PROPOSAL 1—ELECTION OF DIRECTORS

The Board recommends a vote “FOR” each of the persons nominated by the Board. We have refreshed our Board over the past five years, as eight directors retired and eight highly-qualified directors were added. We believe that the Board possesses the appropriate mix of diversity in terms of gender, age, race, national origin, skills, experience, viewpoints and service on our Board and the boards of other organizations.

Director Nominees

There are eight nominees to be considered for election to our Board of Directors: Elizabeth L. Axelrod, Laszlo Bock, Clare M. Chapman, Lyle Logan, T. Willem Mesdag, Krishnan Rajagopalan, Stacey Rauch and Adam Warby. All of the nominees, other than Mr. Bock, currently serve as directors on the Board and were elected to the Board by the stockholders at the 2019 annual meeting of stockholders. Mr. Bock was recommended to our NGC as a potential nominee by our internal board search team. Each director nominee has agreed to be named in this Proxy Statement. As discussed above, Mr. Knell has decided not to stand for reelection at the Annual Meeting. The Company acknowledges and appreciate Mr. Knell’s more than 13 years of service and contributions to Heidrick & Struggles, including nine years as Chairman of the NGC. The Board Matrix below under “Criteria for Considering Director Nominees” summarizes the key qualifications, skills and attributes most relevant to the decision to nominate each candidate for service on the Board.

The Nominees’ biographies below describe each candidate’s background and relevant experience in more detail. The Nominees are identified and discussed in the paragraphs below for election at this year’s Annual Meeting and to each serve a one-year term expiring at the 2021 annual meeting. Each of the nominees has consented to serve if elected. If any of them becomes unavailable to serve as a Director before the 2021 annual meeting of stockholders, pursuant to our By-laws, any vacancy may, subject to the rights of holders of any shares of Preferred Stock, be filled by a majority of the Directors, although less than a quorum, or by a sole remaining director.

Criteria for Considering Director Nominees

In considering potential candidates for election to the Board, including with respect to incumbent Directors and stockholder recommended candidates, the NGC shall consider, among other qualifications that it deems appropriate, the following:

 

The potential candidate’s principal employment, occupation or association involving an active leadership role.

The potential candidate’s expertise or experience relevant to the Company’s business that would not be otherwise readily available to the Board.

The potential candidate’s ability to bring diversity to the Board, including whether the potential candidate brings complementary skills and viewpoints.

 

14

The potential candidate’s time commitments, particularly the number of other boards on which the potential candidate may serve.

The potential candidate’s independence and absence of conflicts of interest as determined by the Director Independence Standards, the NASDAQ rules and other applicable laws, regulations and rules.

The potential candidate’s financial literacy and expertise.

The potential candidate’s personal qualities including strength of character, maturity of thought process and judgment, values and ability to work collegially.

Consistent with our company-wide priorities of diversity and inclusion, one of the criteria the NGC takes into account when considering potential candidates for election to the Board is the potential candidate’s ability to bring diversity to the Board. The NGC considers the self-identified diversity characteristics of each director or potential director candidate, including gender, age, ethnicity, skills, experience, viewpoints and service on our Board. Additional information about each nominee can be found below in the Board Matrix and in each of the Director Biographies below.

Stockholders who would like the NGC to consider their recommendations for director nominees should submit their recommendations to the Secretary of the Company at: Heidrick & Struggles International, Inc., Attn: Corporate Secretary, 233 S. Wacker Drive, Suite 4900, Chicago, Illinois 60606. Director nominee recommendations by stockholders that are made in accordance with these procedures will receive the same consideration by the NGC as other suggested nominees.

Director Qualifications

The Board, acting through the NGC, considers its members, including those Directors being nominated for reelection to the Board at the Annual Meeting, to be highly qualified for service on the Board. Generally, the Board seeks individuals with broad-based experience and the background, judgment, independence, and integrity to represent the stockholders in overseeing the Company’s Management in their operation of the business.

The NGC reviewed, updated and evaluated the Board’s skill and experience matrix and evaluated each of the Directors’ qualifications against the Company’s long-term strategic plans. Within this framework, specific items relevant to the Board’s determination for each Director are listed in each Director’s biographical information beginning on page 17. The Directors’ ages are shown as of April 27, 2020. There are no family relationships among our Directors or named executive officers (“NEOs,” which term is the same as and used interchangeably with “Executive Officers”).

 

15

Board Matrix

Listed below are the skills and experience that we consider important for our Director nominees in light of our current business strategy and structure. The Directors’ biographies note each Director’s relevant experience, qualifications, and skills relative to this list.

 

SKILLS & EXPERIENCE

Experience

Axelrod

Bock

Chapman

Logan

Mesdag

Rajagopalan

Rauch

Warby

Senior Leadership

●

●

●

●

●

●

●

●

Industry Experience

●

●

●

●

●

●

●

●

Ethics and Integrity

●

●

●

●

●

●

●

●

Financial Literacy

●

●

●

●

Independence

●

●

●

●

●

●

●

Operations

●

●

●

●

●

●

●

●

International Business Experience

●

●

●

●

●

●

Technology

●

●

●

●

Risk Management

●

●

●

●

●

●

Business Development and M&A

●

●

●

●

●

Government, Legal and Regulatory

●

●

Public Company Board

●

●

●

●

BACKGROUND

Tenure/Age/Gender

Years on the Board

4

0

4

4

4

2

1

2

Age

57

47

60

60

66

60

62

59

Gender

F

M

F

M

M

M

F

M

Race/Ethnicity/Nationality

African American/Black

●

Asian/South Asian

●

White/Caucasian

●

●

●

●

●

●

Born Outside of the U.S.

●

●

●

Resident Outside of the U.S.

●

●

 

16

DIRECTOR BIOGRAPHIES

 

		Elizabeth L. Axelrod   Director Since: February 5, 2016   Board Committees: Human Resources and Compensation, and if elected as a Director, Ms. Axelrod would join the Nominating and Board Governance Committee and serve as its Chair

 

Elizabeth L. Axelrod serves as Vice President, Employee Experience for Airbnb (online marketplace and hospitality service) as of January 4, 2017. Previously, she served as the Senior Vice President, Human Resources for eBay Inc. (ecommerce corporation that facilitates consumer-to-consumer and business-to-consumer sales through its website) from March 2005 to July 2015. Prior to her tenure at eBay, Ms. Axelrod served as the Chief Talent Officer for WPP PLC, a global communications services group where she was also an Executive Director, and as a partner at McKinsey & Company. She is co-author of The War for Talent, published by Harvard Business School Press in 2001.

Ms. Axelrod is a proven human resources executive with a professional services background. She is also a thought leader in talent management which is core to Heidrick’s business. Her innovative approach to talent management including the use of data analytics brings to the Board a perspective on the relationship between recruiting talent and commercial success. Ms. Axelrod also brings a digital mindset to the Board informed by her former role at eBay. 

 

		Laszlo Bock   Director Since: April 3, 2020   Board Committees: If elected as a Director, Mr. Bock would join the Human Resources and Compensation Committee

 

Laszlo Bock is a co-founder of Humu, Inc. and has served as its Chief Executive Officer since it was founded in 2017. Humu uses AI-driven technology to nudge employees towards better work habits, unlocking the productivity and potential of individuals, teams, and organizations. Similar to Heidrick, Humu operates at the intersection between people, data analytics and privacy ethics.

Prior to Humu, Mr. Bock led the global Human Resources function for Google, Inc. as its Senior Vice President of People Operations. During Mr. Bock’s decade-long tenure, Google was named the Best Company to Work For more than 30 times around the world and received over 100 awards as an employer of choice. In 2015, Bock published Work Rules!, a practical guide to help people find meaning in work and improve the way they live and lead. In 2010, he was named “Human Resources Executive of the Year” by HR Executive Magazine. Before Google, Mr. Bock was an executive at GE

 

17

and a management consultant at McKinsey & Company where he served clients in the media, technology and private equity industries.

Mr. Bock is an expert in human capital and brings to the Board a passion for data and technology.

 

		Clare M. Chapman   Director Since: February 23, 2016   Board Committees: Human Resources and Compensation (Chair), Nominating and Board Governance

Clare M. Chapman is retired. She is the former Group People Director of BT Group, one of the world’s leading communications services companies based in the UK and serving customers in 170 countries worldwide. Ms. Chapman served in this role from 2011 through 2015. Prior to this role, Ms. Chapman was the Director General of Workforce for the National Health Service and Social Care system where her responsibilities impacted more than 2.2 million healthcare employees in England. Previously, she was the Human Resources Director for Tesco PLC (British multinational groceries and general merchandise retailer) and Vice President of Human Resources for PepsiCo’s (American multinational food, snack and beverages corporation) operations in continental Europe.

Ms. Chapman served on the board of Kingfisher PLC from 2010 and stepped down in January 2020. It operates over 1100 stores and omnichannel operations across Europe. In August 2017, Ms. Chapman joined the board of The Weir Group, plc, a designer and manufacturer of highly-engineered products and services for minerals, oil and gas, and power industries. She also joined the Board of G4S plc, the leading global integrated security business and one of the world’s largest employers, in September 2019. Ms. Chapman serves as an employer representative on the Low Pay Commission, an independent body that advises the United Kingdom government about the national living wage and national minimum wage rates and related matters. Ms. Chapman also is a Trustee of the Lambeth Partners supporting the Archbishop of Canterbury.

Ms. Chapman is regularly sought to speak and advise on corporate and national efforts to improve organization effectiveness and leadership capacity. She is also co-chair of The Purposeful Company, focused on transforming U.K. business with smarter investor stewardship of companies focused on creating long term value. Ms. Chapman’s experience in human resources and organizational effectiveness and her international perspective are assets to the Board on a range of talent, leadership, and organizational matters.

 

18

		Lyle Logan   Director Since: December 15, 2015   Board Committees: Audit & Finance, Nominating and Board Governance

Lyle Logan has served as the Executive Vice President and Managing Director of the Global Financial Institutions Group for The Northern Trust Company (financial services) since 2009. Mr. Logan has served in several leadership positions with Northern Trust during his career, including serving as Executive Vice President and Managing Director, Institutional Sales and Client Servicing for Northern Trust Global Investments from 2005 through 2010; Head of Chicago Private Banking within Northern Trust’s Personal Financial Services unit from 2003 through 2005; and Senior Vice President and Personal Financial Services Manager for Northern Trust’s Midwest Region from 2000 through 2003. Mr. Logan is also the Chairman and CEO of The Northern Trust International Banking Corporation.

Mr. Logan has also served on the board of Adtalem Global Education Inc. (global provider of education services) since 2007, where he serves as the Chair of the Nominating and Governance Committee and on the Compensation Committee; Chicago Children’s Memorial Hospital; and The Field Foundation. He has been a director of the Company since 2015 and served as the Lead Director from May 2018 until June 2019.

In addition to his financial acumen and deep understanding of capital markets, Mr. Logan also brings significant experience as a client-facing leader in the financial services industry.

 

		T. Willem Mesdag   Director Since: February 23, 2016   Board Committees: Audit & Finance (Chair), Human Resources and Compensation

T. Willem Mesdag is the Founder and Managing Partner of Red Mountain Capital Partners, an investment management fund based in Los Angeles, California, and established in 2005. Previously, he served as a Partner and Managing Director at Goldman Sachs & Co., and as a securities lawyer with Ballard, Spahr, Andrews & Ingersoll. Mr. Mesdag also serves on the board of directors of Destination XL Group, Inc. He previously served on the boards of 3iGroup plc, Encore Capital Group, Inc., Cost Plus, Inc., Nature’s Sunshine Products, Inc., Skandia Group AB and Yuma Energy, Inc.

Heidrick’s Board benefits from Mr. Mesdag’s extensive experience in capital markets, corporate strategy and public company governance. He also brings an investor’s perspective to the Board.

 

19

		Krishnan Rajagopalan   Director Since: July 6, 2017   Board Committees: Ex Officio member of all Board committees

Krishnan Rajagopalan has been our President and Chief Executive Officer since July 6, 2017. He served as acting President and CEO from April 3, 2017 until July 6, 2017. Prior to becoming President and CEO, Mr. Rajagopalan served as Executive Vice President and Managing Partner – Executive Search since January 2016. Previously, he served as Head of Global Practices beginning in April 2014 and was appointed an Executive Vice President on January 1, 2015. Mr. Rajagopalan has served in other leadership roles with Heidrick, including Global Practice Managing Partner, Technology and Services (2010 to 2014) and Global Practice Managing Partner, Business/Professional Services (2007 to 2010). Mr. Rajagopalan joined the firm in 2001 in executive search.

Through his day-to-day management of the Company as President and CEO, Mr. Rajagopalan enhances the Board’s understanding of important business developments and Management’s implementation of the Company’s strategy and day-to-day operations. Mr. Rajagopalan’s years of service in executive search also enhance the Board’s understanding of this critical component of the Company’s business.

 

		Stacey Rauch   Director Since: February 1, 2019   Board Committees: Audit & Finance

Stacey Rauch is a Director (Senior Partner) Emeritus of McKinsey & Company from which she retired in September 2010. She was a leader in McKinsey’s Retail and Consumer Goods Practices, served as the head of the North American Retail and Apparel Practice, and acted as the Global Retail Practice Convener. A 24-year veteran of McKinsey, Ms. Rauch led engagements for a wide range of retailers, apparel wholesalers, and consumer goods manufacturers in the U.S. and internationally. Ms. Rauch was a co-founder of McKinsey’s New Jersey office, and was the first woman at McKinsey appointed as an industry practice leader. She also served on a number of McKinsey’s global personnel committees.

Ms. Rauch is currently the Chairman of the Board of the Fiesta Restaurant Group (owner and operator of quick-casual restaurants), where she chairs the Corporate Governance and Nominating Committee and sits on the Remuneration Committee. She is also on the board of Land Securities Group, PLC (the U.K.’s largest commercial property company) where she serves on the Audit, Remuneration and Nomination Committees. She also serves on the Board of the Ascena Retail Group

 

20

(a leading women’s specialty apparel retailer), where she chairs the Leadership and Governance Committee and serves on the Audit Committee.

Ms. Rauch’s strategic leadership and consulting expertise, coupled with her deep experience as an international business leader, adds important new perspectives and diverse insights to the Board.

 

		Adam Warby, Chairman   Director Since: January 1, 2018   Board Committees: Ex Officio member of all committees

Adam Warby served as Chief Executive Officer of Avanade Inc., a leading global provider of professional services for Microsoft digital, cloud and business solutions, from September 2008 to September 2019. Mr. Warby joined Avanade Inc. from Microsoft Corporation as a founding member of this joint venture created by Accenture LLP and Microsoft in April 2000, and was instrumental in managing and growing global business operations, as well as shaping the culture of a diverse team of more than 35,000 digitally connected people across 24 countries. A true global citizen, including living in the United States for seven years, he served as General Manager and Executive Vice President for Avanade’s North American and European operations during his tenure. As Chief Executive of Avanade, Mr. Warby led both organic and inorganic growth, including six acquisitions across Asia, Europe and North America, resulting in annual sales in excess of $3 billion, an amount that more than doubled under his leadership. Mr. Warby also serves on the board of SimCorp A/S and is board member of Junior Achievement Europe.

Through over 31 years of strategic leadership and consulting experience, spanning his time at IBM, Microsoft and Avanade, Mr. Warby brings a unique understanding and experience of applying technology in both innovative and practical ways to address the opportunities and challenges faced by the digital transformations Heidrick’s clients are facing today.

The Board recommends a vote “FOR” each of the foregoing nominees.

Director Compensation

The NGC annually reviews the level and form of compensation paid to Directors, including our Director compensation program’s underlying principles. Under the Corporate Governance Guidelines, a Director who is also an Officer of Heidrick is not permitted to receive compensation for service as a Director.

In February 2019, the Board made slight increases to the amounts paid under the non-employee director compensation program after a review of the compensation program and peer company practices by its independent compensation consultant. Changes were last made to the non-employee director compensation program in 2015. Directors may elect to defer up to one hundred percent of their cash compensation per year pursuant to our Voluntary Deferred Compensation Plan (the “VDC

 

21

Plan”). All directors are reimbursed for their out-of-pocket expenses incurred in connection with their duties as directors.

Beginning in 2019, each non-employee director received an annual equity award of vested restricted stock units with a value of approximately $115,000 (an increase of $2,500 from the prior year) awarded on the date of each annual meeting of stockholders. Additionally, non-employee directors received a cash retainer of $75,000 each per year (an increase of $12,500 from the prior year), payable quarterly in arrears. In addition, Board and Committee chairpersons and members received compensation for their Committee service as outlined below.

 

AFC Member		$	10,000
AFC Chair (in addition to the AFC member retainer)		$	30,000
HRCC Chair		$	30,000
NGC Chair		$	10,000
Lead Independent Director		$	40,000

The compensation of our non-employee directors, including all restricted stock units (“RSUs”) or stock, for the 2019 fiscal year is set forth in the table below and described in the accompanying footnotes.

 

Name		Fees Earned or Paid in Cash ($)(1)				Stock Awards ($)(2)				All Other Compensation ($)				Total ($)
Elizabeth L. Axelrod		$	76,056	(3)		$	114,985	(10)		$	0			$	191,041
Clare M. Chapman		$	105,000	(4)		$	114,985	(11)		$	0			$	219,985
Gary E. Knell		$	85,000	(5)		$	114,985	(11)		$	0			$	199,985
Lyle Logan		$	102,253	(6)		$	114,985	(10)		$	0			$	217,238
Willem Mesdag		$	115,000	(7)		$	114,985	(11)		$	0			$	229,985
Stacey Rauch		$	77,681	(8)		$	114,985	(10)		$	0			$	192,666
Adam Warby		$	121,964	(9)		$	114,985	(11)		$	0			$	236,949

 

(1)

Reflects cash compensation earned by each Director in 2019 and includes any amounts deferred at the Director’s election under our VDC Plan, described above.

(2)

Reflects the grant date fair value for financial reporting purposes in accordance with ASC Topic 718 for Common Stock or RSUs granted under the Second Amended and Restated Heidrick & Struggles 2012 GlobalShare Plan (the “GlobalShare Plan”) which is described beginning on page 63.

(3)

Ms. Axelrod earned an additional retainer of $1,056 for being a member of the AFC through February 7, 2019, her last day of service as a member of the AFC.

(4)

Ms. Chapman earned an additional cash retainer of $30,000 as Chair of the HRCC.

(5)

Mr. Knell earned an additional cash retainer of $10,000 as Chair of the NGC. All of Mr. Knell’s fees were deferred pursuant to our VDC Plan.

(6)

Mr. Logan earned an additional cash retainer of $10,000 as a member of the AFC and an additional cash retainer of $17,253 for his service as Lead Independent Director, prorated through June 6, 2019, his last day of service as Lead Independent Director.

(7)

Mr. Mesdag earned an additional cash retainer of $30,000 as Chair of the AFC and $10,000 as a member of that Committee. All of Mr. Mesdag’s fees were deferred pursuant to our VDC Plan.

(8)

Ms. Rauch earned a retainer of $75,000 and an additional retainer of $10,000 for being a member of the AFC, both prorated based on joining the Board on February 1, 2019.

 

22

(9)

Mr. Warby earned an additional cash retainer of $42,651 as Chairman of the Board for his service beginning on June 6, 2019, and $4,313 as a member of the AFC.

(10)

The amount reflects the aggregate grant date fair value of stock granted on May 23, 2019 (the date of the 2019 annual meeting of stockholders). The award was equal to the annual equity retainer of $115,000 divided by the closing stock price on the date of grant of $31.72 rounded to nearest whole share, resulting in 3,625 shares. As of April 1, 2020, the aggregate shares of stock granted and outstanding were as follows: 17,720 for Ms. Axelrod, 5,045 for Mr. Knell, 17,720 for Mr. Logan, 10,000 for Mesdag, 3,625 for Ms. Rauch and 5,000 for Mr. Warby.

(11)

Reflects an award of RSUs granted on May 23, 2019 with the same value as the award of stock described in footnote 10 above. Reflects the aggregate grant date fair value of RSUs granted on May 23, 2019, calculated in accordance with ASC 718. The value of the award was $31.72. As of April 1, 2020, the aggregate RSUs granted and outstanding were as follows: 17,720 for Ms. Chapman, 47,829 for Mr. Knell, 17,720 for Mr. Mesdag, and 6,521 for Mr. Warby.

Mr. Rajagopalan, who is a Director, is also our President and CEO, and therefore does not receive any additional compensation for his service on our Board.

In February 2020, the Board increased the additional cash retainer to be received by the Chairman of the Board from $75,000 to $100,000 per year, effective as of January 1, 2020.

The Company’s stock ownership guidelines for directors require each director to own three times their annual cash retainer in Company stock within three years of joining the Board. As of March 31, 2020, each of the Directors has either satisfied the stock ownership guidelines or is on track to do so in compliance with the guidelines.

 

23

EXECUTIVE OFFICERS

All of the Executive Officers have been appointed by and serve at the pleasure of the Board of Directors. Below is the name, age, present title, principal occupation and certain biographical information for each of the Company’s Executive Officers as of April 1, 2020.

 

Krishnan Rajagopalan		Mr. Rajagopalan, 60, has been our President and Chief Executive Officer since July 6, 2017. He served as acting President and CEO from April 3, 2017 until July 6, 2017. Prior to becoming President and CEO, Mr. Rajagopalan served as Executive Vice President and Managing Partner – Executive Search since January 2016. Previously, he served as Head of Global Practices beginning in April 2014 and was appointed an Executive Vice President on January 1, 2015. Mr. Rajagopalan has served in other leadership roles with Heidrick, including Global Practice Managing Partner, Technology and Services (2010 to 2014) and Global Practice Managing Partner, Business/Professional Services (2007 to 2010). Mr. Rajagopalan joined the firm in 2001 in executive search. He has been a Director of the Company since July 6, 2017.
Mark Harris		Mr. Harris, 49, was appointed Chief Financial Officer of the Company on March 19, 2018. He had been serving as the Deputy Chief Financial Officer of the Company since February 2018. From 2015, Mr. Harris had been CFO at Hercules Capital, a publicly traded business development company, where he was responsible for finance, accounting, operations, legal and investor relations. Prior to that, Mr. Harris worked at Avenue Capital Group for over 9 years, where he served as their CFO for their Asia Strategy and was their Senior Managing Director/Head of Asia, in which he led the entire Asia Strategy. Prior to working at Avenue Capital Group, from 2004 to 2006 Mr. Harris served as Corporate Financial Controller and Chief Accounting Officer at Hutchinson Telecommunications, a telecommunications company based in Hong Kong. Prior to Hutchinson Telecommunications, Mr. Harris was a Manager at PricewaterhouseCoopers in their Global Capital Markets Group.
Michael Cullen		Mr. Cullen, 54, was appointed Chief Operating Officer effective January 1, 2019. Mr. Cullen joined Heidrick in April 2008 and served as the Managing Partner – Americas Technology & Services through April 2014. Mr. Cullen then served as Global Practice Managing Partner – Technology and Services from April 2014 through December 2017. He began his most recent prior role of Group Chief Operating Officer in January 2018. As Group Chief Operating Officer, he is responsible for all regions, practice management, information technology and marketing.

 

24

Kamau Coar		Mr. Coar, 43, was appointed General Counsel and Corporate Secretary effective February 1, 2018. Mr. Coar also oversees the Company’s enterprise risk management program and compliance and ethics programs. Previously, Mr. Coar served as VP, Associate General Counsel (2012 to 2017), serving on the Company’s leadership team for the Americas region (2013 to 2016) and for the Asia Pacific region, based in Singapore (2016 to 2017). Previously Mr. Coar was a partner at Ungaretti & Harris LLP (now known as Nixon Peabody), which he joined in 2003.
Sarah Payne		Ms. Payne, 49, was appointed Chief Human Resources Officer effective January 1, 2019. She is responsible for working closely with leaders within the firm and in setting and executing a talent strategy that supports the near and long-term business objectives of Heidrick. Previously, Ms. Payne was the Vice President of Global Executive Search where she served as a business partner to Heidrick & Struggles’ global Executive Search leaders. She was also formerly the Vice President of Global Compensation and HR Americas where she lead global compensation strategy and design, in addition to being a business partner to Heidrick’s Americas region which included providing strategic support across the full employee life cycle. Prior to joining Heidrick, Ms. Payne held human resources leadership positions within Executive Compensation, Total Rewards, Talent Acquisition and as a Human Resources Director within global agribusiness and satellite communications.

Each of our Executive Officers has entered into an employment agreement with the Company, which contain customary restrictive covenants in favor of the Company. Each Executive Officer also participates in the Company’s MIP, CIC Plan, Severance Plan, equity programs and vacation and benefit plans at the same level as other senior executives, as outlined below in further detail.

Certain Relationships and Related Party Transactions

Various Company policies and procedures and annual questionnaires completed by all Company Directors and Executive Officers require disclosure of transactions or relationships that may constitute conflicts of interest or otherwise require disclosure under applicable SEC and Nasdaq Rules. Pursuant to its charter, the NGC—in consultation with the AFC—reviews and approves related party transactions.

The process for reviewing certain relationships and related party transactions are outlined in the Company’s Director Independence Standards and Policy on Resolution of Conflicts of Interest for Directors and Executive Officers. Depending on the particular transaction or relationship, the Company’s review processes vary. When such a transaction or relationship is identified at the Chief Executive Officer or Board level, the NGC and/or its Chair, or in the instance of a potential conflict with the Chair of the NGC, the Board as whole, evaluates the transaction or relationship and approves or ratifies it (without the vote of any interested person) only if it is judged to be fair and in the best interests of the Company. Complete copies of the Company’s Director Independence Standards and Policy on Resolution of Conflicts of Interest for Directors and Executive Officers can be found at: https://www.heidrick.com/Who-We-Are/Our-Leadership. In addition, it is the practice of the NGC,

 

25

although not part of a written policy, to review each transaction specifically disclosed as a potential related party transaction in connection with its review of the proxy statement for the annual meetings of stockholders, to the extent any such transaction has not previously been reviewed, applying the same standard.

There were no related party transactions since January 1, 2019 that required approval under the Company’s policies and procedures or the rules and regulations of the SEC.

ADDITIONAL GOVERNANCE MATTERS

Communication with the Board

Stockholders may communicate directly with the Board. All communications should be directed to:

Corporate Secretary

Heidrick & Struggles International, Inc.

233 South Wacker Drive, Suite 4900

Chicago, Illinois 60606

Any such communication should prominently indicate on the outside of the envelope that it is intended for the Board or a particular director. All appropriate communication intended for the Board or a particular director and received by the Corporate Secretary will be forwarded to the specified party following its clearance through normal security procedures.

 

26

EXECUTIVE COMPENSATION

PROPOSAL 2—ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

Pursuant to SEC rules, the Company seeks your advisory vote on our executive compensation programs as described in this Proxy Statement. The Company asks that you support the compensation of our Named Executive Officers as disclosed in the CD&A section and the accompanying tables and narratives contained in this Proxy Statement.

The CD&A section of this Proxy Statement discusses our executive compensation philosophy, policies and structure during the most recently completed fiscal year. The HRCC and the Board believe that these policies and procedures are effective in implementing our executive compensation philosophy and in achieving its goals.

As an advisory vote, your vote will not be binding on the Company or the Board. However, our Board and our HRCC, which is responsible for designing and administering the Company’s executive compensation program, value the opinions of our stockholders and to the extent there is any significant vote against the compensation paid to our Named Executive Officers, we will consider our stockholders’ concerns and the HRCC will evaluate whether any actions are necessary to address those concerns.

Accordingly, the Board recommends that our stockholders vote “FOR,” on an advisory basis, the compensation paid to our Named Executive Officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC.

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

Heidrick is a leadership advisory firm, assisting a broad range of clients across the globe in achieving their long-term business objectives by helping them to improve the effectiveness of their leadership teams. More specifically, the Company provides executive search and leadership consulting services through the expertise of its experienced consultants located in major cities around the world. The Human Resources and Compensation Committee (“HRCC”) seeks to ensure that the Company’s executive compensation program attracts, retains and rewards the best talent, while at the same time maintaining a strong link between pay and performance and aligning the interests of the Company’s executives and stockholders. Heidrick’s executive compensation philosophy emphasizes and rewards both Company and individual performance, which the Company believes promotes sustained long-term performance by rewarding not only the achievement of financial and operational goals, but also the accomplishment of individual strategic objectives that enable profitable growth.

Through its HRCC, the Company has implemented strong governance practices for considering and making decisions with respect to the compensation of the Company’s Named Executive Officers. Management, the HRCC and the full Board all play active roles in executive compensation decisions.

 

27

This Compensation Discussion & Analysis (“CD&A”) describes and explains the Company’s compensation philosophy and executive compensation program, as well as compensation awarded to and earned by the following persons who were our Named Executive Officers (“Executive Officers” or “NEOs”) in 2019:

 

Name		Title
Krishnan Rajagopalan		Chief Executive Officer
Mark Harris		Chief Financial Officer
Michael Cullen		Chief Operating Officer
Kamau Coar		General Counsel & Corporate Secretary
Sarah Payne		Chief Human Resources Officer

All of our Executive Officers are NEOs, so these terms are used interchangeably in this Proxy Statement.

The CD&A is organized into four sections:

 

•

2019 Year in Review

 

•

Executive Compensation Philosophy

 

•

2019 Compensation Program

 

•

Other Compensation Policies and Information

The CD&A is followed by the Compensation Tables and Narrative Disclosures, which report and describe the compensation and benefit amounts paid to the NEOs in 2019.

2019 Year in Review

2019 was another strong year for Heidrick:

 

•

Revenue of $706.9 million, following a record year in 2018. This is the second year in a row that we achieved over $700 million in revenue.

 

•

Adjusted operating margin of 9.6%, which matched the level achieved in 2018 and represented a significant increase over the prior three years.

 

•

General and administrative expense as a percent of net revenue was the lowest in 12 years.

 

28

Adjusted Operating Income and Adjusted Earnings Per Diluted Share are Non-GAAP financial measures and include adjustments in 2017 to exclude expense associated with the settlement with Her Majesty’s Revenue and Customs related to the taxation of a legacy U.K. benefit trust obligation in Q1 2017, impairment charges, and restructuring charges. 2016 and 2019 also included restructuring-related adjustments. Adjusted Operating Margin refers to Adjusted Operating Income as a percentage of Net Revenue.

Total Shareholder Return is the value of $100 invested on December 31, 2014, assuming the reinvestment of dividends during the following five-year period.

A reconciliation of these Non-GAAP financial measures to the most directly comparable GAAP financial measures can be found on Annexes A and B.

Executive Compensation Philosophy

The HRCC strives to establish compensation programs for the Company’s executives and employees that are competitive with firms in the executive search, leadership consulting and management consulting space, both public and private, with which the Company competes for executive talent.

 

29

This discussion explains:

The objectives of the Company’s compensation program for its NEOs.

What the compensation program is designed to reward, each element of compensation within the program and why the Company chooses to pay each element.

How the Company determines the amount to pay for each compensation element.

How each compensation element and the Company’s decisions regarding that element fit into the Company’s overall compensation objectives and affect decisions regarding other elements.

Guiding executive compensation for Heidrick is a pay-for-performance philosophy. The Company expects its Executive Officers to initiate and carry out sustainable growth strategies and to create long-term value for both the Company and its stockholders. Company performance is the primary factor in the executive incentive compensation program design. When measuring Company performance, the HRCC considers both qualitative and quantitative factors relating to the Company’s business strategies and objectives. In assessing the individual performance of the Executive Officers, the HRCC considers, among other things, the Executive Officer’s achievement of performance objectives, contributions to the Company’s strategic initiatives and demonstrated leadership qualities.

The HRCC regularly reviews the compensation program for the Company’s executives and employees to ensure that the programs continue to meet the needs of the business and align the long-term interests of the Company’s executives with those of the Company’s stockholders. The Company’s executive compensation program may change from time to time based on the review and input of the HRCC.

Compensation Best Practices

 

The Company’s compensation policies and practices include:

Independent HRCC. All of the members of the HRCC are independent.

Independent Compensation Consultant. The HRCC receives objective advice from an independent compensation consultant.

Annual Assessment. Annual assessment of compensation policies to ensure that they are aligned with the Company’s performance objectives and do not encourage undue risk.

Stock Ownership Guidelines. The CEO is required to own five times their annual base salary in Company common stock within five years of appointment to the role. All other Executive Officers are required to own two times their annual base salary in Company common stock within five years of appointment to the role.

Reward for Performance. A majority of each Executive Officer’s total direct compensation requires them to achieve performance goals.

Annual Payout Limits. The potential annual payout on incentive compensation elements is limited to 1.5 times target.

 

30

Long-Term Vesting. The Company encourages retention by providing for equity awards that vest over three years, commencing on the grant date anniversary.

No Excise Tax Gross-Ups. The Company does not provide excise tax gross-ups to the Executive Officers.

Strong Governance Practices Utilized in Determining Executive Compensation

Role of the HRCC. With respect to the Company’s Executive Officers, the HRCC engages in a rigorous process in determining the total compensation. This process involves setting Company performance and strategic and operational goals for the NEOs at the beginning of each year and evaluating the performance of the NEOs against those pre-established goals. The HRCC considers additional factors in making its decisions regarding each Executive Officer’s target total compensation opportunity. The specific factors include:

 

•

Individual performance against pre-set goals and objectives for the year, and Company performance;

 

•

An individual’s experience and expertise;

 

•

An individual’s position and scope of responsibilities;

 

•

An individual’s future prospects with the Company; and

 

•

The new total compensation that would result from any change and how the new total compensation compares to survey data.

The HRCC determines and approves the compensation of the NEOs based on this evaluation. In making its decisions, the HRCC does not apply formulaic weighting to any of the above factors.

In evaluating the NEOs’ compensation, the HRCC has retained the services of an independent compensation consultant, Pay Governance LLC, and considers recommendations from the CEO. The CEO does not provide such input as to his or her own compensation. The HRCC assesses the information it receives in accordance with its business judgment. The HRCC is also guided by its independent compensation consultant with respect to compensation decisions.

Role of the Board. The HRCC, with input from the full Board, independently reviews the CEO’s performance and recommends the CEO’s compensation to the Board. Based upon the recommendation of the HRCC, the full Board considers and determines the compensation of the CEO.

Role of the CEO. The CEO annually reviews the performance of each of the NEOs other than himself. Following these performance reviews, the CEO presents compensation recommendations to the HRCC for consideration. The HRCC has full discretion to approve, modify or reject any such recommendations.

 

31

Role of the Independent Consultant. The HRCC has retained an independent compensation consultant which reports directly to the HRCC and does no other work for Management. During 2019, the independent compensation consultant’s representatives participated in the HRCC meetings and provided guidance to the HRCC with respect to executive compensation, comparative peer group data, director compensation, annual incentive compensation and consultant pay programs. In supporting the HRCC, the independent compensation consultant provides the HRCC with an independent assessment of Management’s recommendations for compensation, reviews and confirms the peer group used by the Company to prepare market compensation data, and provides ad hoc support to the HRCC, including discussing executive compensation and related corporate governance trends. The HRCC determined that its compensation consulting firm was independent and without conflicts of interest for 2019. This determination was reached after reviewing the independence factors set out in the Nasdaq Rules.

Use of a Peer Group. The HRCC evaluates the Company’s executive compensation programs in comparison to those of a selected peer group, which in 2019 consisted of twelve similarly-sized public professional services companies. Advisory Board Company, CDI Corporation, and CEB Inc. were removed from the 2018 peer group due to their divestiture or acquisition by other companies. The HRCC uses the peer group to compare total direct compensation and each of the compensation elements for each NEO against positions at peer group companies with similar responsibilities. The HRCC also uses the peer group to review executive pay programs and practices at those companies.

For 2019, the peer group consisted of the following companies:

 

Barrett Business Services, Inc.		ICF International, Inc.
CBIZ, Inc.		Kforce, Inc.
CRA International, Inc.		Korn/Ferry International
FTI Consulting, Inc.		Navigant Consulting, Inc.
Hudson Global, Inc.		Resources Connection, Inc.
Huron Consulting Group, Inc.		Volt Information Sciences, Inc.

In setting compensation, the HRCC considers the peer group companies with which the Company directly competes for executive talent and stockholder investment. However, most of the Company’s executive search and leadership advisory competitors, from which executive talent is often recruited, are privately held and are not included in the above list of the public peer group. The HRCC therefore also relies on its general knowledge of executive compensation levels and practices in the executive search and leadership consulting industry.

The Company does not set a specific, relative percentile positioning for total direct compensation, or the elements of total direct compensation, as a target for NEO pay levels. Rather, the Company reviews the total direct compensation range for each position and the mix of elements to ensure that compensation is adequate to attract and retain key executive talent. To ensure that compensation is linked to performance, the NEO compensation program is designed to deliver at least 60% of total direct compensation through variable pay. The NEO compensation program is also designed to ensure that a significant proportion of NEO compensation is delivered in the form of equity and thus aligned with the interests of the Company’s stockholders.

 

32

Stockholder Vote and Engagement on Executive Compensation

The Company held its annual non-binding stockholder advisory vote to approve executive compensation (“say-on-pay”) at the 2019 annual meeting of stockholders. The stockholders approved the 2018 executive compensation, with approximately 97% of voting stockholders casting their vote in favor of the say-on-pay resolution.

The Company had regular and active discussions with its major stockholders on various topics throughout 2019 and, during those conversations, the stockholders did not raise any specific issues relating to the design of the Company’s executive compensation program. The Company did not make any changes to the executive compensation program as a result of the 2019 say-on-pay vote or its stockholder outreach efforts during 2019. The HRCC is dedicated to continuous improvement of the executive compensation program to reflect an appropriate alignment of pay and performance, and will continue to seek and review stockholder perspectives when designing and implementing the Company’s executive compensation program.

2019 Compensation Program

2019 Executive Total Target Direct Compensation Mix

The majority of total target direct compensation for the NEOs was variable compensation.

 

2019 Target Compensation Mix: CEO		2019 Target Compensation Mix: Other NEOs

 

33

Consistent with the firm’s pay-for-performance philosophy, the majority of direct compensation for the NEOs is variable. Our NEO compensation mix is generally split into three principal components:

 

Component		Average % Mix		Objective		What it Rewards
Base Salary				Pay competitive salaries to attract and retain executive talent necessary to develop, implement and execute Heidrick’s business strategy, and reflect responsibilities of the position, experience of the executive and the marketplace in which Heidrick competes for talent.		Accomplishment of day-to-day job responsibilities, taking into account individual performance and retention considerations.
Annual Incentives (Cash Compensation)				Motivate executives to generate outstanding performance and achieve or exceed the operating plan over a one-year period and align annual compensation with annual performance and financial results.		Achievement of specific pre-set performance thresholds related to safety, financial, operational and strategic objectives.
Long-Term Incentive Equity Compensation				Encourage achievement of long-term performance goals, align executive rewards with the interest of Heidrick’s stockholders through long-term stock price appreciation, and facilitate the accumulation of Heidrick shares by executives, thereby enhancing ownership and promoting retention.		Share price growth, dividend performance and attainment of long-term financial goals.

 

34

As discussed in greater detail below, preliminary total target direct compensation for each NEO in 2019 was as follows:

 

Name		Base Salary				Annual Incentives MIP Target (% of Base Salary)				Long-Term Incentives Equity Target (% of Base Salary)
Krishnan Rajagopalan		$	850,000				150%				150%
Mark Harris		$	450,000				100%				133%
Michael Cullen		$	650,000				100%				100%
Kamau Coar		$	275,000				75%				75%
Sarah Payne		$	275,000				75%				75%

Base Salary

Base salaries are reviewed annually by the HRCC against levels for positions with similar responsibilities at peer group companies, using the comparative data prepared by the HRCC’s independent compensation consultant. The HRCC then considers individual performance, internal pay equity, functional expertise, experience and scope of responsibilities. Effective January 1, 2019, Mr. Coar’s base salary was increased to $275,000 to reflect a better alignment to the external market. Messrs. Rajagopalan and Harris had no change to their salaries. Ms. Payne and Mr. Cullen became Executive Officers on January 1, 2019.

Annual Incentives

The Management Incentive Plan (“MIP”) is the vehicle through which NEOs are rewarded with an annual cash bonus for achieving specific short-term performance goals over a one-year period. The MIP rewards our NEOs for achieving key annual non-GAAP financial metrics and personal objectives.

The HRCC sets Company and individual performance goals for the NEOs during the first quarter. These goals consist of both quantitative and qualitative performance objectives. The HRCC considers the reviews conducted by the CEO of the other NEOs and conducts its own review of the CEO’s performance against those pre-established performance objectives, as well as Company performance milestones achieved during the year. With respect to the CFO, the HRCC also considers input from the AFC Chair.

15% of the NEOs’ earned annual bonus amounts are deferred each year. The deferred amount is then paid out equally over the following three years. If an NEO leaves prior to payment of any deferred bonus amount, such amounts are forfeited.

2019 MIP Metrics

The metrics and targets that the HRCC selected for 2019 tie directly to our operational and strategic goals. Under the MIP, determination of the payout level (if any) for each NEO award is based upon the achievement of a combination of Company performance metrics (weighted at 70%) and non-financial, strategic performance factors (weighted at 30%). For the latter, there is a combination of shared and

 

35

individual objectives. The objectives and rationale for selecting the MIP performance metrics for the year ended December 31, 2019 and the relative weight of each metric were as follows:

 

Performance Metric		Rationale for Using Performance Metric		Weight
Adjusted Operating Income		Measures the ability of the Company to efficiently translate revenues to profits, which allows the Company to invest for the future and enhance stockholder returns.		40%
Net Revenues		Coupled with profitability (above), focuses the NEOs on growing the top line revenues of the Company while managing profitability.		20%
Growth in Revenues Beyond Executive Search		Aligns the NEOs to critical strategic objectives of diversifying the Company’s revenues.		10%
Non-Financial Strategic Goals		Measures achievement of critical strategic objectives, both shared and individual.		30%
TOTAL				100%

Payout amounts under the MIP were set for each metric based on “Minimum,” “Target” and “Maximum” performance levels and corresponding award levels based on the Company’s business plan and other operational and environmental factors, specifically: Adjusted Operating Income (as defined above under 2019 Year in Review), Net Revenues and Growth in Revenues Beyond Executive Search. “Target” performance is the level at which a participant will earn 100% of his or her target award. Depending upon the relationship of the Company’s actual financial performance and the individual’s annual evaluation, final payouts under the MIP may be as little as zero (at or below “Minimum” performance) and as high as 150% of Target (at “Maximum” performance). The HRCC has discretion to modify any payouts (upwards or downwards) under the MIP as appropriate to ensure plan objectives are met, taking into consideration a variety of Company specific or environmental factors. However, the HRCC did not exercise such discretion in 2019. These financial metrics were set taking into account the Company’s strategic initiatives, historical financial performance, internal budgeting for the relevant year, external guidance and expected market conditions.

 

36

Each NEO also had non-financial strategic goals that were reviewed and approved by the HRCC in early 2019, and were aimed at focusing each NEO’s attention in areas where he or she has the most potential for impacting the Company’s performance. Minimum, Target and Maximum Performance Levels for 2019, as well as the actual performance results for both Company performance metrics and non-financial strategic metrics, are set forth below:

 

Adjusted Operating Income

Consolidated Net Revenue

Growth in Non-Search Revenues

Non-Financial Strategic Goals

Total

Performance Minimum Target Maximum

$55.8 million $69.7 million $80.2 million

$652.6 million $725.1 million $761.4 million

+5% +25% +30%

Target Weighting: % of Total Bonus

+

+

+

=

Actual Performance

$71 million (1)

$706.9 million

—

See below

Bonus Result

106.2% of Target;   106.2% x 40%:

87.4% of Target;   87.4% x 20%:

0% of Target;   0% x 10%:

125% of Target;   125% x 30%:

Results: All NEOs

+

+

+

=

 

(1)

For calculating Executive Compensation, Adjusted Operating Income includes adjustments for a one-time restructuring and for deferred compensation mark-to-market adjustments.

As discussed above, for 2019, 30% of MIP performance was contingent on achieving non-financial strategic goals specific to each NEO. These strategic goals, both shared and individual, were reviewed and approved by the HRCC in early 2019 and were aimed at focusing each NEO’s attention in areas where he or she has the most potential for impacting the Company’s performance.

 

37

In 2020, the HRCC reviewed each NEO’s achievements relative to their the non-financial strategic goals and, in its discretion, determined that such accomplishments resulted in a payout of 125% of target for each of the NEOs.

 

2019 Shared Objectives for all NEOs		2019 Accomplishments
Implement clear steps to improve and measure employee engagement.		Exceeded expectations.
Drive adoption of new client services tools and methodologies.		Exceeded expectations, with strong increase in utilization versus 2018 levels.

Krishnan Rajagopalan’s Individual Performance

 

2019 Goals		2019 Accomplishments
Succession planning.		Completed.
Innovation in operational model.		The Company announced the acquisition of 2GET, a partnership with BTG and the creation of the Director’s Institute.

Michael Cullen’s Individual Performance

 

2019 Goals		2019 Accomplishments
Implement structure changes to drive further productivity.		Completed.
Implement initiatives to improve client service.		Completed.

Mark Harris’ Individual Performance

 

2019 Goals		2019 Accomplishments
Ensure appropriate financial metrics being tracked.		Completed.
Implement enhanced financial reporting and budgeting tools.		Completed.

Kamau Coar’s Individual Performance

 

2019 Goals		2019 Accomplishments
Implement processes to reduce risk.		Completed.
Implement global employee handbooks.		Completed.

 

38

Sarah Payne’s Individual Performance

 

2019 Goals		2019 Accomplishments
Implement structure changes to drive further productivity.		Completed.
Implement improved learning capabilities.		Completed.

Finally, the table below details the resulting payout under the MIP compared to target for each of our NEOs:

 

Long-Term Incentives

Long-term incentives (“LTIs”) are the vehicle through which NEOs are awarded the Company’s common stock for continued service and for achieving specific performance goals over a three-year period. These awards vest three years from the grant date. LTIs are designed to focus the NEOs and the Company on the strategic goals necessary to increase stockholder value and further position the Company to succeed in a changing environment.

The 2019-2021 LTI award targets are based on the HRCC’s review of publicly disclosed data for the Company’s applicable peer group for each NEO position and internal pay equity considerations, as well as the CEO’s recommendations and a review of individual performance and potential.

 

39

LTI awards issued to the NEOs in 2019 consist of:

 

Performance Stock Units (“PSUs”)		Restricted Stock Units (“RSUs”)
PSU awards are based on performance over a three-year period, which provides greater focus on sustained long-term results. Each PSU represents a right to receive one share of the Company’s Common Stock upon vesting.		RSUs are service-based and vest in three equal installments (specifically, on the first, second and third anniversaries of the date of grant). Each RSU represents a right to receive one share of the Company’s Common Stock upon vesting.

When issuing LTI awards, the Company calculates the number of RSUs and PSUs awarded to the NEOs by dividing the total dollar value of the LTI award by the closing price of the Company’s Common Stock on the grant date (usually in March of the grant year). All outstanding RSUs and PSUs are credited with dividend equivalents that are payable in cash when and if the related units vest. The primary purpose of crediting dividend equivalents on LTI awards is to align the participant with the value of being a stockholder over the course of the vesting period, but only to the extent the award vests.

For the 2019-2021 LTI, PSU awards will use two equally-weighted financial metrics, based on a graduated scale of payout ranging from 0% to 200% of target, depending on Company performance as set forth below. The 2019 – 2021 PSU awards reflect a new design approved by the HRCC in late 2018, as a means of better aligning their issuance with stockholder interests and the Board-approved long-term strategy for the Company. The redesign includes the adoption of two new financial metrics for PSU awards: three-year Adjusted Operating Margin (“AOM”) (as defined above in 2019 Year in Review) and three-year Relative Total Shareholder Return (“R-TSR”). The target AOM is established by the HRCC at the beginning of the three-year PSU performance period. The peer group for the new and enhanced R-TSR metric will be the S&P Human Resources and Employment Services Index. The Company and the HRCC made these changes to more closely align operating results and executive performance. Adopting a metric based on operating margin for PSU awards is designed to increase the accountability of the NEOs for profitable revenue. The new performance metrics are intended to focus the NEOs and the Company on the strategic goals necessary to increase stockholder value and further position the Company to succeed in a changing environment.

 

3-year Adjusted Operating Margin (50% Weighting)				3-year Relative Total Shareholder Return (50% Weighting)
% of Target Performance		Percentage of Target PSUs Vesting		Percentile Ranking		Percentage of Target PSUs Vesting
150%		200%		75th		200%
100%		100%		50th		100%
50%		50%		25th		50%
<50%		0%		<25th		0%

The PSUs will vest if and to the extent the Company’s AOM and R-TSR exceed certain levels established by the HRCC at the beginning of the three-year PSU performance period. The peer group for the new R-TSR metric will be the S&P Human Resources and Employment Services Index.

 

40

In March 2019, LTI awards were issued to Messrs. Rajagopalan, Harris, Cullen, Coar and Ms. Payne, with 50% of the value issued as PSUs and 50% of the value issued as RSUs. Messrs. Rajagopalan’s, Harris’s, and Cullen’s LTI awards were granted above the target amounts at the HRCC’s discretion to reflect the strong results of the Company in 2018, their individual performance and their relative market position. See the 2019 Grants of Plan-Based Awards Table on page 46 for more details on the equity grants that the HRCC approved. The following is a summary of the LTI awards issued in 2019:

 

NEO		PSUs (Target)				RSUs				Award Value(1)
Award Date			3/8/2019				3/8/2019
Award Price		$	40.77			$	40.77
Krishnan Rajagopalan			23,455				23,455			$	1,912,521
Mark Harris			9,198				9,198			$	750,005
Michael Cullen			9,964				9,964			$	812,465
Kamau Coar			2,529				2,529			$	206,215
Sarah Payne			2,529				2,529			$	206,215

 

(1)

Value based upon number of RSUs and PSUs (at target) awarded multiplied by the closing share price on the date of the award.

2018-2020 LTI Awards. The 2018-2020 PSUs and RSUs issued to Messrs. Rajagopalan, Harris and Coar are subject to target goals for the Company’s average operating income over the period from 2018 through 2020 and will be paid in 2021. Mr. Cullen and Ms. Payne were not NEOs at the time the 2018-2020 LTI awards were granted.

2017-2019 PSU Awards. For the 2017-2019 PSUs, the HRCC established operating income goals each year as the objective for the PSU award. After the end of the three-year period, the target number of PSUs is adjusted based on the average operating income (expressed as a percentage of the Company’s target operating income goals) for each annual performance period as follows:

 

Adjusted Operating Performance (in millions)		2017				2018				2019				3-year Average
Adjusted Operating Income		$	41.37			$	68.86			$	71.00
Adjusted Operating Income Target		$	43.80			$	50.20			$	69.70
Performance as a % of Target			94.5%				137.2%				101.9%				111.2%

 

41

Utilizing the average percentage of operating income performance, the PSU vesting percentage was determined:

 

Average Percentage of Operating Income Goals Achieved		Percentage of Target PSUs Vesting
125% or More		200% (Maximum)
100%		100% (Target)
75%		50% (Threshold)
Less than 75%		0%
Actual: 111.2%		Vesting Result: 144.63%

The PSUs issued to Mr. Rajagopalan in 2017 vested in 2020 as follows:

 

Name		Target PSUs				Percentage Vesting				PSUs Vesting
Krishnan Rajagopalan			6,687				144.63	%			9,671

Messrs. Cullen, Harris and Coar and Ms. Payne were not NEOs at the time the 2017-2019 LTI awards were issued.    

Mr. Rajagopalan’s Performance-Vesting Restricted Stock Units. The Company granted Mr. Rajagopalan a target number of 48,193 performance-vesting restricted stock units (“PRSUs”) with a grant date fair value of $1 million in connection with his appointment as CEO in 2017. The PRSUs are eligible to time-vest ratably over three years, subject to the achievement of transformation performance objectives and metrics determined by the Board. The goals set for Mr. Rajagopalan by the Board for the performance year 2019 included strategic growth, operating efficiency and organization development. Within each of these goals are objectives utilized to assess the achievement. Strategic growth includes (i) achieving scale in Heidrick Consulting; (ii) improving Search profitability; and (iii) improving cross portfolio business development. Operating efficiency includes (i) improving G&A efficiencies; (ii) improving average Partner productivity in each of Search and Consulting; and (iii) operating margin improvements. Within organization development are (i) improving gender diversity in operational and executive management; and (ii) consultant retention. In February 2020, the Board determined that Mr. Rajagopalan had met these goals, and on March 26, 2020 16,064 PRSUs vested, which represented the second of three tranches of his award.

Other Compensation Policies and Information

Stock Ownership Guidelines

To enhance the alignment of NEOs’ interests with those of stockholders, the Company maintains stock ownership guidelines. Each new NEO has five years from the date he or she first becomes subject to the guidelines to achieve a stock ownership level equal to a multiple of base salary. The CEO is required to own five times his or her annual base salary in Company common stock within five

 

42

years of appointment to the role, and all other NEOs are required to own two times their annual base salary in Company common stock within five years of appointment to their roles.

Hedging and Pledging Policy

Since 2013, the Company has had policies prohibiting hedging or pledging of stock. Pursuant to our Insider Trading Policy, our officers, directors, and employees shall not hold Heidrick securities in a margin account, pledge Heidrick securities as collateral for a loan, purchase financial instruments or otherwise engage in transactions that either hedge or offset any decrease in value of Heidrick securities. The full text of our Insider Trading Policy, which includes details on our restrictions on hedging and pledging of Heidrick securities can be located on our website at: https://heidrick.com/Who-We-Are/Our-Leadership.

Clawback Policy

In 2018, the Company adopted its Clawback Policy whereby the Company will seek the recoupment of any annual incentive payment or long-term incentive payment or equity award given to any incentive plan participant awarded by the Company during the three-year period preceding in the event of a restatement or correction of our financial statements or where the Board determines that an incentive plan participant engaged in intentional misconduct that caused or contributed to the need for restatement or correction of our financial statements. Our Clawback Policy requires reimbursement to the extent permitted by governing law and any employment arrangements entered into prior to the adoption of the Clawback Policy, among other requirements. The full text of our Clawback Policy can be found at www.heidrick.com/Who-We-Are/Our-Leadership.

Tax Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code (“Section 162(m)”) limits the federal income tax deduction for annual individual compensation to $1 million for the NEOs. In the past, Section 162(m)’s deduction limit included an exception for “performance-based” compensation. This exception for “performance-based” compensation was eliminated in 2018, subject to a transition rule for certain written binding contracts in effect on November 2, 2017 and not materially modified after that date.

The Company historically structured certain awards under its compensation programs so that they might comply with the “performance-based” compensation exception. However, because of the continued development of the application and interpretation of Section 162(m) and the regulations issued thereunder, the Company cannot guarantee that the compensation intended to satisfy the requirements for deductibility under Section 162(m), as in effect prior to 2018, would or will in fact be deductible. Although tax deductibility is one of many factors the Company considers when determining executive compensation, the Company believes that the tax deduction limitation should not compromise its ability to design and maintain executive compensation arrangements that will attract and retain executive talent to compete successfully.

 

43

Perquisites and Other Personal Benefits

Heidrick provides its NEOs with the same benefits that are provided to all employees generally, including medical, dental and vision benefits, group term life insurance and participation in a 401(k) plan. The NEOs are also reimbursed for expenses incurred for an annual physical examination, for financial planning services (maximum reimbursement for financial planning is $1,080 per year, or $3,150 if expenses are incurred for the first time), and approved business club memberships.

Other Executive Compensation Arrangements

The Company has adopted other executive compensation arrangements, including employment agreements, a Change in Control Severance Plan designed to retain executives in a period of uncertainty and a Management Severance Pay Plan designed to provide financial assistance to executives following termination of employment. The material terms and conditions of these plans are described in the “Potential Payments Upon Termination or a Change in Control” section below.

Employment Agreements

Each of our NEOs have entered into an employment agreement with the Company, which contains general employment terms (including base salary and eligibility to participate in various incentive and benefit plans) and customary restrictive covenants in favor of the Company. These restrictive covenants contain non-competition and non-solicitation restrictions for a period of 12 months after certain terminations of employment. Severance protection for our Executive Officers is generally covered by our Management Severance Pay Plan and our Change in Control Severance Plan (described below) instead of by their employment agreements. However, our Chief Executive Officer’s employment agreement does provide for the following enhanced benefits: (i) if he is entitled to receive severance payments under the Management Severance Pay Plan, he will also be entitled to a pro-rata bonus for the year of termination and (ii) he will receive the benefits described in the Management Severance Pay Plan upon his resignation of employment for Good Reason (as defined in his employment agreement) instead of only upon a termination by the Company without Cause.

 

44

COMPENSATION TABLES AND NARRATIVE DISCLOSURES

Summary Compensation Table

The table below summarizes the total direct compensation paid or earned by each of the NEOs for the last three fiscal years, and only reflects information for those years in which the NEO was determined to be an NEO of the Company.

 

Name & Principal Position		Year				Salary ($)(1)				Bonus ($)				Stock Awards ($) (2)				Option Awards ($)				Non-Equity Incentive Plan Compensation(3)				All Other Compensation(4)				Total ($)
Krishnan Rajagopalan			2019				850,000								2,197,147				—				1,243,125				16,800				4,307,072
Chief Executive Officer			2018				850,000				—				1,275,013				—				1,912,500				16,500				4,054,013
& President			2017				750,000				—				1,324,993				—				1,365,359				16,200				3,456,552
Mark Harris			2019				450,000				—				861,622				—				438,750				16,800				1,767,172
Chief Financial Officer			2018				412,500				125,000				599,993				—				618,750				102,978				1,859,221
Michael Cullen			2019				650,000				—				933,377				—				633,750				16,800				2,233,927
Chief Operating Officer
Kamau Coar			2019				275,000				—				236,904				—				201,094				16,800				729,798
General Counsel and			2018				255,133				—				182,006				—				191,350				16,500				644,989
Corporate Secretary
Sarah Payne			2019				275,000				—				236,904				—				201,094				15,125				728,123
Chief Human
Resources Officer

 

(1)

Amounts reflect base salary paid in the year pursuant to employment agreements. Mr. Cullen and Ms. Payne became NEOs in 2019. On January 1, 2019 Mr. Coar’s salary was increased from $260,000 to $275,000.

(2)

Amounts reflect annual LTI awards granted under the GlobalShare Plan in a combination of PSUs and RSUs. The grant date fair value of RSUs and PSUs was calculated in accordance with ASC Topic 718. The fair values of the RSUs were based on the closing price of the common stock on the grant date ($40.77). The PSUs are earned based 50% upon the Adjusted Operating Income of the Company and 50% based upon the total shareholder return performance of the Company relative to a peer group. The fair value of the awards based on total shareholder return was determined using the Monte-Carlo simulation model. A Monte Carlo simulation model uses stock price volatility and other variables to estimate the probability of satisfying the performance conditions and the resulting fair value of the award. The grant date fair value of the PSUs is $52.91. The grant date fair value of the PSU awards assuming achievement of maximum performance would be: Mr. Rajagopalan – $2,481,774; Mr. Harris – $973,240; Mr. Cullen – $1,054,291; Mr. Coar – $267,593 and Ms. Payne – $267,593.

(3)

The Non-Equity Incentive Plan Compensation amounts in this column reflect our annual Short-Term Incentive MIP awards for 2019. The performance goals were established by the HRCC at the beginning of 2019, final evaluation of those performance goals was determined on February 5, 2020, and awards were paid in March 2020. With respect to each award, 85% was paid in full March 2019 and the remaining 15% was mandatorily deferred and will be paid in cash ratably over three years. These awards are discussed in further detail on page 35.

(4)

The amounts reported in the All Other Compensation column for 2019 include a 401(k) employer matching contribution of $16,800 for Messrs. Rajagopalan, Harris, Cullen and Coar and $15,125 for Ms. Payne. In addition, the Company made 401(k) matching contributions for the following NEOs in the following amounts for 2018 and 2017, respectively: Messrs. Rajagopalan, Harris and Coar: $16,500 (2018) and Mr. Rajagopalan: $16,200 (2017). These 401(k) employer matching contributions for 2018 and 2017 were inadvertently omitted from the Summary Compensation Table amounts disclosed for such prior fiscal years but have been revised (along with the corresponding total compensation amounts) in this 2019 Summary Compensation Table. For Mr. Harris, 2018 also includes $86,478 related to relocation expenses in connection with his joining the Company.

 

45

2019 Grants of Plan-Based Awards Table

The table below sets forth certain information with respect to awards that were granted during the fiscal year ended December 31, 2019 for each NEO.

 

Name & Principal Position		Grant Date				Date of HRCC Action				Estimated Future Payouts Under Non-Equity Incentive Plan Awards (3)												Estimated Future Payouts Under Equity Incentive Plan Awards (4)												All Other Stock Awards: Number of Shares of Stock or Units (#) (5)				All Other Option Awards: Number of Securities Underlying Options (#)				Exercise or Base Price of Option Awards ($/Sh)				Grant Date Fair Value of Stock and Option Awards ($) (6)
										Threshold ($)				Target ($)				Maximum ($)				Threshold (#)				Target (#)				Maximum (#)
Krishnan Rajagopalan				(1)			2/6/19				637,500				1,275,000				1,912,500				—				—				—				—				—				—				0
Chief Executive			3/8/19	(2)			2/6/19				—				—				—				—				—				—				23,455				—				—				956,260
Officer & President			3/8/19	(2)			2/6/19				—				—				—				11,728				23,455				46,910								—				—				1,240,887
Mark Harris				(1)			2/6/19				225,000				450,000				675,000								—				—				—				—				—				0
Chief Financial Officer			3/8/19	(2)			2/6/19				—				—				—				—				—				—				9,198				—				—				375,002
			3/8/19	(2)			2/6/19				—				—				—				4,599				9,198				18,396				—				—				—				486,620
Michael Cullen				(1)			2/6/19				325,000				650,000				975,000				—				—				—				—				—				—				0
Chief Operating			3/8/19	(2)			2/6/19				—				—				—				—				—				—				9,964				—				—				406,232
Officer			3/8/19	(2)			2/6/19				—				—				—				4,982				9,964				19,928				—				—				—				527,145
Kamau Coar				(1)			2/6/19				103,125				206,250				232,031				—				—				—				—				—				—				0
General Counsel and			3/8/19	(2)			2/6/19				—				—				—				—				—				—				2,529				—				—				103,107
Corporate Secretary			3/8/19	(2)			2/6/19				—				—				—				1,265				2,529				5,058				—				—				—				133,797
Sarah Payne				(1)			2/6/19				103,125				206,250				232,031				—				—				—				—				—				—				0
Chief Human			3/8/19	(2)			2/6/19				—				—				—				—				—				—				2,529				—				—				103,107
Resources Officer			3/8/19	(2)			2/6/19				—				—				—				1,265				2,529				5,058				—				—				—				133,797

 

(1)

The amounts in this row reflect (i) a Non-Equity Incentive Plan Award representing our annual Short-Term Incentive MIP awards for 2019 as established by the HRCC at the beginning of 2019.

(2)

The amounts in this row include awards granted on March 8, 2019 consisting of: (i) an Equity Incentive Plan Award representing an annual LTI PSU award issued under the GlobalShare Plan that will vest (if at all) after a three-year performance period; and (ii) an All Other Stock Award representing an annual LTI RSU award under our GlobalShare Plan that will vest in three equal installments on each grant date anniversary subject to continued employment with the Company.

(3)

With respect to our Non-Equity Incentive Plan Awards representing our annual Short-Term Incentive MIP awards, the performance goals were established by the HRCC in early 2019, the final evaluation of those performance goals was determined on February 5, 2020 and the initial payments for those awards were made in March 2020. The amounts in the table reflect the range of potential MIP award payouts which may be as little as zero and as high as 150% of target. The amounts actually paid under the MIP for 2019 appear in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 45.

(4)

With respect to our Equity Incentive Plan Awards representing our annual LTI PSU award issued under the GlobalShare Plan, the awards are target-based equity grants that vest three years from the grant date, and are subject to the achievement of certain performance measures. The PSUs are stated at their target number of shares. Upon vesting, the recipients will receive anywhere from 0% to 200% of the target number of shares based on actual company performance over the performance period. The unvested PSUs are credited with dividend equivalents which are payable in cash to the extent the shares subject to the PSUs vest.

(5)

With respect to our All Other Stock Awards representing our annual LTI RSU award issued under the GlobalShare Plan, the awards are service-based equity awards that vest in three equal installments on the first, second and third anniversaries of the date of grant, generally subject to the executive’s continued employment with the Company. All unvested RSUs are credited with dividend equivalents which are payable in cash to the extent the shares subject to the RSUs vest.

(6)

Reflects the grant date fair value of RSUs and PSUs calculated in accordance with ASC Topic 718. The grant date fair value of RSUs and PSUs was calculated in accordance with ASC Topic 718. The fair values of the RSUs were based on the closing price of the Common Stock on the grant date ($40.77). The PSUs are earned based 50% upon the Adjusted Operating Income of the Company and 50% based upon the total shareholder return performance of the Company relative to a peer group. The fair value of the awards based on total shareholder return was determined using the Monte-Carlo simulation model. A Monte Carlo simulation model uses stock price volatility and other variables to estimate the probability of satisfying the performance conditions and the resulting fair value of the award.

 

 

46