, for the 2019 fiscal year, the maximum percentages of base salary that the named executive officers could have received under the Bonus Award Program. Actual cash awards for past years are shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table that follows this Compensation Discussion and Analysis. In fiscal 2019, management did not earn any bonus because we did not achieve the minimum return on average equity, earnings per share, or operational performance levels.



 

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2019 Bonus Award Payments

 

  Position

   Maximum Bonus
Award Opportunity
as a Percentage of
Base Salary
  Percentage of Base
Salary Actually
Earned under Bonus
Award Program
  Dollar Amount of
Actual Awards

  CEO

    

 

200

%

   

 

0

%

   

$

0

  COO

    

 

160

%

   

 

0

%

   

$

0

  CFO

    

 

140

%

   

 

0

%

   

$

0

  Secretary

    

 

80

%

   

 

0

%

   

$

0

The Committee normally reviews and reconsiders the Bonus Award Program each January, along with the maximum bonus opportunities, the performance criteria under the program, and the earnings per share targets for the then-current fiscal year. As part of its review, it receives reports from the outside compensation consultant concerning the level of similar short-term cash incentives paid by the peer group companies. It also receives management’s recommendations as to the appropriate targets for earnings per share and operational performance based on management’s estimates of what would qualify as superior performance.

The Committee generally adopts the program in January for the current fiscal year. The parameters of the program and the performance criteria are then communicated to the participants. In general, once the Committee adopts the program, the bonus awards are determined solely according to the program criteria and are not subject to the discretion of the Committee. The program does provide that adjustments can be made to awards in the event of extraordinary operating conditions, errors in Agristats reporting or significant changes in the number of Agristats participants, changes in law or accounting procedures, or substantial and unforeseen fluctuations in sales pounds or dollars during the year. Bonuses earned for a completed fiscal year are usually paid in December following that fiscal year.

Long-Term Equity Incentive Awards

Equity-based compensation and ownership ensures that our executive officers and directors have a continuing stake in the long-term success of the Company. Generally, the Committee considers equity incentive awards to the named executive officers each October as part of its annual evaluation of executive pay. The awards, if made, usually become effective in November at the start of the Company’s new fiscal year.

Under the Stock Incentive Plan, the Board may grant restricted stock, performance shares, stock options, stock appreciation rights, phantom stock, management share purchase rights, and other stock-based awards. Since its inception in 2005, awards to the named executive officers under the plan have consisted only of restricted stock, performance shares, and management share purchase rights. The Committee strives to be conservative in the rate of usage, or run rate, of shares under the Stock Incentive Plan.

The Committee, with input from Willis Towers Watson, makes specific grants by comparing each executive’s current long-term incentive levels with the market range established by published survey and peer proxy statement data. Based on market studies, it identifies a typical multiple of the base salary for the individual’s management level that his or her long-term incentives should represent. These multiples are reconsidered annually based on the then-current market data. For fiscal 2019, the multiples were 325% for the CEO, 175% for the COO, 165% for the CFO, and 65% for the Secretary. In the case of the Secretary, the multiple is applied to the average salary for all positions at the same management level.

The multiple of the officer’s salary yields a target annual long-term incentive award level that is then converted into a recommended number of shares to be awarded using the approximate stock price



 

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quoted on NASDAQ at that time. As discussed above, the Committee also bases its final decisions as to the award level on factors such as individual merit, responsibilities, individual and Company performance, and the dilutive effect of the award on our stockholders. The Committee then divides the total recommended share award equally between performance shares and restricted stock.

All of our restricted stock and Management Share Purchase Plan agreements provide that stock awarded under those plans will become fully vested in the event of a change in control of our Company and fully or partially vested upon certain other events, as described more fully in the “Potential Payments Upon Termination or Change-in-Control” section below. These provisions were adopted because they are customary for equity incentive awards of those types and because the Board of Directors deemed them to be reasonable and fair to our management. In the context of a merger or other transaction that would allow our stockholders to profit from a sale of control of our Company, such provisions can help ensure that management will not be distracted in the transaction negotiations by concerns that the value of their awards will decline after the change of control is complete. The potential payments under these provisions played no part in the Committee’s decisions regarding other elements of our executive compensation.

Restricted Stock

Shares of restricted stock are shares granted subject to a vesting period during which the shares may not be transferred. All of our restricted stock awards have a vesting period of four years. The CEO, COO, CFO, Secretary, and certain other salaried employees of the Company received restricted stock as part of their long-term incentive award in November 2018 for the 2019 fiscal year. The fiscal 2019 restricted stock generally will vest on November 1, 2022, as long as the holder remains continuously employed by us during the restricted period.

Recipients of restricted stock have all the rights of a stockholder of the Company, including voting rights and the right to receive dividends, beginning on the grant date. In the event a recipient forfeits shares of restricted stock before such shares vest, the shares are cancelled.

Performance Shares

Performance shares provide a material incentive to executives by offering potential increased stock ownership in the Company tied directly to our stockholders’ return. The CEO, COO, CFO, Secretary, and certain other salaried employees received performance share grants as part of their long-term incentive awards in November 2018. The performance share program entitles the holder to earn shares of Sanderson Farms common stock if we achieve certain relative levels of performance on stockholder return over a multi-year period following the grant, as long as the holder remains continuously employed by us until the end of the performance period and any additional vesting period. The length of the performance period reflects the cyclical nature of the poultry business, and is designed, generally, to measure our performance over an industry cycle. Currently, the performance period is two years and there is an additional one-year service-based vesting period before the shares are issued.

Performance shares carry no dividend or voting rights until they are issued after achievement of the performance objectives and the expiration of any additional vesting period.

The Board of Directors may pay earned performance shares in cash, shares of Sanderson Farms common stock, or in a combination of both. Once the performance criteria are established and the awards are granted, the payment of earned shares is generally not subject to the discretion of the Committee or the Board, but adjustments can be made in limited circumstances.

Performance share awards are made in a target amount of shares based on our average return on equity (ROE) and a target amount based on our average return on sales (which we call ROS). The award establishes three possible non-discretionary percentages of those target amounts that the recipient could actually receive, depending on our actual performance measured at the end of the performance period.



 

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Because the performance goals are based on our historical performance, years of past outstanding company performance can make the performance goals challenging to achieve in future years. The threshold performance level represents the 33rd percentile of the Company’s performance over 27 two-year periods. The target level represents the 65th percentile of performance during the historical measurement period and the maximum level represents the 83rd percentile. The 2019 performance share awards were structured as follows:

2019 Performance Share Criteria

 

Measure

   Weight     Threshold
(50% Payout)
    Target
(100% Payout)
    Maximum
(200% Payout)
 

ROE

  

 

50

 

 

8.1

 

 

15.7

 

 

24.1

ROS

  

 

50

 

 

1.9

 

 

4.3

 

 

7.1

If our average ROE or average ROS is otherwise between the threshold and maximum percentages, the number of performance shares for which the award recipient is eligible will be calculated using a straight-line interpolation. If average ROE or ROS is less than the threshold, the recipient will not be entitled to receive any shares of that portion of the target award measured by that metric.

Average ROE is equal to the mathematical average of the net return on average equity for each of the two years in the performance period. Net return on average equity is computed by adding together stockholders’ equity at the beginning and end of each fiscal year on our audited financial statements and dividing by two. The resulting number is then divided into net income for the fiscal year as reported on our audited financial statements to reach net return on average equity for the year. Average ROS is equal to the mathematical average of the net return on net sales for the two years in the performance period. Net return on net sales is computed by dividing net income by net sales, as both numbers are reported on our audited financial statements for the year.

The performance criteria for the fiscal 2020 awards were established as follows:

2020 Performance Share Criteria

 

Measure

   Weight     Threshold
(50% Payout)
    Target
(100% Payout)
    Maximum
(200% Payout)
 

ROE

  

 

50

 

 

8.3

 

 

15.2

 

 

23.8

ROS

  

 

50

 

 

2.1

 

 

4.5

 

 

7.0

Since the inception of the Stock Incentive Plan, we have granted 15 cycles of performance shares, one for each of the fiscal years from 2006 through 2020. Nine of those cycles of performance shares have been earned. The Committee determined in December 2018 and January 2020, respectively, that the fiscal 2017 and 2018 shares were earned at the levels shown in the table below. The fiscal 2018 shares are subject to an additional one-year holding period before they are paid out. There are two additional long-term performance share cycles currently in place under our performance share plan, and the payouts on those awards, if achieved, will occur at the end of fiscal 2021 and 2022.



 

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Performance Shares Earned

 

            Performance Criteria        
            Threshold
(50% Payout)
    Target
(100% Payout)
    Maximum
(200% Payout)
    Actual
Company
Performance
 

Performance
Period

   Payout Date1      ROE     ROS     ROE     ROS     ROE     ROS     ROE     ROS  

11/1/16-10/31/18

  

 

10/31/2019

 

  

 

9.9

 

 

3.3

 

 

13.8

 

 

3.8

 

 

24.8

 

 

5.7

 

 

12.84

 

 

5.13

11/1/17-10/31/19

  

 

10/31/2020

 

  

 

8.0

 

 

1.7

 

 

14.8

 

 

4.0

 

 

24.4

 

 

6.6

 

 

4.10

 

 

1.70

 

 

(1)

The Committee on January 3, 2020 determined that the fiscal 2018 awards were earned, but the awards are subject to an additional one-year vesting period before they will be paid out.

The following table shows the number of shares actually earned by each named executive officer according to the percentage payouts reflected in the table above.

 

     Performance Period
Ending 10/31/2018
     Performance Period
Ending 10/31/2019
 

Position

   Target Award (#)1      Actual Shares
Earned (#)2
     Target Award (#)1      Actual Shares
Earned (#)2
 

CEO

  

 

26,000

 

  

 

33,533

 

  

 

16,750

 

  

 

4,231

 

COO

  

 

6,750

 

  

 

8,706

 

  

 

4,250

 

  

 

1,074

 

CFO

  

 

5,500

 

  

 

7,095

 

  

 

3,500

 

  

 

885

 

Secretary

  

 

1,000

 

  

 

1,291

 

  

 

650

 

  

 

165

 

 

 

(1)

50% of the target amount of shares is allocated to the ROE component and 50% is allocated to the ROS component.

(2)

This number is obtained by multiplying the percentage of the payout achieved for each of the two components of an award and adding the result. For example, the CEO’s award earned in 2018 was calculated as follows: ROE component: (100% x 6,500) + (75.45% x 6,500) = 11,404; ROS component: (100% x 13,000) + (70.22% x 13,000) = 22,129; 11,404 + 22,129 = 33,533.

Management Share Purchase Rights

Under our Management Share Purchase Plan, executive officers and other key employees may elect to reduce their annual base salaries by up to 15% and their bonuses earned under the Bonus Award Program by up to 75% and instead receive those amounts in the form of restricted stock at the current market price. The Company matches 25% of the employee’s contribution to the plan to grant additional shares. The shares purchased or granted through the plan generally vest on the third anniversary of their acquisition by the participant. Recipients of the shares purchased or granted have all the rights of a stockholder during the restricted period. If the shares fail to vest, any dividends paid on the Company matched shares must be returned to us. In fiscal 2019, the Secretary was the only named executive officer who participated in the plan. You can find more information about the plan in the narrative accompanying the Grant of Plan-Based Awards table, below.

In-Service and Post-Employment Benefits

Employee Stock Ownership Plan

As mentioned above, we believe strongly in aligning the interests of management with those of our stockholders. We were among the first in our industry to adopt an Employee Stock Ownership Plan, and



 

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each of the named executive officers participates in the plan on the same basis as all of our other employees. Participants are automatically enrolled in the plan after one year of service and become fully vested after six years. We contribute funds to the plan in profitable years, and on October 31, 2019, we contributed $3.0 million to the plan for the 2019 fiscal year.

401(k) Retirement Plan

We sponsor a 401(k) retirement plan. During fiscal 2018, the plan was available to all of our employees after one year of service. Effective with our 2019 fiscal year, participants may contribute to the plan after 90 days of service. The named executive officers participate on the same basis as all other employees. Eligible employees may contribute up to 15% of their salary to the plan through payroll deductions. We began matching employee contributions to the plan in 2000, and for employees with one year of service, we match 100% of an employee’s contribution up to 3% of his or her salary, and 50% of such contribution that exceeds 3% but does not exceed 5% of his or her salary. Sanderson Farms common stock is not an investment option under the plan.

Other Benefit Plans

We provide other benefits such as medical, dental, and long-term/short-term disability (up to 66 2/3% of salary not exceeding $180,000 per year in long-term disability payments) coverage, as well as vacation and other paid holidays. Beginning with our 2001 fiscal year, we began paying premiums on term life insurance policies for all employees. The death benefit under these policies depends on the amount of the employee’s annual salary, up to a maximum benefit of $100,000 and a minimum of $50,000 for salaried employees. These benefit programs are comparable to those provided at other large companies. They are designed to provide certain basic quality of life benefits and protections to our employees and at the same time enhance our attractiveness as an employer.

In 2008, the Committee adopted a Supplemental Disability Plan for the CEO. The plan provides that if the CEO becomes disabled as defined in our long term disability plan for all our salaried employees, he will receive a monthly benefit equal to 66 2/3% of his salary beginning one year from the date of disability and continuing for 12 months. (Before age 70, payments would have continued until the date that he received five years of payments or his 70th birthday, whichever occurred first.) This is the same benefit that is provided to all participants in our long term disability plan who are 60 years or older. Participants who become disabled before their 60th birthday would receive the benefit until they reach age 65. The Committee adopted the supplemental plan because our long term disability plan places an annual dollar limit on the benefit that participants can receive, which would have resulted, if the CEO became disabled at the time the supplemental plan was adopted, in a benefit to him of only 26% of his then current salary. The employment agreements that the Company entered into with the COO and CFO in 2009 (and again in 2015) made those officers participants in the supplemental plan.

The Company’s portion of the cost of health benefits provided in the 2019 fiscal year for the named executive officers was as follows:

2019 Health Benefits

 

Officer

   Cost to Company of Active
Health Benefits
 

CEO

  

$

9,323

 

COO

  

$

9,323

 

CFO

  

$

9,323

 

Secretary

  

$

9,323

 

All employees may elect to continue participating in our health benefit plan following their retirement, but they must pay 100% of the premium cost.



 

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In rare instances, we have continued, because of the applicable circumstances, to pay the base salaries of certain key employees for a short period of time after their deaths. None of those employees served at any time as an executive officer of Sanderson Farms. However, the employment agreements we entered into with the CEO, COO, and CFO provide that we will continue to make base salary payments to their designated beneficiary or estate for a period of one year from the date of the officer’s death.

The 401(k) contribution, health plan, and life insurance premiums, as well as dividends paid on restricted stock and matching charitable contributions, each as disclosed in the proxy statement, are ratified by the Committee in January of the year following the year for which they were made. The Board of Directors approves the annual ESOP contribution, if any, in October of each year.

Perquisites

We provide certain perquisites to our executives, which consist primarily of personal use of our Company aircraft by the CEO and his immediate family. This perquisite provides flexibility to the CEO and increases travel efficiencies, allowing more productive use of executive time, in turn allowing greater focus on Sanderson Farms-related activities. The Company also permits the other named executive officers and other employees to use Company aircraft in times of family or other emergencies and to travel for personal reasons, space permitting, on planned Company flights. In some cases, the Company also permits and pays for the named executive officers’ spouses to accompany them on the corporate aircraft. The amounts of these perquisites are ratified by the Committee in January of the year following payment. More detail on our perquisites may be found in the narrative following the Summary Compensation Table, below.

Compensation Recoupment Policy

In October 2010, the Committee adopted a policy requiring the Board or the Committee to seek to recoup incentive-based compensation paid to our directors, executive officers or other personnel whenever required by law or the rules of the NASDAQ Stock Market. In addition, the Board or the Committee, in its discretion, may determine, as a result of a restatement of our financial statements or misconduct that adversely affects us by a member of our management executive committee or a director, to take such actions it deems necessary or appropriate and in our best interests with respect to the executive committee member, or the director in the case of director misconduct, to address the restatement or misconduct. Such actions may include, to the extent permitted by law and our charter and by-laws:

 

   

Requiring the executive or director to repay some or all of any incentive compensation paid, including bonus, performance shares, or restricted stock;

 

   

Requiring the executive or director to repay gains realized on the exercise of stock options or the sale of vested stock;

 

   

Cancelling all or part of the executive’s or director’s incentive awards;

 

   

Adjusting the executive’s or director’s future cash or non-cash compensation or fees, as applicable;

 

   

Terminating the executive or seeking to remove the director; or

 

   

Initiating legal action against the executive or director.

The recoupment policy is in addition to the authority under the Stock Incentive Plan to cancel awards or recoup the value of shares in the event of detrimental activity by the participant.

Stock Ownership Guidelines; Hedging and Pledging

In October 2004, the Committee recommended and the Board of Directors adopted non-binding stock ownership guidelines for our management, in an effort to encourage increased ownership of our



 

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Company by key employees and directors. Willis Towers Watson has periodically reviewed the guidelines and in 2013, at Willis Towers Watson’s recommendation, the Committee determined to recalculate the guidelines for officers using fiscal 2014 salaries. We believe that these guidelines are reasonable to achieve and will be a long-term benefit to all of our stockholders by helping to align management and stockholder interests. They also encourage officers and directors to hold purchased shares and vested option shares, restricted stock, and performance shares, as applicable, for long-term investment. “Stock ownership” includes stock owned directly, indirectly through the 401(k) plan or Employee Stock Ownership Plan, restricted stock, and earned performance shares. The guidelines are based on a multiple of base salary and director annual retainer fees, and are set forth in the table below. As of our 2019 fiscal year, each named executive officer and all except our four newest directors had exceeded the guidelines below.

Stock Ownership Guidelines

 

Position

   Base Salary/
Average Annual Retainer
     Desired
Ownership
Multiple
     Share
Guideline
 

CEO

  

              $

1,362,984          

 

  

 

          6          

 

  

 

125,351

1  

COO

  

              $

665,004          

 

  

 

          4          

 

  

 

40,772

1  

CFO

  

              $

569,832          

 

  

 

          4          

 

  

 

34,937

1  

Secretary

  

              $

214,992          

 

  

 

          3          

 

  

 

9,886

1  

Director

  

              $

25,000          

 

  

 

          8          

 

  

 

4,000

 

 

 

(1)

In recalculating ownership guidelines in 2013 for the named executive officers, the Committee used $65.24 per share, which was the approximate share price at the time.

It is Sanderson Farms’ policy that our directors and all employees, including the named executive officers, not buy and sell or sell and buy Sanderson Farms stock on a short-term basis (i.e., shares must be held for a minimum of six months). Employees and directors may not purchase Sanderson Farms stock on margin, or hold Company securities in a margin account. Employees and directors may not pledge Company securities as collateral for a loan, although an employee or director can request a waiver of this policy where he or she can clearly demonstrate the financial capacity to repay the loan without resort to the pledged securities.

Our insider trading policy, which applies to officers, directors, the employees who participate in our Stock Incentive Plan and any other personnel who receive or see our monthly financial statements, prohibits hedging transactions. The hedging prohibition in the policy is excerpted below:

Hedging or monetization transactions can permit an individual to hedge against or offset a decline in the market value of a security, while at the same time eliminating much of the individual’s economic interest in any rise in value of the hedged securities. Because hedging transactions can present the appearance of a bet against the Company, hedging or monetization transactions, whether direct or indirect, involving the Company’s securities are prohibited, regardless of whether the Insider possesses material, non-public information.

Transactions involving derivative securities, whether or not entered into for hedging or monetization purposes, may also create the appearance of impropriety in the event of any unusual activity in the underlying equity security. Accordingly, transactions involving Company-based derivative securities are prohibited, whether or not you are in possession of material, non-public information. Derivative securities are options, warrants, stock appreciation rights, convertible notes or similar rights whose value is derived from the value of an equity security, such as Company common stock. Derivative securities include, but are not limited to, pre-paid variable forward contracts, equity swaps, exchange funds, Company-based option contracts, straddles and collars. Transactions in debt that may be



 

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convertible into Company common stock would also constitute a transaction in derivative securities prohibited by this Policy.

Tax and Accounting Considerations

For income tax purposes, we may not deduct any portion of compensation that is in excess of $1 million paid in a taxable year to the CEO and certain other highly paid executives. In 2017 and prior years, this rule did not apply to compensation that qualified as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (referred to as the “Code”). Our Bonus Award Program and certain awards we may make under our Stock Incentive Plan, like the performance shares, are based on the Company meeting specified performance criteria. However, Section 162(m) of the Code required that the performance criteria and material terms of these plans be approved by our stockholders every five years and that we comply with certain other requirements in order for awards to meet the definition of “performance-based” and thus be fully deductible. While the Committee generally strives to structure employee compensation in order to preserve maximum deductibility, it made from time to time awards that did not meet the Code’s definition of “performance-based compensation.” For example, we did not qualify our Bonus Award Program under Section 162(m) because Section 162(m) would have required us to remove certain discretionary features of the program that we believe are critical for management retention, and therefore are in the best interest of our stockholders.

Under the federal Tax Cuts and Jobs Act signed into law on December 22, 2017, the performance-based pay exception to Section 162(m) was eliminated, but a transition rule allows the exception to continue to apply to certain performance-based compensation payable under written agreements that were in effect on November 2, 2017.

In the first quarter of our 2006 fiscal year, we adopted Revised Statement of Financial Accounting Standards No. 123, “Share-Based Payment” (FAS 123(R)). FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, restricted stock and performance shares, to be recognized in our income statement based on their fair values. Before the adoption of FAS 123(R), we accounted for share-based payments to employees using an intrinsic value method and, therefore, we generally recognized no compensation cost for employee stock options. Based upon the provisions of FAS 123(R), we are required to accrue stock-based compensation expense as it is earned. This change in accounting rules has influenced the Committee to make restricted stock and performance share awards in lieu of option awards. Other factors that have made restricted stock and performance share awards more attractive than option awards include their generally smaller dilutive effect and the performance incentive they provide even in times when our stock price is depressed.

Evaluation of Executive Performance

In evaluating the performance of the individual named executive officers before setting or adjusting compensation, the Committee and the Board of Directors do not rely solely on predetermined formulas. Rather, they focus on those officers’ individual objectives. The Committee evaluates the CEO’s performance in consultation with the Board, and it evaluates the other named executive officers with the input of the CEO.

In 2018, the Committee based its decisions for fiscal 2019 compensation on the assessment of the Company’s fiscal 2018 performance and the named executive officers’ objectives and strategies, as follows:

 

   

Fiscal 2018 was a challenging year for our Company. Poultry market prices, especially for the products we produce for foodservice customers at our plants that process a larger bird, fell to record lows in our fourth fiscal quarter. Even in that challenging pricing environment, we had revenues for the year of $3.2 billion and net income of $61.4 million, or $2.70 per share.



 

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We processed a record 4.503 billion pounds of dressed poultry, an almost 5% increase compared to 2017. Our volumes increased in part because management successfully brought our new plant in St. Pauls, North Carolina, to full production during the year.

 

   

We continued to execute our strategic plan by nearing completion, on schedule, of our newest poultry complex in Tyler, Texas. At full production, this complex will have the capacity to process 1.3 million chickens per week for retail chill pack customers and will employ approximately 1,700 people. Operations began in the first calendar quarter of 2019. The additional capacity will provide new marketing opportunities and enhance our ability to increase revenues and earnings and build long-term value for our stockholders.

 

   

Though our grain costs were slightly higher than in 2017, our managers were able to keep feed cost per pound of chicken processed relatively flat by making improvements in our feed, which resulted in better feed-to-weight conversion in our birds.

 

   

We returned $29.0 million in dividend payments to our stockholders and were able to offset dilution from our stock incentive awards by repurchasing over 823,385 outstanding shares of our common stock. We ended the fiscal year with no debt on our balance sheet.

 

   

Because of challenging market conditions and the rigorous earnings per share goals in our 2018 Bonus Award Program, no cash bonuses were earned. Additionally, the CEO, COO and CFO conveyed to the Compensation Committee in Fall 2018 that considering our 2018 results and the current industry downcycle, they did not expect a salary increase for fiscal 2019. The Committee determined to hold their salaries stable, but did award a 3% increase to the Secretary, to bring his salary closer to the 75th percentile for his position.

 

   

On the recommendation of Willis Towers Watson, the Committee increased by 5% the multiples used to calculate long-term equity incentive awards for the COO, CFO, the Secretary and certain other senior managers The Committee made equity awards to all of the named executive officers to incentivize them and continue to align their interests with those of our stockholders.

 

   

In making its compensation decisions, the Committee considered that our total shareholder return for the last three years was between the median and the 75th percentile of the peer group. Additionally, the CEO’s realizable pay was positioned at the 92nd percentile of the peer group, which was fairly well aligned with our total stockholder return during the same period at the 69th percentile of the peer group for CEO positions.

In 2019, the Committee considered the following factors in setting 2020 compensation:

 

   

We continued to face market challenges in fiscal 2019. Although supply and demand for products sold to retail grocery store customers were balanced favorably, market prices for boneless breast meat produced for foodservice customers reached historical lows during the fourth quarter of the fiscal year. Our sales for both retail and foodservice products were also affected by less than normal promotional activity for chicken resulting from the good availability and favorable prices of competing proteins. Despite these market headwinds, we still achieved record sales and production, with revenues of $3.4 billion and 4.61 billion pounds processed in fiscal 2019.

 

   

Our increased sales reflected the additional volume from our newest poultry complex in Tyler, Texas. We started operations at the new complex in the first quarter of fiscal 2019, and expect to reach full production in the second quarter of fiscal 2020.

 

   

We improved operating efficiencies at all our processing plants, ending the fiscal year in a strong position compared to our industry peers. We also replaced and upgraded equipment at several of our facilities, which will help us improve our yields and other efficiencies even more in fiscal 2020.



 

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We continued to execute our strategic plan for organic growth by evaluating sites for our next new poultry complex.

 

   

Although the prices we paid for corn and soybean meal, our primary feed ingredients, were slightly higher for the year, our feed costs per pound of chicken processed were relatively flat because improved feed efficiencies offset the higher prices.

 

   

We had net income of $53.3 million, or $2.41 per share, and returned $28.4 million in dividends to our stockholders. We ended the year with stockholders’ equity of $1.418 billion and net working capital of $365.4 million.

 

   

Because of challenging market conditions and the aggressive earnings per share goals in our bonus plan, we paid no cash bonuses for the second straight year. Our CEO informed the Compensation Committee that in light of our 2019 results, he did not expect a salary increase, but he recommended that the other named executive officers receive a modest salary increase of 1.5% for fiscal 2020, especially since the COO and CFO did not receive an increase for 2019. The Committee determined to adopt the CEO’s recommendation.

 

   

The Committee also awarded long term equity awards to our named executive officers as an incentive for future performance.

 

   

In making its decisions, the Committee took into account our three-year total shareholder return, which was in the 100th percentile of the peer group for both the CEO and CFO positions, and the realizable pay for those positions, which was in the 83rd and 56th percentiles, respectively, demonstrating good alignment between pay and performance.

Based on the assessment detailed above, the Committee approved the following compensation for the named executive officers for fiscal 2020.

Fiscal 2020 Compensation Actions

 

Position

  Salary   Percent
Increase
  Number
of Shares
of
Restricted
Stock
  Grant
Value of
Restricted
Stock Awards
  Target
Number of
Performance
Shares
  Grant Value of
Target
Performance
Share Awards
  Maximum
Bonus
Award
Opportunity
as a
Percentage
of Base
Salary

CEO

    $ 1,518,300       0.0 %       17,750     $ 2,835,740       17,750     $ 2,835,740       200 %

COO

    $ 751,836       1.5 %       4,750     $ 758,860       4,750     $ 758,860       160 %

CFO

    $ 644,268       1.5 %       3,750     $ 599,100       3,750     $ 599,100       140 %

Secretary

    $ 339,756       1.5 %       750     $ 119,820       750     $ 119,820       80 %

Elements of compensation paid for the 2019 fiscal year are set forth in the Summary Compensation Table, below.

Director Compensation

The Nominating and Governance Committee is charged with recommending all cash and non-cash compensation of our non-employee directors. Willis Towers Watson reviews and reassesses our director pay periodically and makes recommendations to the Nominating and Governance Committee.



 

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Our non-employee directors received cash fees for their service on the Board and its committees in fiscal 2019 as set forth below:

Director Cash Fees

 

     Amount  

Annual Stipend

  

$

25,000

 

Each Board of Directors meeting attended in person

  

$

7,500

 

Each telephonic Board of Directors or Board committee meeting attended

  

$

1,000

(1) 

Each committee meeting attended in person, not in conjunction with a Board meeting

  

$

6,000

 

Received annually by Audit Committee Chair

  

$

15,000

 

Received annually by Compensation Committee Chair

  

$

12,500

 

Received annually by Nominating and Governance Committee Chair

  

$

10,000

 

Received annually by the Lead Independent Director

  

$

25,000

 

 

 

(1)

We also pay this fee to directors who join telephonic committee meetings by invitation, even though they are not committee members. If a telephonic committee meeting is held in conjunction with a telephonic full Board meeting, only one $1,000 fee is paid for directors who participate in both calls.

The Nominating and Governance Committee also retained Willis Towers Watson to assess whether it was appropriate to pay a $12,000 supplement to our Lead Independent Director and each of our committee chairs in light of their participation in our stockholder engagement program in 2019. Willis Towers Watson determined the proposed amount, which aligned with our fees paid for committee meetings not held in conjunction with a Board meeting, was reasonable.

Non-employee directors receive an annual grant of restricted stock having a dollar value of $150,000. The annual grants have staggered one, two or three-year vesting periods, corresponding to the expiration of a director’s three-year term. These awards combined with the cash fees achieve an approximately 60-40 percent equity and cash pay mix.

The Nominating and Governance Committee recommended and the Board has approved an annual allowance of up to $10,000 per outside director to attend continuing education seminars related to corporate board of directors service and other topics relevant to the Company. The chairman of our Nominating and Governance Committee must pre-approve the particular seminar requested by a director for reimbursement.

We also pay or reimburse directors for reasonable travel and related expenses they incur to attend Board or committee meetings and other Company events in which directors participate, like our annual investor day.

Non-employee directors may participate in the Management Share Purchase Plan by reducing their director fees by up to 100% and instead receiving those amounts in the form of restricted shares of Sanderson Farms common stock. The Company matches 25% of the director’s contribution to grant additional restricted shares. Restricted shares held through the plan generally vest on the third anniversary of their acquisition by the director, as long as, with respect to the matching portion, he or she has served on the Board continuously through that date.

Non-employee directors may also participate in the Company’s medical plan, but they must pay 100% of the premium cost with after-tax dollars.



 

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More information about the actual compensation paid to non-employee directors is set forth in the Director Compensation table, below.

 

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis section of our 2020 Proxy Statement. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Proxy Statement for 2020.

 

The Compensation Committee:    
John H. Baker III   Beverly Wade Hogan
Fred Banks, Jr.   Phil K. Livingston
David Barksdale   Gail Jones Pittman (Chair)
Toni D. Cooley (Vice Chair)  

 

2019 CEO Pay Ratio

In accordance with SEC rules, for 2019, we determined the annual total compensation of our median compensated employee and present a comparison of that annual total compensation to the annual total compensation of our Chairman and CEO, Joe F. Sanderson, Jr.

 

   

The 2019 annual total compensation of Mr. Sanderson was $4,157,217.

 

   

The 2019 annual total compensation of our median compensated employee was $31,297.

 

   

Accordingly, the ratio of Mr. Sanderson’s annual total compensation to the annual total compensation of our median compensated employee for 2019 was 133 to 1.

This ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of the SEC’s Regulation S-K.

Determining our Employee Population

To calculate this pay ratio, we began by identifying a median compensated employee for whom 2019 total compensation could be ascertained. We determined a median compensated employee by collecting compensation data for all employees. All of our employees currently reside in the United States. We excluded from this population independent contractors and other individuals classified as non-employees in their respective jurisdictions based on our employment and payroll tax records. In total, we collected compensation data for approximately 16,400 full-time and part-time employees residing in the United States.

Determining the Median Compensated Employee

To identify our median compensated employee, we used “Total Cash Pay” as our compensation measure, which, for these purposes, equaled the amount of base salary and/or wages, plus any overtime, vacation pay, and cash bonuses. We identified the median compensated employee from our employee population described above as of October 31, 2019, using Total Cash Pay earned and paid from November 1, 2018 through October 31, 2019. We did not annualize Total Cash Pay for any employees and did not make any cost-of-living adjustments.



 

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Our “median compensated employee” is an individual who earned Total Cash Pay at the midpoint, that is, the point at which half of the employee population other than the CEO earned more Total Cash Pay and half of the employee population earned less Total Cash Pay.

Determining 2019 Annual Total Compensation

We determined 2019 annual total compensation for our median compensated employee by obtaining compensation data for this employee for 2019 consistent with the methodology we use to calculate total compensation for 2019 as it appears in the 2019 Summary Compensation Table. Accordingly, it includes Total Cash Pay earned and paid from November 1, 2018 through October 31, 2019, 401(k) matching contributions, ESOP contributions and term life insurance premiums paid by the Company. In addition, for purposes of calculating the CEO pay ratio, SEC rules permit us to include in annual total compensation any compensation and benefits made available to employees broadly. We elected to include amounts representing medical insurance premiums paid by the Company in determining the 2019 annual total compensation of our median employee.

We determined 2019 annual total compensation for Mr. Sanderson using the amount reported in our 2019 Summary Compensation Table, increased to include medical insurance premiums paid by the Company.

Executive Compensation Tables

The table below includes information about compensation paid to or earned by our named executive officers for our fiscal years ended October 31, 2017, 2018 and 2019.

Summary Compensation Table

 

Name and Principal

Position

    Year         Salary ($)1         Bonus ($)       Stock
 Awards2 
($)
    Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation3

($)
    Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings

($)
    All Other
Compensation
($)
    Total
($)
 

Joe F. Sanderson, Jr.,

Chairman of the Board of

Directors and Chief

Executive Officer

    2019       1,518,300       —         2,401,230       —         0       —         228,364       4,147,894  
    2018       1,518,300       —         2,482,853       —         0       —         225,013       4,226,166  
    2017       1,446,000       —         2,381,860       —         2,410,000       —         402,351       6,640,211  
                 

Lampkin Butts,

President and Chief

Operating Officer

 

    2019       740,772       —         638,625       —         0       —         62,823       1,442,220  
    2018       740,772       —         629,978       —         0       —         72,352       1,443,102  
    2017       705,504       —         618,368       —         940,672       —         110,380       2,374,924  
                 

Mike Cockrell,

Treasurer, Chief

Financial Officer

and Chief Legal Officer

    2019       634,752       —         510,900       —         0       —         71,818       1,217,470  
    2018       634,752       —         518,805       —         0       —         74,358       1,227,915  
    2017       604,536       —         503,855       —         705,292       —         98,013       1,911,696  
                 
                 

Tim Rigney,

Secretary and Controller

    2019       334,740       —         94,517       —         0       —         18,353       447,610  
    2018       324,996       —         96,350       —         0       —         17,202       438,548  
    2017       271,416       —         91,610       —         180,944       —         34,298       578,268  

 

 

(1)

Includes, for Mr. Rigney, $4,800 for fiscal 2017, $4,800 for fiscal 2018, and $800 for fiscal 2019 allocated to the Company’s Management Share Purchase Plan, as described in the Grant of Plan-Based Awards table, below.

(2)

This column reflects the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718. Performance shares are reflected in the table at values based upon the probable outcome of the performance conditions as of the grant date. Because the Company was



 

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  unable to determine the probable outcome of the performance conditions for the performance shares as of the grant date, the performance shares are reflected in the Summary Compensation Table at no value. The values of performance shares at the grant date, assuming the highest level of performance conditions is achieved, are as follows:

 

Name

    Year       Grant Date Value of
Performance Shares
Assuming Maximum
Performance

Mr. Sanderson

    

 

2019

2018

2017

 

 

 

 

 

   $  4,802,460

$  4,965,706

$  4,763,720

 

Mr. Butts

    

 

2019

2018

2017

 

 

 

 

 

   $  1,277,250

$  1,259,956

$  1,236,736

 

Mr. Cockrell

    

 

2019

2018

2017

 

 

 

 

 

   $  1,021,800

$  1,037,610

$  1,007,710

 

Mr. Rigney

    

2019

2018

2017

 

 

 

   $     189,034

$     192,700

$     183,220

 

(3)

Consists of amounts earned under the annual Bonus Award Program.

The amounts included in the table above under “All Other Compensation” consist of the following:

All Other Compensation

 

Name

    Year       Matching
Charitable
Contributions
($)
     Dividends
Paid on
Restricted
Stock
($)
     401(k)
Matching
Contribution
($)
     ESOP
Contribution1
($)
     Term Life
Insurance
Premium
($)
     Perquisites2
($)
     Accidental
Death
Premium
($)
 

Mr. Sanderson

    

 

2019

2018

2017

 

 

 

 

 

    

 

5,000

7,500

5,000

 

 

 

 

 

    

 

123,200

122,240

226,950

 

 

 

 

 

    

 

11,000

10,800

10,600

 

 

 

 

 

    

 

1,953

1,499

15,819

 

 

 

 

 

    

 

148

183

152

 

 

 

 

 

    

 

87,054

82,781

143,824

 

 

 

 

 

    

 

9

10

6

 

 

 

 

 

Mr. Butts

    

 

2019

2018

2017

 

 

 

 

 

    

 

6,000

6,000

5,000

 

 

 

 

 

    

 

32,000

31,680

59,160

 

 

 

 

 

    

 

11,000

10,800

10,600

 

 

 

 

 

    

 

1,953

1,499

15,819

 

 

 

 

 

    

 

183

183

198

 

 

 

 

 

    

 

11,675

22,178

19,596

 

 

 

 

 

    

 

12

12

7

 

 

 

 

 

Mr. Cockrell

    

 

2019

2018

2017

 

 

 

 

 

    

 

2,500

2,500

2,500

 

 

 

 

 

    

 

25,920

25,600

47,430

 

 

 

 

 

    

 

11,000

10,800

10,600

 

 

 

 

 

    

 

1,953

1,499

15,819

 

 

 

 

 

    

 

272

272

272

 

 

 

 

 

    

 

30,155

33,669

21,381

 

 

 

 

 

    

 

18

18

11

 

 

 

 

 

Mr. Rigney

    

2019

2018

2017

 

 

 

    

0

0

0

 

 

 

    

5,110

4,613

7,596

 

 

 

    

11,000

10,800

10,600

 

 

 

    

1,953

1,499

15,819

 

 

 

    

272

272

272

 

 

 

    

0

0

0

 

 

 

    

18

18

11

 

 

 

 

 

(1)

Allocations to the officers’ plan accounts have been estimated by the ESOP administrator.

(2)

The amounts for Mr. Sanderson include the aggregate incremental cost to the Company of his personal use, or use by his immediate family, of Company and charter aircraft of $90,432 of such costs for fiscal 2017, $82,191 for fiscal 2018, and $84,099 for fiscal 2019. The amounts shown for Mr. Butts include $8,095 of such costs for fiscal 2017, $10,853 for fiscal 2018, and $9,859 for fiscal 2019. The amounts shown for Mr. Cockrell include $21,311 of such costs for fiscal 2017,



 

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  $33,669 for fiscal 2018, and $29,930 for fiscal 2019. These amounts were calculated by taking into account the direct variable operating cost of a personal trip on an hourly basis, including all costs that may vary by the hours flown, but excluding fixed costs incurred for the overall ownership and staffing of the aircraft. Variable costs include fuel and oil; travel, lodging and other expenses for the crew; the prorated amount of repairs and maintenance; catering; landing fees and permits; insurance required for a particular flight; crew overtime; telecommunication expenses; and the amount of any disallowed tax deductions associated with the personal use.

The amounts shown in this column also include the value of other travel expenses incurred by the immediate family of Messrs. Sanderson, Butts and Cockrell while accompanying them on Company business of $374, $11,501 and $70, respectively, for fiscal 2017, $590, $11,325 and $0, respectively, for fiscal 2018, and $2,955, $1,816 and $225, respectively, for fiscal 2019.

The amounts for Mr. Sanderson in fiscal 2017 also include $45,000 in filing fees in connection with a notice that was required to be made with federal agencies under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in order for Mr. Sanderson to receive stock awards, plus $8,018 in related legal fees.



 

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Grants of Plan-Based Awards

Fiscal Year 2019

 

      Estimated Future Payouts Under
Non-Equity  Incentive Plan Awards1
    Estimated Future Payouts Under
Equity Incentive Plan Awards2
    All Other
Stock  Awards:
Number
of Shares of
Stock  or
Units
(#)

 

    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)

 

    Exercise
or
Base
Price
of
Option
Awards
($/Sh)

 

    Grant Date
Fair Value  of
Stock and
Option
Awards4
($)

 

 

Name

 

  Grant
Date

 

    Approval
Date

 

    Threshold
($)

 

    Target
($)

 

    Maximum
($)

 

    Threshold
(#)

 

    Target
(#)

 

    Maximum
(#)

 

 

Joe F. Sanderson, Jr,.

Chairman of the Board of Directors and Chief Executive Officer

    11/01/18       10/17/18       582,014       1,771,351       3,036,600       11,750       23,500       47,000       23,500           2,401,230  

Lampkin Butts,

President and Chief Operating Officer

    11/01/18       10/17/18       227,170       691,387       1,185,235       3,125       6,250       12,500       6,250           638,625  

Mike Cockrell,

Treasurer and Chief Financial Officer

    11/01/18       10/17/18       170,325       518,381       888,653       2,500       5,000       10,000       5,000           510,900  

Tim Rigney,

Secretary

    11/01/18       10/17/18       51,327       156,212       267,792       463       925       1,850       925           94,517  
    Various       02/17/05                   3 3          298  

 

 

(1)

The estimated payments shown reflect the minimum, mid-point and maximum amounts that could have been earned under our fiscal 2019 Bonus Award Program. No bonus was actually earned. For a discussion of how bonus awards are determined, see Compensation Discussion and Analysis section, above.

(2)

The estimated payouts shown reflect the number of shares of stock that potentially could be paid out for performance shares granted in fiscal 2019 under our Stock Incentive Plan upon the achievement of specified performance criteria at the end of the performance period.

(3)

Consists of shares of restricted stock granted pursuant to the matching contribution provisions of our Management Share Purchase Plan. Participants under the plan purchase restricted shares of Company stock on the last business day of each calendar quarter with forgone salary, or on our annual bonus payment date with forgone bonus amounts, as described in the Compensation Discussion and Analysis section, above. We match 25% of the participant’s contribution in additional restricted shares on each purchase date. In fiscal 2019, Mr. Rigney purchased 12 shares under the plan that are not reflected in the table above that had an average grant date fair value of $99.29 per share.

(4)

Reflects the grant date fair value of each equity award computed under FAS 123R and FASB ASC Topic 718. Grant date values for performance shares are based on probable outcome of the performance conditions as of the grant date. Because the Company was unable to determine the probable outcome of the performance conditions for the performance shares as of the grant date, the performance shares are reflected in the Grants of Plan-Based Awards Table at no value.



 

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Discussion of Summary Compensation and Grants of Plan-Based Awards Table

Performance share awards granted for the 2019 fiscal year are subject to a two-year performance period and an additional one-year vesting period during which the recipient must remain continuously employed by us. The number of shares actually issued depends upon our achieving certain prescribed levels of return on equity and return on sales, as described above in the Compensation Discussion and Analysis section.

Shares of restricted stock granted under our restricted stock program vest generally on the fourth anniversary of the award, as long as the holder remains continuously employed by us during the restricted period. Restricted stock granted for fiscal 2019 vests on November 1, 2022.

Shares of restricted stock granted as matching contributions under our Management Share Purchase Plan are subject to a three-year vesting period starting on the date they are acquired by the participant. The participant must remain continuously employed by us during the vesting period.

During our 2019 fiscal year, the employment of our CEO, the COO and the CFO were governed by employment agreements that we entered into on November 1, 2015 (2015 Agreements). As discussed below, each of the 2015 Agreements superseded employment agreements with our CEO, the COO and the CFO that we entered into in 2009 (2009 Agreements).

The term of each 2015 Agreement began on November 1, 2015, and ends when the officer’s employment terminates under the provisions of the employment agreement. Each 2015 Agreement provides for the officer’s fiscal 2016 salary and bonus to be paid in accordance with the levels and bonus program that we disclosed in our current report on Form 8-K filed on October 27, 2015. The officers’ compensation is reassessed annually under the 2015 Agreements.

The 2015 Agreements provide for a lump sum severance payment to be paid to the officers if:

 

   

before a change in control of our Company, the officers are terminated without cause, except in the case of poor performance;

 

   

at or after a change in control, the officers are terminated without cause; or

 

   

the officers resign for good reason.

“Cause” means, among other things, conviction of certain felonies, willful misconduct by the officer, failure or refusal by the officer to comply with our policies or a material breach by the officer of the employment agreement. “Good reason” means, among other things, a material breach of the agreement by us, a reduction of the officer’s base salary or bonus that is not part of a reduction program affecting all senior executives generally, the relocation of the officer’s principal place of employment by more than 40 miles, or after a change in control, the alteration of the officer’s position that results in a material diminution of his position.

The amount of the severance payments will be, in the case of Mr. Sanderson, three times, and in the case of Messrs. Butts and Cockrell, two times, the following amounts:

 

   

the officer’s annual base salary in effect at the time of his termination, plus

 

   

fifty percent of the maximum bonus available to the executive under the Company’s bonus program in effect for the year of termination.

In addition, the 2015 Agreements provided, in the case of the officer’s death, for the continuation of his annual salary payments for one year from the date of his death. The 2015 Agreements for Messrs. Butts and Cockrell also designate them as participants in our Supplemental Disability Plan.



 

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The 2015 Agreements prohibit the officers from disclosing confidential information about us during and after their employment, subject to certain exceptions, and prohibit the officers from engaging in certain competitive activity during their employment and for two years after the termination of their employment for any reason other than poor performance.

The terms of the 2009 Agreements were substantially identical to the 2015 Agreements, including with respect to the conditions for severance payments and their amounts in relation to base salary, the definitions of “cause” and “good reason,” the continuation of salary payments for one year upon an officer’s death and the designation of Messrs. Butts and Cockrell as participants in the Supplemental Disability Plan. The 2015 Agreements were entered into to make technical changes related to provisions of the Internal Revenue Code and create an exception to the confidentiality provisions related to whistleblower laws.

See the “Potential Payments Upon Termination or Change-in-Control” section, below, for a discussion of the impact of a change in control of our Company and certain other events, including competitive activity, on an officer’s unearned performance shares or restricted stock. Dividends are paid at rates applicable to all our stockholders on performance shares once they are paid out. Dividends (at normal rates) are paid on shares of restricted stock as soon as the shares are issued to the officer.

Amounts that could have been earned for fiscal 2019 under our Bonus Award Program were determined by reference to our earnings per share and operational performance versus our peers as described in the Compensation Discussion and Analysis section, above. Unless severance is payable under the provisions of the employment agreements described above, a participant must have been employed in a designated position at Sanderson Farms for nine months before the end of the fiscal year, and must have been employed on October 31 of the applicable fiscal year, to receive a bonus. However, if a Bonus Award Program participant dies, becomes disabled or retires before the end of the fiscal year, and if the participant had been employed at Sanderson Farms in a designated position for at least nine months, he or she will still receive a bonus award for the fiscal year (assuming the performance criteria are met). See the “Potential Payments Upon Termination or Change-in-Control” section, below, for a discussion of the impact of certain events on a participant’s annual bonus award.

For fiscal 2019, salary accounted for the following percentages of each officer’s total compensation:

 

Name

   Salary as a
Percentage of Total
Compensation

Mr. Sanderson

   37%

Mr. Butts

   51%

Mr. Cockrell

   52%

Mr. Rigney

   75%


 

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Outstanding Equity Awards at Fiscal 2019 Year-End

 

          Option Awards     Stock Awards(2)(3)  

Name

  Grant Date     Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units  or
Other
Rights
That
Have  Not
Vested
(#)
    Equity
Incentive
Plan
Awards:
Market or
Payout
Value  of
Unearned
Shares,
Units  or
Other
Rights
That Have
Not  Vested
($)
 

 

Joe F. Sanderson, Jr.

Chairman of the

Board of Directors

and Chief

Executive Officer

 

 

 

 

 

11/01/15

 

 

           

 

 

 

30,000

 

 

 

 

 

 

4,644,300

 

 

   
    11/01/16                 26,000       4,025,060      
    11/01/17                 16,750       2,593,068       4,231       655,001  
    11/01/18                 23,500       3,638,035       11,750       1,819,018  
                   

 

Lampkin Butts,

President and Chief

Operating Officer

 

 

 

 

 

11/01/15

 

 

           

 

 

 

7,750

 

 

 

 

 

 

1,199,778

 

 

   
    11/01/16                 6,750       1,044,968      
    11/01/17                 4,250       657,943       1,074       166,266  
    11/01/18                 6,250       967,563       3,125       483,781  
                   

 

Mike Cockrell,

Treasurer and Chief

Financial Officer

 

 

 

 

 

11/01/15

 

 

           

 

 

 

6,250

 

 

 

 

 

 

967,563

 

 

   
    11/01/16                 5,500       851,455      
    11/01/17                 3,500       541,835       885       137,007  
    11/01/18                 5,000       774,050       2,500       387,025