Item 10. Directors, Executive Officers and Corporate Governance.
Directors
The names of the Company’s directors, their principal occupations,
and certain other information regarding them are set forth below. None of the Company’s directors currently serves on the board
of directors of any other publicly-traded companies registered with the U.S. Securities and Exchange Commission.
Charles E. Bradley, Jr., 63, has been the Company’s Chief
Executive Officer since January 1992, a director since the Company’s formation in March 1991, and was elected Chairman of the Board
of Directors in July 2001. Prior to that he was President of the Company from March 1991 to December 2022. From April 1989 to November
1990, he served as Chief Operating Officer of Barnard and Company, a private investment firm. From September 1987 to March 1989, Mr. Bradley,
Jr. was an associate of The Harding Group, a private investment banking firm. Having been with the Company since its inception, Mr. Bradley
brings comprehensive knowledge of the Company’s business, structure, history and culture to the Board and the Chairman position.
Stephen H. Deckoff, 57, has been a director of the Company since
August 2022. Mr. Deckoff has been the Managing Principal of Black Diamond, a privately held alternative asset management firm, since its
founding in 1995. In that capacity, he is responsible for all portfolio management and business operations. Prior to 1995, Mr. Deckoff
was a Senior Vice President of Kidder, Peabody & Co. Inc. and head of its Structured Finance Group. Prior to joining Kidder, Mr. Deckoff
was a Managing Director in the Structured Finance Group at Bear Stearns & Co., Inc. Before joining Bear Stearns, Mr. Deckoff worked
in the Structured Finance Department of Chemical Securities, Inc. and the Fixed Income Research Department at Drexel Burnham Lambert.
Mr. Deckoff brings to the Board his extensive financial experience and expertise.
Louis M. Grasso, 77, has been a director of the Company since
October 2019. Mr. Grasso was the founder and majority owner of PFC Corporation until his retirement in November 2011, upon sale of PFC’s
portfolio of assets to Capstone Realty Advisors. Over a period of 35 years, PFC Corporation originated over $1.8 billion of mortgage loans,
and issued $1.8 billion of mortgage-backed securities. He brings to the Board knowledge and experience bearing in particular on the Company’s
strategies for meeting its capital requirements, and broad organizational and management skills.
William W. Grounds, 67, has been a director of the Company since
December 2021. From 2008 to 2021, he was the President and COO of Infinity World Development Corp, which is a subsidiary of a sovereign
wealth fund in the United Arab Emirates. He served on the board of MGM Resorts International from 2013 to 2021 and of Remark Holdings
Inc. from 2013 to 2019. Mr. Grounds joined the Board of PointsBet Holdings Limited, an Australian based sports wagering operator and iGaming
provider, in December 2022. During his career he has held senior executive positions in major real estate private equity investment, development
and construction entities. Mr. Grounds brings to the Board experience as a director of publicly-traded companies, and skills in investment
and general management.
Brian J. Rayhill, 60, has been a director of the Company since
August 2006. Mr. Rayhill has been a practicing attorney in New York State since 1988. As an experienced advocate, counselor and litigator,
Mr. Rayhill brings legal knowledge and perspective to the Company’s Board.
William B. Roberts, 85, has been a director of the Company since
its formation in March 1991. From 1981 until his retirement at the end of 2020, he was the President of Monmouth Capital Corp., an investment
firm that specializes in management buyouts. Having spent decades in the business of finance, Mr. Roberts brings to the Company’s
Board his perspective and judgment regarding means of financing its business.
James E. Walker III, 60, has been a director of the Company
since August 2022. Mr. Walker is Managing Partner and Founder of Vinson Ventures, LLC, a boutique investment firm focused on building
and growing early-stage companies, and the Executive Chairman of IntellPro, a SaaS based investment management software product for the
asset management industry. Prior to starting Vinson Ventures, from June 2020 to August 2021, Mr. Walker served as CEO and Partner at Palm
Ventures, LLC, a private investment firm in Greenwich, CT. From November 2017 to present, Mr. Walker has been a member of the board of
directors of Starwood Real Estate Trust, a private real estate investment firm, and has served as the lead independent director. From
2018 to present, Mr. Walker has also served as a senior partner at Jadian Capital, an alternative investment firm. From 2008 through 2017,
Mr. Walker was a Managing Partner of Fir Tree Partners, a global alternative asset management firm. Prior to joining Fir Tree, Mr. Walker
was a cofounder and Managing Partner of Black Diamond, a privately held alternative asset management firm. Mr. Walker began his career
in investment banking at Kidder and Bear Stearns. Mr. Walker joined the board of Clarus Corporation, a global company focused on the outdoor
and consumer enthusiast markets, in February 2022. Mr. Walker also became a member of the advisory board for certain funds managed by
Black Diamond in January 2022. Mr. Walker brings to the Board his extensive investment management experience.
Gregory S. Washer, 61, has been a director of the Company since
June 2007. He was the president and owner of Clean Fun Promotional Marketing, a promotional marketing company, from its founding in 1986
through its sale in September 2014. He continued to act as a consultant to Clean Fun through August 2017, and is now retired. With his
experience in promotions and marketing, Mr. Washer contributes to the Board significant organizational and operational management skills,
combined with a wealth of experience in promotion and marketing of services.
Daniel S. Wood, 64, has been a director of the Company since
July 2001. Mr. Wood was president of Carclo Technical Plastics, a manufacturer of custom injection moldings, from September 2000 until
his retirement in April 2007. Previously, from 1988 to September 2000, he was the chief operating officer and co-owner of Carrera Corporation,
the predecessor to the business of Carclo Technical Plastics. As president of Carclo, Mr. Wood was responsible for the overall operation
of that company and for the quality and integrity of its financial statements. He brings to the Board the knowledge and perspective useful
in evaluating the Company’s financial statements, and broad organizational and management skills.
Black Diamond Nomination Letter
The Company received from Black Diamond a nomination letter dated March
14, 2022, as supplemented on June 17, 2022, which requested the nomination to the Board of nominees identified by Black Diamond. On August
3, 2022, the Company received a notice from Black Diamond withdrawing its nomination letter. In exchange for such withdrawal, the Company
agreed to nominate Mr. Deckoff and Mr. Walker for election to the Board at the 2022 annual shareholder meeting.
Executive Officers
The information regarding the Company’s executive officers set
forth in Part I of this report under the caption “Executive Officers of the Registrant” is incorporated herein by reference.
Section 16(a) Beneficial Ownership Reporting Compliance
Directors, executive officers and holders of in excess of 10% of the
Company's common stock are required to file reports concerning their transactions in and holdings of equity securities of the Company. Based
on a review of reports filed by each such person, and inquiry of each regarding holdings and transactions, the Company believes that all
reports required with respect to the year 2022 were timely filed, except that: (A) one Form 4 for John P. Harton was filed on August 18,
2022 with respect to a transaction on June 17, 2022, and (B) one Form 3 was filed for James E. Walker III on November 28, 2022 with respect
to Mr. Walker being elected as director on August 25, 2022.
Code of Ethics
The Company has adopted a Code of Ethics for Senior Financial Officers,
which applies to the Company's chief executive officer, chief financial officer, controller and others. A copy of the Code of Ethics may
be obtained at no charge by written request to the Corporate Secretary at the Company's principal executive offices.
Audit and Other Committees
The Board of Directors has established an Audit Committee, a Compensation
Committee, and a Nominating Committee. Each of these three committees operates under a written charter, adopted by the Board of Directors.
The charters are available on the Company’s website, https://ir.consumerportfolio.com/corporate-governance. The Board of Directors
has concluded that each member of these three committees (every director other than Mr. Bradley, the Company's chief executive officer),
is independent in accordance with the director independence standards prescribed by Nasdaq, and has determined that none of them have
a material relationship with the Company that would impair their independence from management or otherwise compromise the ability to act
as an independent director.
The members of the Audit Committee are Mr. Rayhill (chairman), Mr.
Grasso, Mr. Washer, and Mr. Wood.
The Audit Committee is empowered by the Board of Directors to review
the financial books and records of the Company in consultation with the Company's accounting and auditing staff and its independent auditors
and to review with the accounting staff and independent auditors any questions that may arise with respect to accounting and auditing
policy and procedure.
The Board of Directors has further determined that Mr. Wood has the
qualifications and experience necessary to serve as an "audit committee financial expert" as such term is defined in Item 407
of Regulation S-K promulgated by the SEC. Mr. Wood, as president of Carclo Technical Plastics, was responsible for the preparation
and evaluation of the audited financial statements of that company.
Item 11. Executive Compensation.
Compensation Committee Interlocks and Insider
Participation
The Compensation Committee comprises non-employee directors Daniel
Wood (chairman), William Grounds, and William Roberts. Chris Adams served on the Compensation Committee during his directorship term through
the 2022 annual meeting of shareholders.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management
the Compensation Discussion and Analysis contained in this report. Based on such review and discussions and relying thereon, the Compensation
Committee has recommended to the Company's Board of Directors that the Compensation Discussion and Analysis set forth below be included
in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
THE COMPENSATION COMMITTEE
Daniel S. Wood
(chairman) William W. Grounds
William B. Roberts
Compensation Discussion and Analysis
2022 Say-on-Pay Advisory Vote Outcome
The Compensation Committee
annually considers the results of the most recent advisory vote by shareholders to approve executive officer compensation. In the 2022
advisory vote, a majority of the voted shares (81%) approved of the compensation of our named executive officers. The Compensation Committee
interprets that vote as a reason to retain the existing design, purposes and structure of
our executive compensation programs. The Compensation Committee will continue to consider the results from future shareholder advisory
votes regarding executive officer compensation in its future administration of executive compensation.
Compensation Objectives
The Company's objectives
with respect to compensation are several. The significant objectives are to cause compensation (i) to be sufficient in total
amount to provide reasonable assurance of retaining key executives, (ii) to include a significant contingent component, so as to provide
strong incentives to meet designated Company objectives, and (iii) to include a significant component tied to the price of the Common
Stock, so as to align management's incentives with shareholder interests. The compensation committee ("Committee")
of the Company's Board of Directors is charged with administering the Company’s compensation plans to meet those objectives. To
the extent that elements of compensation would not advance such objectives, or would do so less effectively than would other elements,
the Committee seeks to avoid paying compensation in those forms.
Role of the Compensation Committee and
the chief executive officer
Our Board of Directors
has authorized the Compensation Committee, which is composed solely of independent directors, to make all decisions regarding executive
compensation, including administration of our compensation plans. In that regard, the Compensation Committee:
|
· |
Reviews and discusses with management the factors underlying our compensation policies and decisions, including overall compensation objectives; |
|
· |
Reviews and approves all company goals and objectives (both financial and non-financial) relevant to the compensation of the chief executive officer; |
|
· |
Evaluates, together with the other independent directors, the performance of the chief executive officer in light of these goals and objectives and that individual’s overall effectiveness; |
|
· |
Fixes and approves each element of the compensation of the chief executive officer; |
|
· |
Reviews the performance evaluations of all other members of executive management (the chief executive officer prepares and presents to the Compensation Committee the performance evaluations of the other executive officers); |
|
· |
Reviews and approves each element of compensation, as well as the terms and conditions of employment, of those other executive officers; |
|
· |
Grants awards under our equity compensation plans and oversees the administration of those plans; and |
|
· |
Reviews the costs and structure of our key employee benefit and fringe-benefit plans and programs. |
The Compensation Committee is authorized to form subcommittee(s) and to retain experts and consultants to assist in the discharge of its
responsibilities. To date it has not done so.
The chief executive officer,
who attends meetings of the Compensation Committee by invitation of the Committee’s chairman, assists the Committee in determining
the compensation of our other executive officers by, among other things:
|
· |
Proposing annual merit increases to the base salaries of the other executive officers; |
|
· |
Establishing annual individual performance objectives for the other executive officers and evaluating their performance against such objectives (the Committee reviews these performance evaluations); and |
|
· |
Making recommendations, from time to time, for special stock option and restricted stock grants (e.g., for motivational or retention purposes) to other executive officers. |
The other executive officers
do not have a role in determining their own compensation, other than to discuss their annual individual performance objectives and results
achieved with the chief executive officer.
Our Overall Approach
The Committee has put
into place a compensation system consisting of three key components: base salary, an annual cash bonus pursuant to an incentive plan,
and long-term equity incentives in the form of stock options.
The table below provides
comparative information regarding the components of our year 2022 executive compensation program. We are applying the same elements in
our executive compensation program for the year 2023.
Element |
Form |
Objectives and Basis |
Base Salary |
Cash |
· |
Attract and retain high quality
personnel
|
|
|
· |
Targeted
to be superior to compensation offered by our competitors |
Annual Incentive Bonus |
Cash |
· |
Achieve objectives set annually |
|
|
· |
Annual
bonus amount is set and computed as a percentage of base salary |
|
|
· |
Actual
payout determined by Company and individual performance |
|
|
· |
Target
total cash (base salary + target bonus) designed to be superior to compensation offered by our competitors |
Long-Term Incentive |
Stock options |
· |
Align
interests of executives with those of shareholders; |
Compensation |
|
· |
Target
long-term incentive award size designed to retain executives through long-term vesting and the potential for wealth accumulation, contingent
on benefit to the shareholders |
The Committee has from time to time considered
providing additional elements of executive compensation. It has considered elements such as restricted stock awards, restricted stock
units, compensation contingent on a change in control, defined benefit pension plans, deferred cash compensation, and supplemental retirement
plans (supplemental in the sense that they exceed the limits for tax advantaged treatment). To date, the Committee has elected not to
pay compensation in such forms, having determined that the Company's objectives are better met by one or more of the elements of compensation
that it does pay.
Regarding restricted
stock and restricted stock units, the Committee has noted that any form of equity equivalent to or closely tied to common stock does serve
to meet the objective of aligning officers' personal interest with that of the shareholders generally. The Committee believes, however,
that the objective is better met by grants of stock options than by grants of share equivalents, because recipients of the grants will
face the same degree of variance in results at a lesser cost to the Company, when option grants are compared to grants of restricted stock
units. Further, unlike restricted stock, option grants will not provide a reward to the holder absent an improvement over time in the
Company’s stock price. The committee has elected not to provide material perquisites as compensation, having determined that cash
is a better medium of exchange.
Regarding compensation
that would be payable contingent on a change in control of the Company, the Committee believes that there are certain legitimate objectives
to be met by such contingent compensation. As of the date of this report, however, no such contingent compensation plans are in place.
Regarding defined benefit pension plans, deferred cash compensation and supplemental retirement plans, the Committee believes that the
Company's retention objective is better met by straight cash payments, whether in the form of base salary or in the form of bonus compensation.
In particular with respect to plans for deferred compensation, the Committee believes those make sense for the Company and for the recipient
only on the basis of assumptions regarding future tax rates payable by each. Having no assurance that such assumptions would be correct,
the Committee has chosen not to put into place any special deferred compensation programs for the company’s executive officers.
Those officers do participate in a company-sponsored tax-deferred savings plan, commonly known as a 401(k) plan, on the same terms available
to company employees generally.
The Committee may in
the future revisit its conclusions as to any of the components discussed above, or may consider other forms of compensation.
The Base Salary Element
With respect to the retention
objective, the Committee considers an executive's base salary to be the most critical component. Acting primarily on the basis of recommendations
of the chief executive officer, the Committee adjusts other officers' base salaries annually, with the adjustment generally consisting
of a 2% to 10% increase from the prior year's rate. Where exceptional circumstances apply, such as recruitment of a new executive officer,
a promotion to executive officer status or a special need to retain an individual officer, the chief executive officer may recommend,
and the Committee may approve, a larger increase.
The Company's general
approach in setting the annual compensation of its named executive officers is to set those officers’ base compensation by reference
to their base rates for the preceding year. During the year ended December 2022, the Company's chief executive officer, Charles E. Bradley,
Jr., received $995,000 in base salary. In setting that rate in the first quarter of 2022, the Committee considered the base salary rate
that the Company had paid in the prior year ($995,000), the desirability of providing an annual increase, the desirability of ensuring
retention of the services of the Company's incumbent chief executive officer, the Company’s financial performance, and the levels
of chief executive officer compensation prevailing among other financial services companies. The Committee considered whether to adjust
officers’ base compensation for 2022, and determined not to increase the base rate for the chief executive officer or the other
named executive officers.
The Annual Incentive
Bonus (EMB) Element
To encourage executive
officers and key management personnel to exercise their best efforts and management skills toward causing the Company to meet its overall
objective, and toward achieving designated specific individual objectives, the Company has implemented an Executive Management Bonus Plan,
with annual payouts. Under the Company's bonus plan as applied to the year ended December 2022, the Company’s executive vice presidents
were eligible to receive a cash bonus of up to 140% of their base salaries, and the Company’s senior vice presidents were eligible
to receive a cash bonus of up to 110% of their base salaries. The chief executive officer was eligible to receive a cash bonus of up to
600% of his base salary. The implementation of this element for the named executive officers for the year 2022 is discussed below.
The Long-Term Incentive
Compensation Element
The Committee also awards
incentive and non-qualified stock options under the Company's stock option plans. Such awards are designed to assist in the retention
of key executives and management personnel and to create an incentive to create shareholder value over a sustained period of time. The
Company believes that stock options are a valuable tool in compensating and retaining employees. During the year ended December 31, 2022,
the Committee granted stock options to the Company's executive officers. All such grants were awarded on January 24, 2022 and June 24,
2022, and all carry exercise prices equal to the market price for the Company’s common stock at the date of grant. The
terms of such options are described below, under the caption “Grants of Plan-Based Awards in Last Fiscal Year.” The numbers
of shares made subject to each of the option grants were based on various factors relating to the responsibilities of the individual officers
and to the extent of previous grants to such individuals.
Because the exercise
price of all options granted is equal to or above the fair market value of the Company’s common stock on the date of grant, the
option holders may realize value only if the stock price appreciates from the price on the date the options were granted. This design
is intended to focus executives on the enhancement of shareholder value over the long term.
Other Elements
The Company also maintains
certain broad-based employee benefit plans, such as medical and dental insurance, and a qualified defined contribution retirement savings
plan (401(k) plan), in which executive officers are permitted to participate. Such officers participate on the same terms as non-executive
personnel who meet applicable eligibility criteria, and are subject to any legal limitations on the amounts that may be contributed or
the benefits that may be payable under the plans. The Company does not maintain any form of defined benefit pension or retirement
plan in which executive officers may participate, nor does it maintain any form of supplemental retirement savings or supplemental deferred
compensation plan.
Exercise of Discretion
In exercising its discretion
as to the level of executive compensation and its components, the Committee considers a number of factors. Members of the Committee conduct
informal surveys of compensation paid to comparable executives within and without the consumer finance industry. The Committee finds these
data useful primarily in evaluating the overall level of compensation paid or to be paid to the Company’s executive officers. Financial
factors considered included earnings, revenue, originations, and budget attainment. Operational factors considered included individual
and group management goals; indicators of the performance and credit quality of the Company's servicing portfolio, including levels of
delinquencies and charge-offs; and indicators of successful management of personnel, including employee stability. All of such factors
are assessed with reference to the judgment of the Committee as to the degree of difficulty of achieving desired outcomes. With respect
to payment of annual bonuses and grants of stock options, the Committee also takes note of factors relating to the degree of the Company's
success over the most recent year.
Specific Objectives
and Evaluation
In the first quarter
of 2022 the compensation committee designated specific objectives with respect to the chief executive officer to be accomplished within
the year 2022, and fixed weights to be associated with each such objective. The chief executive officer proposed to the committee specific
annual objectives with respect to each other executive officer of the company, which the committee, after making certain modifications,
approved. These objectives and the Committee’s administration of the annual incentive bonus element of compensation are discussed
in detail below, under the heading “ - Grants of Plan-Based Awards in Last Fiscal Year - Executive Management Bonus Plan.”
Grants of Options
The Committee's award
of stock options to the Company's officers in January 2022 included option grants to the chief executive officer and in June 2022 included
option grants to the chief executive officer and the other named executive officers. In determining the appropriate level of
such grant, the Committee considered the long-term performance of the chief executive officer and the desirability of providing significant
incentive for future performance, as well as the desirability of ensuring that officer's continued retention by the Company, and the various
factors noted above with respect to option grants generally. These grants and the Committee’s administration of the long-term incentive
element of compensation are discussed in detail below, under the heading “-Grants of Plan-Based Awards in Last Fiscal Year –
Equity Incentives.”
Stock Ownership, Hedging
and Pledging.
Our board of directors and compensation committee have considered whether to establish a minimum stock ownership
goal for members of our senior management. We have elected not to do so, considering that such a policy would either be strict and mandatory,
in which case it would undermine the compensatory objectives of our equity compensation plans, or would be merely hortatory, in which
case it could be expected to have little effect. We’ve also noted that the multiyear vesting terms of the equity incentives granted
under our plans have the effect of aligning our executives’ individual personal financial incentives with the future price performance
of the Company’s stock.
As part of our comprehensive
compliance policy, we remind all company executive officers of the mandatory legal prohibition on selling short company shares. We also
prohibit company executive officers from entering into transactions that would have the effect of causing those individuals to benefit
from a decline in the price of the company stock, such as the purchase of “put” options. We prohibit such “hedging”
transactions but we do not find it appropriate to prohibit our executive officers from pledging their shares of company stock as security
for a loan. We believe that the beneficial incentives of owning company stock remain substantially the same with or without such a pledge.
Summary of Compensation
The following table summarizes all compensation earned during the three
fiscal years ended December 31, 2022 by the Company's chief executive officer, its chief financial officer, and the other three most highly
compensated individuals (such six individuals, the "named executive officers") who were serving in such position or as executive
officers at any time in 2022. It lists their names, their principal positions in which they served in those years, and each component
of compensation paid with respect to those years.
Summary Compensation Table
Name and Principal Position (1) | |
Year | | |
Salary | | |
Non-Equity Incentive Plan Compensation | | |
Option Awards (2) | | |
All Other Compen- sation (3) | | |
Total | |
Charles E. Bradley, Jr. | |
2022 | | |
$ | 995,000 | | |
$ | 3,980,000 | | |
$ | 5,885,850 | | |
$ | 351 | | |
$ | 10,861,201 | |
Chief Executive Officer | |
2021 | | |
| 995,000 | | |
| 2,900,000 | | |
| 795,300 | | |
| 360 | | |
| 4,690,660 | |
| |
2020 | | |
| 995,000 | | |
| 2,600,000 | | |
| 318,696 | | |
| 360 | | |
| 3,914,056 | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Michael T. Lavin | |
2022 | | |
| 411,000 | | |
| 575,000 | | |
| 448,200 | | |
| 351 | | |
| 1,434,551 | |
President | |
2021 | | |
| 411,000 | | |
| 575,000 | | |
| 238,590 | | |
| 360 | | |
| 1,224,950 | |
& Chief Operating Officer | |
2020 | | |
| 411,000 | | |
| 493,000 | | |
| 199,185 | | |
| 360 | | |
| 1,103,545 | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Danny Bharwani | |
2022 | | |
| 331,000 | | |
| 324,000 | | |
| 298,800 | | |
| 351 | | |
| 954,151 | |
Executive Vice President | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
& Chief Financial Officer | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Teri L. Robinson | |
2022 | | |
| 368,000 | | |
| 401,000 | | |
| 298,800 | | |
| 351 | | |
| 1,068,151 | |
Executive Vice President | |
2021 | | |
| 368,000 | | |
| 403,000 | | |
| 159,060 | | |
| 360 | | |
| 930,420 | |
- Sales & Originations | |
2020 | | |
| 368,000 | | |
| 355,000 | | |
| 106,232 | | |
| 360 | | |
| 829,592 | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Laurie A. Straten | |
2022 | | |
| 368,000 | | |
| 361,000 | | |
| 298,800 | | |
| 351 | | |
| 1,028,151 | |
Executive Vice President | |
2021 | | |
| 368,000 | | |
| 359,000 | | |
| 159,060 | | |
| 360 | | |
| 886,420 | |
- Servicing | |
2020 | | |
| 368,000 | | |
| 355,000 | | |
| 106,232 | | |
| 360 | | |
| 829,592 | |
| |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
Jeffrey P Fritz | |
2022 | | |
| 411,000 | | |
| – | | |
| – | | |
| 351 | | |
| 411,351 | |
Former Executive Vice President | |
2021 | | |
| 411,000 | | |
| 401,000 | | |
| 238,590 | | |
| 360 | | |
| 1,050,950 | |
& Chief Financial Officer | |
2020 | | |
| 411,000 | | |
| 327,000 | | |
| 119,511 | | |
| 360 | | |
| 857,871 | |
|
(1)
(2) |
Mr. Bharwani was appointed chief financial officer of the Company in
September 2022. Mr. Fritz retired as chief financial officer and executive vice president in September 2022.
Represents the dollar value accrued for financial accounting purposes in connection
with the grant of such options, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic
718 and SFAS 123R. Value was estimated using a Black-Scholes model for 2020, 2021 and 2022. For the options granted on January 24, 2022,
the weighted average fair value per option was $5.8558, based on assumptions of 4.11 years expected life, expected volatility of 75.26%,
and a risk-free rate of 1.43%. For the options granted on June 24, 2022, the weighted average fair value per option was $4.98, based on
assumptions of 4.11 years expected life, expected volatility of 75.15%, and a risk-free rate of 3.13%. For the year 2021 the weighted
average fair value per option was $2.6510, based on assumptions of 4.11 years expected life, expected volatility of 71.38%, and a risk-free
rate of 0.51%. For the year 2020 the weighted average fair value per option was $1.33, based on assumptions of 4.11 years expected life,
expected volatility of 72.10%, and a risk-free rate of 0.26%. In all cases, we assumed a dividend yield of 0.0%. |
|
(3) |
Amounts in this column represent premiums paid by the Company for group life insurance. |
Grants of Plan-Based Awards in Last Fiscal Year
Equity Incentives
In the year ended December 31, 2022, we did not grant any stock awards
or stock appreciation rights to any of our named executive officers. We granted options to the chief executive on January 24, 2022 (the
“January Options”) and to substantially all of our executive officers on June 24, 2022. The option grants noted in the tables
above and below were awarded to the named executive officers as part of those grants. We also granted awards under our Executive Management
Bonus Plan, which were evaluated and paid out after the end of the year. The amounts paid are shown in the table above (Summary Compensation
Table) as “Non-Equity Incentive Plan Compensation.”
In the January 24, 2022 grant, the chief executive officer received
an option to purchase 750,000 shares of the Company's common stock at the market closing price ($10.32 per share) on the date of grant,
with such right to purchase to become exercisable in increments of 25% on each of the first through fourth anniversaries of the grant
date, and to expire on the seventh anniversary. The January Options were issued following cancellation of certain options granted to the
chief executive officer in 2013.
In the June 24, 2022 grant, the chief executive officer received an option to purchase
300,000 shares of the Company's common stock at the market closing price ($10.25 per share) on the date of grant, with such right to purchase
to become exercisable in increments of 25% on each of the first through fourth anniversaries of the grant date, and to expire on the seventh
anniversary. Each of the following executive officers of the Company received a grant on June 24,2022 on the same terms: Mr. Lavin received
such a grant with respect to 90,000 shares, and Mr. Bharwani, Ms. Robinson and Ms. Straten each received such a grant with respect to
60,000 shares.
The table below provides information regarding the awards granted to
the named executive officers in 2022.
Grants of Plan-Based Awards
| |
Estimated future payouts under non-equity incentive plan awards | | |
Grant Date | | |
Number of Shares Underlying Options | | |
Exercise Price | | |
Grant Date Fair Value | |
Name | |
Threshold | | |
Target | | |
Maximum | | |
| | |
| | |
| | |
| |
Mr. Bradley | |
| – | | |
| – | | |
| – | | |
| 1/24/2022 | | |
| 750,000 | | |
$ | 10.32 | | |
$ | 4,391,850 | |
| |
| – | | |
| – | | |
| – | | |
| 6/24/2022 | | |
| 300,000 | | |
$ | 10.25 | | |
| 1,494,000 | |
| |
$ | – | | |
$ | 5,970,000 | | |
$ | 5,970,000 | | |
| – | | |
| – | | |
| – | | |
| – | |
Mr. Lavin | |
| – | | |
| – | | |
| – | | |
| 6/24/2022 | | |
| 90,000 | | |
$ | 10.25 | | |
| 448,200 | |
| |
$ | – | | |
| 575,400 | | |
| 575,400 | | |
| – | | |
| – | | |
| – | | |
| – | |
Mr. Bharwani | |
| – | | |
| – | | |
| – | | |
| 6/24/2022 | | |
| 60,000 | | |
$ | 10.25 | | |
| 298,800 | |
| |
$ | – | | |
| 364,100 | | |
| 364,100 | | |
| – | | |
| – | | |
| – | | |
| – | |
Ms. Robinson | |
| – | | |
| – | | |
| – | | |
| 6/24/2022 | | |
| 60,000 | | |
$ | 10.25 | | |
| 298,800 | |
| |
$ | – | | |
| 404,800 | | |
| 404,800 | | |
| – | | |
| – | | |
| – | | |
| – | |
Ms. Straten | |
| – | | |
| – | | |
| – | | |
| 6/24/2022 | | |
| 60,000 | | |
$ | 10.25 | | |
| 298,800 | |
| |
$ | – | | |
| 404,800 | | |
| 404,800 | | |
| – | | |
| – | | |
| – | | |
| – | |
The “target” and “maximum” figures appearing
in the table above represent the maximum cash payout under the individual executives’ Executive Management Bonus Plan awards
as of the date the incentive was fixed. The actual payout to each individual named in the table above has been determined and paid prior
to the date of this report. That amount was in almost each case less than the maximum (approximately 67% of the maximum, in the case of
the chief executive). The respective actual payments are described below, and appear above in the Summary Compensation Table under the
heading “Non-Equity Plan Compensation.” Because each non-equity incentive plan award has been settled and paid, the future
payout under such awards as of the date of this report is in each case zero. The “grant date fair value” figures appearing
in the table above, which are the computed fair values of stock option awards, are computed as described in note 2 to the Summary Compensation
Table.
Executive Management Bonus Plan
The Executive Management Bonus Plan award granted to the chief executive
officer, Mr. Bradley, called for him to meet as many as possible of seven separate operational and financial objectives within the year
2022. The Compensation Committee assigned to each of those objectives a value as a percentage of base salary. The objectives and their
weightings were as follows: to meet or exceed the Company’s quarterly budgeted earnings (25% each quarter, total of 100%), to execute
four rated securitization transactions (25% each, 100% total), to increase the Company’s annual originations of receivables to each
of four targets (100% in the aggregate, creditable in increments of 25% for reaching aggregate amounts of $1.1 billion, $1.15 billion,
$1.20 billion, and $1.25 billion), to originate $50 million each of non-prime and deep independent dealer paper (100% in the aggregate,
creditable in increments of 50% for each of the origination targets), to maintain the annualized delinquency rate or lower by one percent
(25% if the rate is maintained or 50% if the rate is lowered by one percent ), to maintain the annualized loss rate or lower by one percent
(25% if the rate is maintained or 50% if the rate is lowered by one percent) and to cause the Company’s common stock to trade in
excess of each of four targets (100% in the aggregate, creditable in increments of 25% for reaching prices of $12.00, $13.00, $14.00,
and $15.00 per share).
The total of the seven weightings is 600%; accordingly, the target
and maximum possible value to that officer of the award was 600% of his base salary for 2022.
In a series of meetings, the committee evaluated the chief executive’s
performance in comparison to the goals. The Compensation Committee determined that the budget objective was met in three of the four quarters
of 2022 and credited the chief executive with three quarters of the maximum value, or 75%.
The Committee noted that the Company had executed four rated securitizations
during the year, representing the full creditable performance of 100%. It determined that our originations volume exceeded $1.85 billion
for the year, representing creditable performance in the full amount of 100%.
The Committee noted that the Company exceeded the origination targets
for non-prime and deep independent dealer paper and credited the chief executive with the full 100% designated for that objective. The
Committee also determined that the annualized delinquency rates were not maintained or lowered and found no credit was earned in that
respect. The Committee found that the annualized loss rate was lowered by less than one percent and credited the chief executive 25%.
The Committee noted that the stock price objective was not met with
respect to any of the four targets and found no credit was earned in that respect.
The aggregate valuation of all creditable performance for the chief
executive officer was thus 400%, which would imply a bonus payment under our Executive Management Bonus Plan of $3,980,000. The Committee
determined that the Company’s record earnings for 2022 made it reasonable to refrain from a discretionary reduction in computed
earned bonus, and approved payments to the chief executive of a cash bonus in the full implied amount.
The Executive Management Bonus Plan awards granted to the named executive
officers other than the chief executive officer are evaluated on a more subjective basis, and were set by the Compensation Committee in
consultation with and on the recommendation of the chief executive officer. Factors used in determining the amount of annual bonus for
executive officers who are executive vice presidents of the Company, including one of the named executive officers, Mr. Lavin, who was
executive vice president of the Company in 2022 until Mr. Lavin’s promotion to president in December of 2022, are these: (I) an
evaluation of the executive’s skills and performance, 30%, (II) whether the executive has met two individual objectives approved
by the compensation committee, 18% in aggregate, (III) whether the Company as a whole has met or exceeded budget targets, 12%, (IV) a
subjective evaluation of that executive’s departments, 30%, and (V) a discretionary allocation recommended by the chief executive
officer and approved by the compensation committee, 50%. Mr. Fritz was not eligible to participate in the Executive Management Bonus Plan
as a result of Mr. Fritz’s retirement as chief financial officer and executive vice president.
Numerical scores are assigned to each of these factors, up to the maximum
percentages stated above, and can result in a maximum bonus of 140% of base compensation.
Similar factors are applied in determining the amount of annual
bonus for executive officers who are senior vice presidents of the Company, including the named executive officers who served as senior
vice presidents for the majority of 2022 until their promotions in the fourth quarter of 2022, Mr. Bharwani, Ms. Robinson, and Ms. Straten:
(I) skills and performance, 30%, (II) two individual objectives, 18%, (III) Company budget, 12%, (IV) subjective evaluation of that executive’s
department, 20%, and (V) discretionary allocation, 30%, resulting in a maximum bonus of 110% of base compensation.
Following the end of the year 2022, our compensation committee evaluated
each named executive officer’s performance in relation to these standards and goals. The Company met its overall annual budget target,
and each officer accordingly received full credit with respect to that target.
With respect to the individual factors, the compensation committee,
acting in part on the advice of our chief executive officer, determined that creditable performance for 2022 for each named executive
officer other than the chief executive officer was as set forth below:
|
Maximum percentage |
Creditable percentage |
Base Salary |
Result (rounded to nearest $1000) |
Mr. Lavin |
140% |
140% |
$411,000 |
$575,000 |
Mr. Bharwani |
110 |
98 |
331,000 |
324,000 |
Ms. Robinson |
110 |
109 |
368,000 |
401,000 |
Ms. Straten |
110 |
98 |
368,000 |
361,000 |
On that basis, the Compensation Committee approved payments to these
named executive officers in the amounts shown in the rightmost column.
Outstanding Equity Awards at Fiscal Year-end
The following table sets forth as of December 31, 2022 the number of
unexercised options held by each of the named executive officers, the number of shares subject to then exercisable and unexercisable options
held by such persons and the exercise price and expiration date of each such option. Each option referred to in the table was
granted at an option price per share no less than the fair market value per share on the date of grant. None of such individuals holds
a stock award; accordingly, only information concerning option awards is presented.
Name |
|
Number of securities underlying unexercised options (exercisable) |
|
|
Number of securities underlying unexercised options (unexercisable) |
|
|
Option exercise price |
|
|
Option expiration date |
Charles E. Bradley, Jr. |
|
|
70,001 |
|
|
|
– |
|
|
$ |
6.86 |
|
|
2/1/2023 |
|
|
|
300,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/12/2023 |
|
|
|
300,000 |
|
|
|
– |
|
|
$ |
4.35 |
|
|
5/17/2024 |
|
|
|
300,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/9/2025 |
|
|
|
225,000 |
|
|
|
75,000 |
(1) |
|
$ |
3.53 |
|
|
8/8/2026 |
|
|
|
120,000 |
|
|
|
120,000 |
(2) |
|
$ |
2.47 |
|
|
6/1/2027 |
|
|
|
75,000 |
|
|
|
225,000 |
(3) |
|
$ |
4.95 |
|
|
8/3/2028 |
|
|
|
– |
|
|
|
750,000 |
(4) |
|
$ |
10.32 |
|
|
1/24/2029 |
|
|
|
– |
|
|
|
300,000 |
(5) |
|
$ |
10.25 |
|
|
6/24/2029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael T. Lavin |
|
|
75,000 |
|
|
|
– |
|
|
$ |
6.86 |
|
|
2/1/2023 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
7.97 |
|
|
5/7/2023 |
|
|
|
90,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/12/2023 |
|
|
|
90,000 |
|
|
|
– |
|
|
$ |
4.35 |
|
|
5/17/2024 |
|
|
|
90,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/9/2025 |
|
|
|
67,500 |
|
|
|
22,500 |
(1) |
|
$ |
3.53 |
|
|
8/8/2026 |
|
|
|
75,000 |
|
|
|
75,000 |
(2) |
|
$ |
2.47 |
|
|
6/1/2027 |
|
|
|
22,500 |
|
|
|
67,500 |
(3) |
|
$ |
4.95 |
|
|
8/3/2028 |
|
|
|
– |
|
|
|
90,000 |
(5) |
|
$ |
10.25 |
|
|
6/24/2029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danny Bharwani |
|
|
25,000 |
|
|
|
– |
|
|
$ |
6.86 |
|
|
2/1/2023 |
|
|
|
30,000 |
|
|
|
– |
|
|
$ |
7.97 |
|
|
5/7/2023 |
|
|
|
120,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/12/2023 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
4.35 |
|
|
5/17/2024 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/9/2025 |
|
|
|
45,000 |
|
|
|
15,000 |
(1) |
|
$ |
3.53 |
|
|
8/8/2026 |
|
|
|
30,000 |
|
|
|
30,000 |
(2) |
|
$ |
2.47 |
|
|
6/1/2027 |
|
|
|
15,000 |
|
|
|
45,000 |
(3) |
|
$ |
4.95 |
|
|
8/3/2028 |
|
|
|
– |
|
|
|
60,000 |
(5) |
|
$ |
10.25 |
|
|
6/24/2029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teri L. Robinson |
|
|
60,000 |
|
|
|
– |
|
|
$ |
6.86 |
|
|
2/1/2023 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
7.97 |
|
|
5/7/2023 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/12/2023 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
4.35 |
|
|
5/17/2024 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/9/2025 |
|
|
|
45,000 |
|
|
|
15,000 |
(1) |
|
$ |
3.53 |
|
|
8/8/2026 |
|
|
|
40,000 |
|
|
|
40,000 |
(2) |
|
$ |
2.47 |
|
|
6/1/2027 |
|
|
|
15,000 |
|
|
|
45,000 |
(3) |
|
$ |
4.95 |
|
|
8/3/2028 |
|
|
|
– |
|
|
|
60,000 |
(5) |
|
$ |
10.25 |
|
|
6/24/2029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurie A. Straten |
|
|
25,000 |
|
|
|
– |
|
|
$ |
6.86 |
|
|
2/1/2023 |
|
|
|
90,000 |
|
|
|
– |
|
|
$ |
7.97 |
|
|
5/7/2023 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/12/2023 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
4.35 |
|
|
5/17/2024 |
|
|
|
60,000 |
|
|
|
|
|
|
$ |
3.48 |
|
|
5/9/2025 |
|
|
|
45,000 |
|
|
|
15,000 |
(1) |
|
$ |
3.53 |
|
|
8/8/2026 |
|
|
|
40,000 |
|
|
|
40,000 |
(2) |
|
$ |
2.47 |
|
|
6/1/2027 |
|
|
|
15,000 |
|
|
|
45,000 |
(3) |
|
$ |
4.95 |
|
|
8/3/2028 |
|
|
|
– |
|
|
|
60,000 |
(5) |
|
$ |
10.25 |
|
|
6/24/2029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey P. Fritz |
|
|
60,000 |
|
|
|
– |
|
|
$ |
6.86 |
|
|
2/1/2023 |
|
|
|
60,000 |
|
|
|
– |
|
|
$ |
7.97 |
|
|
5/7/2023 |
|
|
|
90,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/12/2023 |
|
|
|
90,000 |
|
|
|
– |
|
|
$ |
4.35 |
|
|
5/17/2024 |
|
|
|
90,000 |
|
|
|
– |
|
|
$ |
3.48 |
|
|
5/9/2025 |
|
|
|
67,500 |
|
|
|
22,500 |
(1) |
|
$ |
3.53 |
|
|
8/8/2026 |
|
|
|
45,000 |
|
|
|
45,000 |
(2) |
|
$ |
2.47 |
|
|
6/1/2027 |
|
|
|
22,500 |
|
|
|
67,500 |
(3) |
|
$ |
4.95 |
|
|
8/3/2028 |
(1) Becomes exercisable as to the unexercisable portion on
August 8, 2023.
(2) Becomes exercisable as to cumulative increments of one-half
of the unexercisable portion on June 1, 2023 and 2024.
(3) Becomes exercisable as to cumulative increments of one-third
of the unexercisable portion on August 3, 2023, 2024 and 2025.
(4) Becomes exercisable as to cumulative increments of 25%
of the unexercisable portion on January 24, 2023, 2024, 2025, and 2026.
(5) Becomes exercisable as to cumulative increments of 25%
of the unexercisable portion on June 24, 2023, 2024, 2025, and 2026.
Option Exercises in Last Fiscal Year
All of the six named executive officers exercised stock options during
2022. The table below shows the realized value and the number of options exercised for those individuals. None of our officers hold
stock awards; accordingly, no stock awards vested during 2022.
Option Exercises and Stock Vested
|
Value realized on exercise (1) |
Number of shares acquired on exercise |
Mr. Bradley |
$4,442,600 |
600,000 |
Mr. Lavin |
947,484 |
120,000 |
Mr. Bharwani |
472,020 |
55,000 |
Ms. Robinson |
928,140 |
110,000 |
Ms. Straten |
586,970 |
85,000 |
Mr. Fritz |
1,278,840 |
140,000 |
(1) The value realized
is the difference between the fair market value of the Company’s common stock on the date of exercise (the closing price reported
by Nasdaq) and the exercise price of the option.
Executive Management Bonus Plan (Non-equity Incentive Plan)
The salary and cash bonus of the named executive officers are determined
by the Compensation Committee. The compensation appearing in the Summary Compensation Table above under the caption "Non-Equity Incentive
Plan Compensation" is paid pursuant to an executive management bonus plan (the “EMB Plan”). The EMB Plan
is administered by the Compensation Committee. Among other things, the Compensation Committee selects participants in the EMB Plan from
among the Company’s executive officers and determines the performance goals, target amounts and other terms and conditions of awards
under the EMB Plan. With respect to officers other than the chief executive officer, determinations of base salary and of criteria relating
to the EMB Plan are based in part on evaluations of such officers prepared by the chief executive officer, which are furnished to and
discussed with the Compensation Committee.
Director Compensation
Throughout 2022, we paid our non-employee directors a retainer of $6,000
per month, with an additional fee of $700 per month for service on a board committee ($1,200 for a committee chairman). Non-employee directors
also received per diem fees of $1,000 for attendance in person at meetings of the board of directors, or $500 for attendance by
telephone. No per diem fees are paid for attendance at committee meetings. The Board in 2022 approved issuance to each non-employee
director of options to purchase an aggregate of 30,000 shares. The exercise prices of all such options are the closing price of the Company’s
common stock on the date of grant, which was $10.25 per share. The following table summarizes compensation received by our directors for
the year 2022:
Name of Director |
Fees Earned
or Paid in Cash (1) |
Option Awards (2) |
Total |
Chris A. Adams (3) |
$60,700 |
$163,800 |
$224,500 |
Charles E. Bradley, Jr. (4) |
– |
– |
– |
Stephen H. Deckoff (5) |
18,500 |
– |
18,500 |
Louis M. Grasso |
84,400 |
163,800 |
248,200 |
William W. Grounds |
92,300 |
163,800 |
256,100 |
Brian J. Rayhill |
107,200 |
163,800 |
271,000 |
William B. Roberts |
82,400 |
163,800 |
246,200 |
James E. Walker III (5) |
18,500 |
– |
18,500 |
Gregory S. Washer |
98,800 |
163,800 |
262,600 |
Daniel S. Wood |
107,200 |
163,800 |
271,000 |
| (1) | This column reports cash compensation earned in 2022 for Board
and committee service. |
| (2) | This column represents the dollar amount recognized for financial
statement reporting purposes with respect to the 2022 fiscal year for the fair value of stock options granted to the directors in 2022. The
fair value was estimated using a binomial option-pricing model in accordance with SFAS 123R. The fair value per option was
$5.46, based on assumptions of 3.24 years expected life, expected volatility of 80.31%, expected dividend yield of 0.0%, and a risk-free
rate of 3.11%. In addition to the stock option awards granted in 2022, our directors held at December 31, 2022 option awards granted
in previous years. The total options held at December 31, 2022 represent the right to purchase shares as follows: Mr. Bradley, 2,860,001
shares; Mr. Adams, 330,000 shares; Mr. Grasso, 90,000 shares; Mr. Grounds, 30,000 shares; Mr. Rayhill, 385,000 shares; Mr. Roberts, 60,000
shares; Mr. Washer, 270,000 shares; and Mr. Wood, 345,000 shares. |
| (3) | Mr. Adams was not reelected as director at the shareholder meeting
held August 25, 2022. |
| (4) | Mr. Bradley's compensation as chief executive officer of the Company
is described elsewhere in this report. He received no additional compensation for service on the Company's Board of Directors. |
| (5) | Mr. Deckoff and Mr. Walker were each elected as a director at
the shareholder meeting held August 25, 2022 and did not receive any option awards issued before then. |
Pension Plans
The Company's officers do not participate in any pension or retirement
plan, other than a tax-qualified defined contribution plan (commonly known as a 401(k) plan).
Potential Payments Upon Termination or Change of Control
This section provides information regarding payments and benefits to
the named executive officers that would be triggered by termination of the officer’s employment (including resignation, or voluntary
termination; severance, or involuntary termination; and retirement) or a change of control of the Company.
Each of the named executive officers is an at-will employee and, as
such, does not have an employment contract. In addition, if the officer’s employment terminates for any reason other than a change
of control of the Company, any unvested stock options are terminated, and vested options become subject to accelerated expiration: ordinarily
three months following separation from service, or twelve months in the case of disability, retirement or death. Accordingly, there are
no payments or benefits that are triggered by any termination event (including resignation and severance) other than in connection with
a change of control of the Company.
Benefits Triggered by Change of Control or Termination after Change
of Control
Our stock option plans provide that each employee of ours who holds
outstanding unexpired options under our stock option may have the right to exercise such options following a change of control of the
Company, without regard to the date such option would first be exercisable. Each of the named executive officers holds such options. The
“acceleration” of options is mandatory following certain changes of control, and subject to the discretion of the Compensation
Committee following certain others. Acceleration is mandatory in the event of (i) the sale, or other disposition of substantially
all of the Company’s assets, or (ii) a merger or similar transaction in which shareholders of the Company hold less than 50% of
the shares of the surviving entity; provided, however, that acceleration following a merger or similar transaction is mandatory only if
the holder suffers a Qualifying Termination (defined below) within one year following the transaction, or if the surviving entity does
not provide the holder with an equivalent award. Acceleration is also mandatory if a holder suffers a Qualifying Termination within one
year following (iii) a change within a three-year period in the membership of a majority of the board of directors (excluding changes
recommended by the board), or (iv) a person’s acquisition of outstanding voting securities of the Company, other than directly from
the Company and without approval of the board, resulting in that person’s having beneficial ownership of greater than 25% of the
Company.
Under our stock option plans, the Compensation Committee may exercise
its discretion to provide for acceleration under other circumstances than those described above with respect to any particular stock option
or class of stock options. The committee would expect to exercise its discretion with the intention of preserving the value of the stock
option award. To date, such discretion has not been exercised. A “Qualifying Termination” is a termination of the holder’s
employment by the Company other than for cause, disability or death, or by the holder for “good reason” (principally relating
to a material diminution in the holder’s authority, compensation or responsibilities, or a relocation of greater than 50 miles).
The preceding description applies to options held by officers and employees. Options issued to non-employee directors accelerate without
the exercise of discretion upon any of the four categories of change of control described above.
As of December 31, 2022, each of the named executive officers would
realize a benefit if unvested stock options were to become immediately exercisable upon a change in control, based on the value of the
shares underlying such options at the closing market price on December 30, 2022, which was $8.85 per share. The respective amounts of
such possible benefit are set forth in the following table:
| |
Potential Value Upon Acceleration | |
Mr. Bradley | |
$ | 2,042,100 | |
Mr. Lavin | |
| 861,450 | |
Mr. Bharwani | |
| 446,700 | |
Ms. Robinson | |
| 510,500 | |
Ms. Straten | |
| 510,500 | |
Mr. Fritz | |
| 670,050 | |
Management Structure
The board of directors is responsible for overseeing the management
of the Company. Its oversight is aimed at seeing to it that the Company’s business is managed to meet our goals, and that the interests
of the shareholders are served.
Charles E. Bradley, Jr. currently serves as both the chairman of
the board and our chief executive officer, and is the only member of our board who is not independent of the Company. Our board has
chosen not to designate any individual formally as the lead independent director. Each director retains his full oversight
responsibility.
Our board structure supports the independence of our non-management
directors. Our audit committee, compensation committee and nominating committee are each composed solely of independent directors. Our
bylaws provide that any two directors have the authority to call meetings of the board of directors, as do specified officers, including
the president and the secretary. To enhance the possible use of that authority by independent directors, the corporate secretary is under
standing instructions to call a meeting at the instance of any one director.
The board believes that combining the chairman and chief executive
officer positions is currently the most effective leadership structure given Mr. Bradley’s in-depth knowledge of our business and
industry and his demonstrated ability to formulate and implement strategic initiatives. Mr. Bradley is continuously involved in developing
and implementing our strategies, working closely with the company’s other senior executives to seek continued disciplined growth
and excellence in operations. His close involvement in management places Mr. Bradley in the best position to decide which business issues
require consideration by the independent directors of the board. In addition, having a combined chairman and chief executive officer enables
us to speak with a unified voice to shareholders, customers and others concerned with our company. The board believes that combining the
chief executive and chairman roles, as part of a governance structure that includes oversight of management responsibilities by independent
directors, provides the preferred system for meeting the requirement that the Company be managed in the best interest of our shareholders.
Risk Oversight
The board’s overall responsibility for directing the management
of the Company includes risk oversight. The risk oversight function is performed at the board level, and by the Audit and Compensation
Committees.
The board of directors as a whole in its regular meetings discusses
and considers the risk inherent in the existing business of the Company and in proposed initiatives. Because the Company’s business
consists of extending consumer credit to individuals believed to be of higher risk than others (sub-prime credit), the assessment of the
risk assumed in such extensions of credit is a primary consideration on the part of the board. Risk oversight is also a key function of
the Audit and Compensation Committees.
The principal risk management function performed by the Audit Committee
is the ongoing assessment of the credit estimates and allowances periodically recorded in the Company’s books. The committee reviews
that assessment regularly. Other risk assessments performed by the Audit Committee include assessments of contingent liabilities, and
of other reserves and allowances.
The principal risk management functions performed by the Compensation
Committee are its setting and evaluation of objectives for the chief executive officer, in connection with its administration of the executive
management bonus plan. The committee recognizes that the company’s business of extending subprime credit inherently includes a conflict
between growing the business and managing the risk of credit losses: one means to increase the company’s business is to offer credit
on terms that are priced too low for the risk assumed. The Compensation Committee manages that risk by insisting that objectives to grow
the business are qualified by a mandate that credit quality be maintained at appropriate levels. To some extent, such risk management
is shared with the Audit Committee, which performs the primary oversight of whether credit risk assumed is reflected with adequate allowances
in the Company’s financial statements.
CEO Pay Ratio
The Dodd-Frank Reform and Consumer Protection Act includes a mandate
that public companies disclose the ratio of the compensation of their CEO to their median employee. Our CEO-median employee pay ratio
calculation for 2022 is 167:1. We determined the pay ratio by dividing the total 2022 compensation of the CEO as disclosed in the Summary
Compensation Table by the total 2022 compensation of the median employee, using the same components of compensation as used in the Summary
Compensation Table for the CEO.
There have been no changes to our employee population or compensation
arrangements that we believe would result in a significant change in the pay ratio. Accordingly, we have computed the ratio by reference
to the same employee who we identified as our median employee for the year 2020, who was determined using the compensation of employees
who were actively employed on December 31, 2020. We then computed the ratio by reference to that employee’s total compensation for
the year 2022, which was $65,150. The total compensation of the CEO Charles E. Bradley, Jr. in 2022 was $10,861,201.