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The year 2018 was terrific for Blucora as we delivered on our financial and strategic objectives while positioning the company for strong future growth. I am incredibly proud of what the Blucora team accomplished during the year, including:
Growing total revenue by 10%;
Growing net income by 87%;
Growing adjusted EBITDA* by almost double the rate at which we grew revenue, or 19%;
Growing non-GAAP earnings* by an even stronger 30% and approaching $2 per share;
Generating nearly $100 million in free cash flow*;
Further strengthening the balance sheet by paying down $80 million in debt and reducing our net leverage ratio* to 1.5 times from 2.8 times; and
Last but not least, bringing great new talent in to the organization up to and including the management team and our Board of Directors.
This performance helped us deliver a 21% return in 2018 for our shareholders, which is at the top of our industry peer group. Our strong results in the year build on our established track record of execution and demonstrated success. Over the past 5 years we have now, on an average annual basis, grown revenue by 8%, net income from negative $45.5 million to positive $50.6 million, Adjusted EBITDA* by 12% and Non-GAAP EPS* by 28%. On any objective basis, this is top-tier performance. We have generated hundreds of millions in free cash flow and strengthened our balance sheet, reducing net leverage* to 1.5x from a high of 6.3x.
We achieved these impressive results thanks to a focused set of strategies executed by a great team, of whom I am very proud.
This is my fourth opportunity to share our progress and our vision for the company. My thoughts go back to my first letter in early 2016, when we faced a remarkable set of challenges - including divesting non-core businesses, driving growth, de-levering and delivering strong earnings and cash flow. This was our 4D's strategy and it served us well in enabling what one of our shareholders commented was perhaps the most significant business transformation they'd ever seen.
Last year I wrote in this letter about the next evolution of the strategy that focused our team on:
A - Accelerating Growth.
B - Building Tax-Smart Leadership.
C - Creating One Blucora.
D - Delivering Results.
Based on our financial results and the actions we took in 2018, much of which I highlight below, I am proud to say we made great progress on this strategy.
Like every effective growth strategy, ours is built around core beliefs that motivate our entire team. We believe that taxes are the key to better outcomes and that consumers are currently not well-served by the traditional tax preparation and wealth management industries that focus either on maximizing a once-a-year refund, in the case of the former, or ignore taxes altogether, in the case of the latter. These outdated approaches have left consumers without a holistic service approach to their financial future. Blucora bridges the gap between tax and wealth management and is leading the next major innovation in financial management - maximizing after-tax financial returns. In reality, this is what we all will live off of - day to day and in our retirement. This belief motivates our entire team, and we are more inspired than ever about what we can do for our clients - and do better than others.
In wealth management, our HD Vest unit had an excellent 2018 despite the market volatility we saw late in the year. For the year, revenue grew by 7% and we achieved nearly $1 billion of net flows into advisory assets, setting a new record for our team. More importantly, this was a year of positioning for HD Vest, laying the groundwork for future growth.
We seek to build long term value by driving increased total client assets and increased monetization of those assets through the adoption of advisory services and maximizing the capture of the economics of client cash. Our approach is straightforward: adopt best practices, provide the best tools and services that enable advisors to maximize their productivity practices and extend our unique reason-to-win around the creation of tax alpha. In 2018, we made substantial progress in setting the stage for step-function increases in client, advisor and shareholder value, and we expect to build on each of these in 2019.
A few areas where we demonstrated great success during the year, include:
Recruiting. In 2018 we recruited more than $700 million in total new client assets, roughly double what we did in 2017. This included about 120 tax professionals that we have recruited and trained as wealth managers as well as nearly 75 established advisors.
Advisory growth. We achieved record net flows at HD Vest, including nearly $1 billion into advisory. This helped advisory assets as a percentage of total client assets end the year at a new high-water mark at approximately 30%. As advisory assets continue to grow faster than the total, it is one component, along with trailing commissions and sweep revenue, that further reduces our dependence on transactions and increases our recurring revenue rate.
Clearing conversion. In September 2018 we went live with our ambitious conversion project which had begun more than 15 months prior. The conversion, which was essentially multiple conversions in one, when considering the clearing platform and new advisor technologies, has created a transformed advisor experience. This new advisor experience was enabled with next generation technology and new capabilities like highly integrated business processing, data aggregation, and a world-class client portal. We believe we now have one of the best commercial grade advisor platforms in the industry and will be making improvements to further improve our advisors' experience and capabilities over time. We are already seeing strong adoption of the new tools as well as new advisors joining our platform who simply would not have come to us without this industry-leading technology and platform.
The conversion was also an important financial driver. Excluding the potential benefits from increased productivity, the clearing portion alone is expected to generate more than $120 million in incremental segment income over the 10-year contract duration. This will further enable us to provide end-customers with higher interest income over time, fund growth initiatives and enhance bottom-line earnings.
Advisor Productivity. Our initiatives to increase advisor effectiveness and productivity continue to bear fruit. At the front end of the process, our introduction of predictive models to assess advisors and bring on those with the highest potential has led to new advisors reaching early productivity milestones in a fraction of our historical average, at 120 days versus the prior 800.
At the other end of the spectrum, last year we actively pruned the advisor base by setting engagement requirements, which led to the termination of hundreds of advisors. This has created more capacity for our team to focus on our highly-engaged advisors while enhancing our ability to support our most productive advisors and teams. Overall, our average production per advisor was up 20% in 2018, and we believe we are just in the early stages in this regard.
Tax Smart Innovation. We also made great progress in our Tax Smart Innovation incubator. The first innovation, which is already in beta testing, is a new proprietary tax-smart investing software platform to help advisors systematically capture tax-alpha for clients. This is significant as investors give up one to two percentage points of performance each year due to taxes. The beta was oversubscribed within 24 hours of launch, and is now in testing with about 150 advisors. We are in the very early stages here, but the reaction and the results to date are very encouraging, and indicate we may be on the cusp of commercializing truly disruptive technology. With this beta and as we expand beyond it, we believe we can create a far more useful set of capabilities than are currently available in the marketplace, giving our advisors an incredible edge in driving incremental value for clients.
Subsequent Event - Acquisition of 1st Global
In early 2019 we announced the acquisition of HD Vest's largest competitor in the tax-focused wealth management space, 1st Global. 1st Global has about 850 advisors and roughly $18 billion in total client assets, a full 50% of which is in advisory, which compares to about 30% for HD Vest. This acquisition aligns well with our strategy of accelerating growth, building tax-smart leadership and delivering results. This deal has important attributes that make it both strategically and financially attractive. I would point you to four main takeaways:
This is a classic consolidating acquisition that adds significant scale to our wealth management business with a nationwide community of tax-focused financial advisors that combined is nearly 4,500 advisors strong and entrusted with overseeing approximately $60 billion in total client assets, with nearly $22 billion, or 36%, in fee-based advisory assets and creates greater capacity to invest in supporting our advisors. Scale drives both substantial revenue and cost synergies. 1st Global is also located in the Dallas metropolitan area and utilizes similar key service partners, including Fidelity, eMoney and Envestnet. With this and with the inherent geographic and vendor overlap, we can lower the relative risk of the transaction and make integration, cost savings and synergies easier to achieve. In fact, the majority of external scale synergies are already contracted, further mitigating risk.
The businesses are also complementary in that 1st Global has a focus and strong position in large, multi-partner accounting firms, with HD Vest leading in, and primarily focused on, individual advisors. This accelerates our push into the institutional and multi-partner accounting firm market, which is under penetrated and furthers our competitive advantage in the market.
The combined business will feature strengthened capabilities in several important areas, including growth drivers like recruiting, on-boarding, and advisor development; as well as proprietary research, in-house portfolio management and proprietary technology.
This expands our established tax-aware investing footprint by creating by far the largest and most capable tax-focused wealth manager. We share a common vision, believing that clients are only truly well-served when advisors are focused on minimizing taxes and maximizing after-tax returns. The combined advisor community will have access to the tools we are now in the process of developing that enable the systematic capture of tax alpha, through creation of a holistic Tax-Smart Investing software suite.
I'm very excited about this transaction and the benefits we expect it will bring to Blucora. 1st Global has an impressive advisor base, team and business model, and a culture very similar to our own. In the near-term this transaction gives us greater scale and new opportunities to leverage efficiencies, capabilities and technology to better serve our combined advisor base. We will also be able to better to reinvest in our business and take advantage of the "best of breed" across both platforms. Longer-term, we expect our advisors will be able to use their capabilities to increase the share of client assets in advisory accounts where appropriate, potentially also including bringing more directly held assets onto our platform. Both opportunities can create additional value as advisors and clients take advantage of the breadth of our combined capabilities.
So in summarizing wealth management, we demonstrated excellent results in 2018. Net flows have been strong, the shift to advisory continues and sweep revenue run-rate has never been higher for HD Vest - these are the major drivers of value, and they are our focus. Perhaps even more important than our near-term results, were the foundational elements we put in place to drive future growth. We're bringing in great new advisor talent, arming them with a powerful set of technology and productivity tools, we're rolling out new training and support as well as developing the next-generation of tax-smart tools to drive even greater client value and maximize after-tax returns. And with the new acquisition, we'll be doing this with a larger group of like-minded employees and advisors, for even more clients.
Our future potential is unbounded.
As we look at the tax preparation side of our business in 2018, we unveiled several advances and new benefits for customers, as part of a multi-year effort to improve the client experience, to make the tax filing experience easier and more rewarding. A few of these for tax year 2018 included:
Enhanced Customer Experience. Starting with a newly refreshed and improved website that enables customers to quickly identify the product that best fits their needs. We also provided an upgraded mobile experience, with the TaxAct app earning a 4.5-star rating in Apple's app store, up from 4 stars. We also launched ten-minute taxes, a streamlined and intuitive process to guide certain filers with simple returns to complete their returns in under ten minutes so they can get back to the things that matter most to them. 2018 also saw the launch of our refund marketplace which rewards filers with a bonus amount on a gift card, up to a maximum of $599, when they allocate a portion of their refund to gift cards from an assortment of top national retailers. This bonus can make the tax filing process 'better than free' where the filer can end up walking away from TaxAct filing experience with more bonus money than they paid us to file. While we are proud of the improvements we brought to customers in the most recent tax year, we are even more excited about the further enhancements we are already working on for tax year 2019.
Partnerships. In addition to the enhanced customer experience, we had new and expanded partnerships for the season. Last year was our first year testing several types of new partnerships. We were pleased to announce an expanded relationship with a key retail banking partner which included TaxAct software being offered to their customers, and TaxAct filers having access to several of their products, including CDs, loans and credit cards, as well as the option of depositing their tax refund directly in to a high-yield savings account. Consistent with our mission to provide the most value to customers across their financial lives, many of these products were offered key advantages such as receiving the bank's highest available rate on savings or discounted rates on loans.
Other partner updates included renewed agreements with existing partners in the investment and EAP markets, which included broader exposure with their constituent bases. We also gained distribution on Amazon for the first time.
Our BluPrint financial assessment, which utilizes our proprietary software to turn insights obtained from a tax return with customer consent, into actionable recommendations to improve their financial situation, was also updated. The new version provides a more guided experience for customers to help them capture more value. This includes anything from reducing their tax expense to lowering their rate on debt or increasing their rate on savings. Last year more than 2 million customers asked us to help them and requested a BluPrint analysis. We believe we're the only online tax software company that offers this level of insight and guidance into the financial health of our customers and provides comprehensive solutions which can save our customers real money now and for years to come.
I'll close on Tax Preparation by noting that we've also made significant improvements in our capabilities on this business in 2018 and into 2019, regarding leadership, marketing, product management and engineering. We have never had a stronger team in this business in my view, and I am excited about the changes being implemented now and outlined for the future.
In 2018 we delivered strong results, building on our efforts in recent years to reposition the company and strengthen our platform. While we have delivered great results, I have never been more excited about our prospects as I am now. We have a motivated team executing an effective growth strategy built around shared core beliefs. We have a differentiated business model and have been planting the seeds for future growth. Simply put, we have built a strong business that is well positioned to capitalize on the significant growth opportunities we see ahead. And, we are more clear than ever that we can make a difference in the lives of the millions of American's who depend on us to achieve their life's financial goals.
I sincerely thank our shareholders for the trust and confidence you place in us, and our employees for the hard work put in every day to serve our customers and advisors, and grow our company. In closing, I offer a humble thank you to our advisors, customers, and clients - be you longstanding or new to the Blucora family. Your trust in us is what has enabled the remarkable results we have achieved so far, and is also what inspires us to build a future that is even brighter.
*See Annex A for a reconciliation to the nearest GAAP measure.
To be held on May 23, 2019
Notice is hereby given that the annual meeting of stockholders of Blucora, Inc., a Delaware corporation, will be held on May 23, 2019 at 1:00 p.m. Central Daylight Time at The Hotel at Kirkwood Center, Hotel Auditorium - Room 198, 7725 Kirkwood Blvd SW, Cedar Rapids, IA, 52404 for the following purposes:
To elect five directors;
To approve, on a non-binding advisory basis, the compensation of our Named Executive Officers, as disclosed in this Proxy Statement; and
The Board of Directors has fixed the close of business on March 26, 2019 as the record date for the determination of stockholders entitled to notice of this meeting and the right to vote.
We have elected to deliver a Notice of Internet Availability of Proxy Materials, rather than sending a full set of proxy materials (including this proxy statement and our Annual Report on Form 10-K for the year ended 2018) in the mail, which we believe reduces the environmental impact of our annual meeting. The Notice of Internet Availability was first sent to stockholders on or about April 10, 2019, and the proxy materials were made available on www.proxydocs.com/BCOR on the same day. For specific instructions regarding voting online, by telephone, or by mail, please see the instructions in this Proxy Statement and on the Notice of Internet Availability of Proxy Materials.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 23, 2019: THIS NOTICE OF ANNUAL MEETING AND PROXY STATEMENT, THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS AND THE 2018 ANNUAL REPORT ARE AVAILABLE AT WWW.PROXYDOCS.COM/BCOR.
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider, and you should read the entire proxy statement before voting. For more complete information regarding our 2018 performance, please review our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the "SEC") on March 1, 2019.
The Board of Directors (the "Board" or "Board of Directors") of Blucora, Inc. (referred to throughout this proxy statement as "Blucora," the "Company, "we," "us" or "our") is soliciting proxies for the 2019 annual meeting of stockholders and any adjournment, postponement or recess of such meeting. The Notice of Internet Availability was first sent to stockholders on or about April 10, 2019, and the proxy materials were made available on www.proxydocs.com/BCOR on the same day.
1:00 p.m., Central Daylight Time, on May 23, 2019
The Hotel at Kirkwood Center, Hotel Auditorium - Room 198, 7725 Kirkwood Blvd SW, Cedar Rapids, IA, 52404
Each share of common stock is entitled to one vote at the Annual Meeting
Blucora, Inc. | 2019 Proxy Statement 1
We are a leading provider of technology-enabled financial solutions to consumers, small business owners, and tax professionals. We offer our products and services in wealth management through HDV Holdings, Inc. and its subsidiaries ("HD Vest") and tax preparation through TaxAct, Inc. and its subsidiary ("TaxAct") to help consumers to manage their financial lives in a tax-smart manner.
2018 Financial and Business Highlights
For the 2018 fiscal year we achieved double-digit growth in revenue, earnings and cash flow, while hitting records in key performance metrics such as advisory flows. At the same time, we strengthened our balance sheet, our business platform and our leadership team, laying the groundwork to capture the significant opportunities we see ahead.
We increased total revenue by 10% from 2017. (1)
We grew GAAP net income by 87% from 2017.
We increased non-GAAP Adjusted EBITDA by 19% from 2017. (1)(2)
We increased non-GAAP net income by 36% from 2017. (2)
We increased net income per share attributable to Blucora, Inc. (EPS) by 58% from 2017.
We increased non-GAAP EPS by 30% from 2017.(2)(3)
We achieved record advisory net flows at HD Vest, approaching $1 billion.
We recorded our 21st consecutive year of revenue growth at TaxAct, growing 16% year-over-year.
We utilized strong cash flow generation to pay down $80 million in debt, reducing our net leverage ratio to 1.5x from 2.8x. (2)
We completed our clearing firm transition, which is expected to generate more than $120 million in incremental HD Vest segment income over a 10-year term.
We brought great new talent in to the organization at all levels, including our management team and Board of Directors.
See Annex A - Non-GAAP Reconciliation for a reconciliation to the nearest GAAP measure.
Financial measure used for our 2018 performance-based restricted stock units. See "Compensation Discussion and Analysis" for additional information.
Proposal 1 - Election of Class I and Class II Directors
At the 2019 Annual Meeting of Stockholders, we are asking you to re-elect a total of five directors: William L. Atwell, Steven Aldrich, John S. Clendening, H. McIntyre Gardner and Christopher W. Walters (collectively, the "Director Nominees"). These directors comprise our Class I and Class II directors. Lance G. Dunn, who has served as a Class I director since 2012, informed the Board on April 5, 2019, that he will retire from the Board effective as of this annual meeting of stockholders. As a result, immediately following this annual meeting of stockholders the Board size will be reduced from ten directors to nine directors.
At our 2017 annual meeting of stockholders, our stockholders voted to approve the declassification of our Board of Directors over a three-year period beginning with our 2018 annual meeting of stockholders. Each director is currently assigned to one of three classes. The Class I directors who were up for election at our 2018 annual meeting were elected for a one-year term. In 2019, the Class I and Class II directors are up for election and, if elected, will serve for a one-year term. In 2020, all members of our Board of Directors will be up for election for a one-year term, and thereafter all directors will be elected annually. Information about each of our directors, including our Director Nominees for election at the annual meeting, is set forth below.
Information regarding our directors as of March 26, 2019 is set forth below. For additional information concerning this proposal and our Director Nominees, see "Proposal One—Election of Directors" on page 12 of this Proxy Statement, and for additional information regarding our other directors, see "Information Regarding the Board of Directors."
Class of Director*
Compen-sation
Former CPO of GoDaddy
E. Carol Hayles
Former CFO of CIT Group Inc.
VP - Chief Technology Officer at Braintree
Senior Partner of Activate
* Excluding Mr. Dunn who is retiring from the Board at this annual meeting of stockholders, Class I and Class II Directors have been nominated for re-election at the 2019 Annual Meeting of Stockholders.
We are asking you to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019. Although a stockholder vote for this appointment is not required by law and is not binding on us, our Audit Committee will take your vote on this proposal into consideration when appointing or making changes to our independent registered public accounting firm in the future.
For additional information concerning this proposal, see "Proposal Two—Ratification of Appointment of Independent Registered Public Accounting Firm for 2019" on page 16 of this Proxy Statement, and for information concerning the fees we paid to Ernst & Young LLP during 2018 and 2017, see "Fees Paid to Independent Registered Public Accounting Firm for 2018 and 2017" on page 33 of this Proxy Statement.
We are asking you to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers for 2018 as disclosed in the "Compensation Discussion and Analysis" and the accompanying compensation tables and related narrative discussion beginning on page 37. We believe that our Named Executive Officer compensation program described throughout our "Compensation Discussion and Analysis" reflects an overall pay-for-performance culture that aligns the interests of our executives with those of our stockholders. Our compensation programs are designed to provide a competitive level of compensation to attract, motivate and retain talented and experienced executives and to reward our Named Executive Officers for the achievement of short- and long-term strategic and operational goals and increased total stockholder return, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. In addition, we have implemented a number of executive compensation best practices and policies over the last few years that we believe reflect sound governance and promote the long-term interests of our stockholders.
For additional information concerning this proposal, see "Proposal Three- Advisory Vote to Approve the Compensation of the Company's Named Executive Officers" beginning on page 17 of this Proxy Statement. In addition, please see the information set forth in "Compensation Discussion and Analysis" and the accompanying compensation tables and related narrative discussion beginning on page 37, including the highlights of our 2018 executive compensation information included under "Executive Summary."
Board and Corporate Governance Highlights
We are committed to good corporate governance in order to promote the long-term interests of our stockholders, strengthen Board and management accountability and build public trust in our Company. Our governance framework is described throughout this proxy statement and includes the following highlights:
Declassified Board
Regular Board and Committee Self-Evaluations
Restrictive Insider Trading Policy
Code of Ethics and Conduct administered by the Board of Directors
Board Skills, Background and Core Competencies
Our Nominating and Governance Committee regularly evaluates the skills, qualifications, and competencies identified as important for directors to provide effective oversight to our Company. The matrix below shows the areas of experience and expertise that our Nominating and Governance Committee have identified that our directors bring to the Board.
Board Age and Gender
The Company is committed to fostering an environment of diversity and inclusion, including among its Board members. Therefore, in considering director nominees, the Nominating and Governance committee considers candidates who represent a mix of backgrounds and a diversity of race, ethnicity, gender, age, skills and professional experiences that enhance the quality of the deliberations and decisions of the Board, in the context of the perceived needs of the structure of the Board at that point in time. Currently, three of our ten Board members are women, and the age of our Board members ranges from 45 to 68.
At Blucora, our mission is to provide products and services to help consumers manage their financial lives in a tax smart manner. However, we also believe that we have a responsibility towards the communities and the environment in which we operate, and we believe that operating our company in an environmentally and socially responsible manner will help drive the long-term growth of our business. Our social and environmental initiatives are an integral part of how we operate and are intended to foster a culture where our employees are proud of the company for which they work. We attempt to fulfill our social and environmental responsibilities in many ways, including by adhering to the beliefs set forth below.
We believe in demonstrating that we are a responsible and ethical business partner by conducting our business based on our Code of Ethics and Conduct, which emphasizes conducting all business relationships with honesty, integrity and respect.
We believe in fostering an inclusive and diverse work environment that enables all of our employees to achieve and contribute. This belief is reflected in the composition of our executive leadership team, which has diversity of both race and gender. We are dedicated to ensuring our employees have the opportunity to participate in an array of professional development opportunities and that our hiring and labor practices are fair. We are continuously evaluating ways to minimize human biases in all of our talent programs and processes.
We believe in strengthening our communities by providing all employees with paid time off to volunteer at charitable organizations of their choosing and by matching certain charitable donations by employees. We are particularly proud of our efforts to help families dealing with the crisis of food insecurity, and we and our employees have participated in programs and food drives, including through partnerships with the North Texas Food Bank, to ensure families in need have access to meals during the holidays. In addition, during 2018, we donated copies of our TaxAct software to lower income tax payers through our participation in the Internal Revenue Service's Free File Alliance. We also formed an alliance with Credible.com in 2018 to help educate millennial TaxAct customers about student loan repayments and assist them in exploring refinancing options to improve their financial lives. We also raised funds to help our advisors in areas impacted by hurricanes and other natural disasters in 2017, 2018 and 2019.
We believe in minimizing our environmental impact and carbon emissions through minimizing the waste we send to landfills, purchasing environmentally-responsible office products and encouraging our colleagues to adopt environmentally-responsible habits such as reducing internal copy paper usage and document printing. We have adopted eSignature capabilities across certain aspects of our business, including our Wealth Management segment, to allow our clients and employees to electronically review and sign documents and we have been furnishing our proxy statements to our stockholders electronically since 2017 in order to reduce the environmental impact of our annual meeting. In addition, all of the 3.7 million consumer tax returns and 1.8 million professionally-prepared tax returns that our Tax Preparation segment filed in 2018 were completed electronically, eliminating the need to print and submit hard copies of lengthy tax returns to the Internal Revenue Service.
We take our social and environmental responsibilities seriously, and we are continuously exploring ways to strengthen our culture and corporate responsibility framework.
QUESTIONS AND ANSWERS REGARDING VOTING PROCEDURES
AND OTHER INFORMATION
A. We will hold the annual meeting at The Hotel at Kirkwood Center, Hotel Auditorium - Room 198, 7725 Kirkwood Blvd SW, Cedar Rapids, IA, 52404.
A. SEC rules allow companies to choose the method for delivery of proxy materials for stockholders. We have elected to deliver a Notice of Internet Availability of Proxy Materials, rather than sending a full set of these materials in the mail because we believe this process expedites stockholders' receipt of proxy materials while reducing the cost and environmental impact of the annual meeting. The Notice of Internet Availability was initially sent to stockholders on or about April 10, 2019, and the proxy materials were made available on www.proxydocs.com/BCOR on the same day.
Shares must be voted by telephone, online or by completing and returning a proxy card. Shares cannot be voted by marking, writing on and/or returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes. If you would like to receive a paper or email copy of the proxy materials, you should follow the instructions in the Notice of Internet Availability for requesting copies or follow the procedures set forth below.
A. There are three proposals scheduled to be voted on at the annual meeting:
Proposal One: The election of the three Class I directors and three Class II directors nominated by the Board of Directors of the Company;
Proposal Two: The ratification of the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for 2019; and
Proposal Three: The advisory vote to approve the compensation of the Company's Named Executive Officers;
A. In the election of directors (Proposal One), you may vote "FOR" or "AGAINST" or "ABSTAIN" with respect to any Director nominee.
On the ratification of the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for 2019 (Proposal Two) and the approval, on an advisory basis, of the compensation of the Company's Named Executive Officers (Proposal Three), you may vote "FOR," "AGAINST," or "ABSTAIN."
A. The Board of Directors recommends that you vote your shares as follows:
"FOR" each Director Nominee;
"FOR" the approval, on an advisory basis, of the compensation of our Named Executive Officers.
It is important that you instruct your broker, bank, or other nominee to cast your vote if you want it to count in the election of directors (Proposal One) and in the advisory vote to approve the compensation of our Named Executive Officers (Proposal Three). If you hold your shares in street name and do not instruct your broker, bank, or other nominee how to vote, your shares will not be voted on these proposals. In such a case, your shares will be considered "broker non-votes" with regard to such proposals because the broker, bank, or other nominee will not have discretionary authority to vote your shares. The only proposal for which brokers, banks and other nominees have discretionary authority is the ratification of Ernst & Young LLP as our independent registered public accounting firm for 2019 (Proposal Two).
Q. How many votes are required to elect the Class I and Class II directors (Proposal One)?
A. For the election of directors (Proposal One), the Director Nominees who receive a greater number of "FOR" votes than "AGAINST" votes from shares present at the meeting will be elected. If the votes cast for any Director Nominee do not exceed the votes cast against such Director Nominee, the Board of Directors will consider whether to accept or reject such Director Nominee's resignation, which has been tendered to the Board of Directors pursuant to the Company's Corporate Governance Guidelines. Abstentions and broker non-votes will have no effect on the outcome of the election of directors.
Q. How many votes are required to ratify the appointment of Ernst and Young LLP as the Company's independent registered public accounting firm (Proposal Two) and approve, on an advisory basis, the compensation of the Company's Named Executive Officers (Proposal Three)?
A. The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019 (Proposal Two) and the approval, on an advisory basis, of the compensation of our Named Executive Officers (Proposal Three) will each require the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote on such proposal.
Because your broker does not have discretionary authority to vote your shares with respect to the vote to approve the compensation, on an advisory basis, of the Company's Named Executive Officers (Proposal Three), your broker will not be considered "entitled to vote" on such proposal at the annual meeting. Accordingly, a broker non-vote will have no effect on Proposal Three. Broker non-votes are not applicable to the vote to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019 (Proposal Two) because your broker has discretionary authority to vote your common stock with respect to such proposal.
A. A quorum must be present in order for business to be conducted at the annual meeting. A majority of our outstanding shares entitled to vote, present in person or represented by proxy at the annual meeting, constitutes a quorum. In
addition to shares that are voted on any matter, abstentions and broker non-votes will be considered present at the annual meeting for purposes of establishing a quorum.
A. All stockholders who owned our common stock at the close of business on the record date of March 26, 2019 are entitled to receive notice of the annual meeting and to vote the shares they own as of the record date. Each stockholder is entitled to one vote for each share of common stock held on all matters properly brought before the annual meeting to be voted on. Our Restated Certificate of Incorporation and our Amended and Restated By-Laws prohibit cumulative voting in the election of directors.
On the record date, 48,254,247 shares of our common stock were outstanding and entitled to vote, and we had 357
stockholders of record. The number of holders of record does not include beneficial owners of our common stock who hold their shares in street name.
BY TELEPHONE OR THE INTERNET - If you have telephone or Internet access, you may submit your vote by following the instructions on the proxy card or voting instruction card. Blucora Inc. is incorporated under Delaware law, which specifically permits electronically transmitted proxies, provided that each such proxy contains or is submitted with information from which the inspector of election can determine that such proxy was authorized by the stockholder. The electronic voting procedures provided for the annual meeting are designed to authenticate each stockholder by the use of a control number to allow stockholders to vote their shares and to confirm that their instructions have been properly recorded.
BY MAIL - You may submit your proxy by mail by signing your proxy card if you requested and received one or, for shares held through a broker, bank, or other nominee, by following the voting instruction card provided by your broker, bank, or other nominee and mailing it in the enclosed, postage-paid envelope. Shares cannot be voted by marking, writing on and/or returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes.
A. Votes will be counted and certified by the Inspector of Election for the annual meeting.
A. The Company's list of stockholders as of the record date, March 26, 2019, will be available for inspection by the stockholders for at least 10 days prior to the 2019 annual meeting and at the annual meeting for any purpose germane to the annual meeting. If you want to inspect the stockholder list, please call the office of the Chief Legal Officer at (972) 870-6400 to schedule an appointment.
Blucora, Inc. | 2019 Proxy Statement 10
A. The Company has adopted a procedure approved by the SEC called "householding." Under this procedure, stockholders of record who have the same address and last name and who do not participate in electronic delivery of proxy materials will receive only one set of the proxy materials, unless one or more of these stockholders notifies the Company that they wish to continue receiving individual copies. The Company believes this will provide greater convenience for stockholders, as well as cost savings for the Company by reducing the number of duplicate documents that are mailed. We also believe householding reduces the environmental impact of the annual meeting by reducing the number of duplicate documents that are printed. Stockholders who participate in householding will continue to receive separate proxy cards. Householding will not in any way affect your rights as a stockholder.
If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of our proxy materials, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of each of these documents for your household, please contact the Company if you hold your stock directly by mail at Blucora, Inc., c/o Corporate Secretary, 6333 North State Highway 161, Irving, Texas 75038, by phone at (972) 870-6400 or by email at IR@Blucora.com or by using the internet at www.investorelections.com/BCOR. Alternatively, if you hold your stock in a brokerage account, please contact your broker.
If you participate in householding and wish to receive a separate copy of our proxy materials, including the Annual Report on Form 10-K for the year ended December 31, 2018 or this Proxy Statement, or if you do not wish to participate in householding and prefer to receive separate copies of these documents in the future, please contact the Company or your broker as indicated above.
We hereby undertake to deliver promptly, upon written or oral request, a copy of the proxy materials to a stockholder at a shared address to which a single copy of the proxy materials was delivered.
A. This solicitation of proxies is made on behalf of the Company. We will bear all expenses incurred in connection with the solicitation of proxies. We will bear the reasonable expenses incurred by banks, brokerage firms, custodians, nominees and fiduciaries in forwarding proxy material to beneficial owners. Our directors, officers and employees may also solicit proxies by mail, telephone and personal contact. They will not receive any additional compensation for these activities.
At our 2017 annual meeting of stockholders, our stockholders voted to approve the declassification of our Board of Directors over a three-year period beginning with our 2018 annual meeting of stockholders. Each director is currently assigned to one of three classes and will be up for election in accordance with the following:
The Class I and Class II directors who are up for election at our 2019 annual meeting will, if elected, will serve for a one-year term.
In 2020 and beyond, our Board will be declassified and all members of our Board of Directors will be up for election for a one-year term.
Each director is elected to serve until his or her successor is duly elected and qualified unless the director resigns, dies or is unable to serve in the capacity of director due to disability or other cause. If a director resigns or is otherwise unable to serve before the end of his or her term, the Board may appoint a director to fill the remainder of that term, reduce the size of the Board, or leave the position vacant.
Lance G. Dunn, who has served as a Class I director since 2012, informed the Board on April 5, 2019, that he will retire from the Board effective as of this annual meeting of stockholders. As a result, immediately following this annual meeting of stockholders the Board size will be reduced from ten directors to nine directors. The Company and the Board express their deepest gratitude to Mr. Dunn for his years of dedicated service.
The five directors set forth below have been nominated by the Board of Directors at the recommendation of the Nominating and Governance Committee for election at the 2019 annual meeting of stockholders to serve for a one-year term ending in 2020. The Board of Directors has affirmatively determined that each Director Nominee, excluding Mr. Clendening who also serves as our Chief Executive Officer ("CEO" or "Chief Executive Officer") and President, qualifies as an independent director under the NASDAQ listing rules. No Director Nominee is being elected pursuant to any arrangement or understanding between the Director Nominee and any other person or persons. For further information on the process of director nominations and criteria for selection of Director Nominees, see the section "Information Regarding the Board of Directors—Director Nomination Process."
Director Class
Former Chief Product Officer, GoDaddy, Inc.
Director Since: 2017
Independent: Yes
Standing Board Committees:
Executive Experience:
Mr. Aldrich served as the Chief Product Officer at GoDaddy, Inc. ("GoDaddy") from January 2016 through February 2019, and he previously served as Senior Vice President, Business Applications beginning in July 2012. Before joining GoDaddy in 2012, Mr. Aldrich served in various senior management roles at Intuit, Inc., a business and financial software company, from 1996 through 2008, including Vice President of Strategy and Innovation for the small business division. Mr. Aldrich also served as Chief Executive Officer of Outright Inc., a bookkeeping and accounting service, from 2011 to 2012, when it was acquired by GoDaddy, and as Chief Executive Officer of Posit Science Corporation, a software and services company, from 2008 to 2011. Mr. Aldrich holds a Bachelor of Arts in Physics from the University of North Carolina and an M.B.A. from Stanford University.
Relevant Skills and Qualifications:
Mr. Aldrich has extensive product management experience from his years of serving in executive management positions that provides him with unique experience in operations, strategy, company growth and management. He also has significant experience with consumer and small business software-as-a-service businesses, which the Board believes will provide valuable assistance to the Board and the Company as a technology enabled financial solutions company while it seeks to meet its strategic growth initiatives.
Managing Director of Atwell Partners, LLC
Outside Public Company Directorships:
Webster Financial Corporation (2014-Present)
USI Holdings (2006-2007)
Mr. Atwell has been Managing Director of Atwell Partners, LLC, a financial services consulting firm, since June 2012. From September 2008 to May 2012, Mr. Atwell was President of Cigna International, a global financial services company. Prior to 2008, Mr. Atwell held senior executive positions with Charles Schwab & Co., Inc. and Citigroup, Inc. Mr. Atwell has been a director of Webster Financial Corporation, a NYSE listed commerical banking company since 2014. Mr. Atwell currently serves as an independent trustee of AQR Mutual Funds (AQR Capital Management, LLC) and previously served as a Trustee at Fairfield University from 2006 to 2018. Previously, he served as a director of USI Holdings, which was formerly listed on the NASDAQ, until it was sold to Goldman Sachs Capital Partners in 2007. Mr. Atwell holds a B.S. and an M.B.A. from Long Island University.
Mr. Atwell brings extensive relevant industry and executive leadership experience and knowledge to the Board, having spent more than 40 years in the financial services industry as an executive at Cigna International, Charles Schwab & Co., Inc. and Citigroup, Inc., as well operational and strategic experience. The Board believes Mr. Atwell's extensive experience provides valuable assistance to the Board and the Company as a technology enabled financial solutions company while it seeks to meet its strategic growth initiatives.
President and CEO of Blucora
Independent: No
SVB Financial Group (2018-Present)
Mr. Clendening was appointed to serve as the Company's President and CEO on April 4, 2016, and he was also appointed as a member of the Board on the same date. Prior to being appointed President and Chief Executive Officer, Mr. Clendening served as Executive Vice President and Co-Head, Investor Services Division at The Charles Schwab Corporation in San Francisco from 2012 to 2015. He served as Executive Vice President, Shared Strategic Services from 2007 to 2011 and as Chief Executive Officer and Executive Vice President of Charles Schwab Bank from 2007 to 2009. From 2004 to 2007, Mr. Clendening served in executive roles with the Investor Services Division and Independent Investor Business Unit with The Charles Schwab Corporation. Prior to joining The Charles Schwab Corporation, he served in various leadership roles at eMac Digital LLC and Living.Com. He was also Chief Marketing Officer and Senior Vice President, Consumer Banking Group and Senior Vice President, Marketing and Strategy, Credit Card Division for First Union Corporation (now Wells Fargo & Company). Earlier in his career, he served at The Coca-Cola Company, the Frito-Lay, Inc. Division of PepsiCo, SEARS Specialty Merchandising Group and Booz-Allen & Hamilton, Inc. Mr. Clendening previously served on the board of directors of Betterment Holdings, Inc. and currently serves on the board of directors of SVB Financial Group. He received a B.A. in Economics from Northwestern University and an M.B.A. from Harvard Graduate School of Business Administration.
Mr. Clendening has relevant experience as an executive in the financial services and consumer goods industries, leading both Fortune 500 companies and entrepreneurial businesses. The Board believes that Mr. Clendening's experience as an executive in the financial services industry brings important perspective to the Board. As President and CEO, Mr. Clendening brings insight into the Company's operations and strategic plan and facilitates the Board's ability to perform its critical oversight function.
Private Investor and Former Senior Executive Officer of Merrill Lynch & Co Inc.
Nominating and Governance Committee (Chair)
Spirit Airlines, Inc. (2010-Present)
Mr. Gardner has been a private investor since 2008. From July 2000 to January 2008, Mr. Gardner held senior executive positions at Merrill Lynch & Co., Inc., a global financial services company, most recently as Senior Vice President, Head of Americas Region and Global Bank Group, Global Private Client. Prior to 2000, Mr. Gardner served in senior executive positions with Helen of Troy Limited and Appliance Corporation of America and as an investment banker with Merrill Lynch. Mr. Gardner has been a director of Spirit Airlines, Inc., a New York Stock Exchange ("NYSE") listed transportation company, since 2010 and a director of TeamSnap, Inc., since April 2017. Mr. Gardner earned a B.A. in Religion from Dartmouth College in 1983.
Mr. Gardner brings relevant industry experience to the Board from his decades of leadership and operating experience in the wealth and consumer products industries. The Board believes that Mr. Gardner's experience as an executive in the wealth and consumer products industries brings an important perspective to the Board and the Company as a technology enabled financial solutions company while it seeks to meet its strategic growth initiatives.
Senior Partner, Activate
Compensation Committee (Chair)
Mr. Walters currently serves as a Senior Partner with Activate, which is a next generation strategy consulting firm serving technology, internet, media, entertainment and sports businesses that he joined in 2019. Mr. Walters served from 2015 through 2018 as the Chief Executive Officer of Encompass Digital Media, a global technology services business supporting hundreds of leading media companies. Mr. Walters served as the Chief Operating Officer of The Weather Company, a weather focused media information services company that owned and operated The Weather Channel, The Weather Channel app, weather.com, intellicast.com, Weather Underground and WSI, from March 2012 to December 2014. Prior to joining The Weather Company, he served in a variety of leadership roles at Bloomberg L.P. between 2008 and 2012, most recently as the Chief Operating Officer of the Bloomberg Industry Verticals Group, responsible for operations, strategy, business development, and expansion of the premium web-based subscription businesses. Previously, Mr. Walters was a partner at McKinsey & Co., advising media, entertainment, technology, information services and sport businesses as well as investors in these sectors. Mr. Walters holds a Bachelor of Science from the University of Vermont and an M.B.A from the University of Chicago.
Mr. Walters has extensive operational and executive management experience from his work as an executive and an advisor to a variety of companies where he has provided leadership or advice in areas of strategy, operations, technology and marketing. Mr. Walters' experience also includes work with technology businesses that are relevant to the Company's current operations. The Board believes this experience and knowledge provides valuable guidance to the Board and the Company as a technology enabled financial solutions company while it seeks to meet its strategic growth initiatives.
Unless otherwise instructed, the proxy holders will vote the proxies received by them "FOR" the Director Nominees listed in this Proxy Statement. The Director Nominees have consented to be named in this Proxy Statement and agreed to serve as directors if elected by the stockholders. In the event that any nominee to the Board is unable or declines to serve as a director at the time of the annual meeting, the proxies will be voted for a nominee who may be designated by the present Board of Directors to fill the vacancy. It is not expected that any nominees will be unable or will decline to serve as a director. Alternatively, the Board of Directors may reduce the size of the Board or maintain such vacancy.
Pursuant to our Corporate Governance Guidelines, each of the Director Nominees has tendered an irrevocable resignation that becomes effective if such Director Nominee fails to receive the required vote at the annual meeting. The Nominating and Corporate Governance Committee must consider the resignation and recommend to the Board the action to be taken with respect to the resignation. The director whose resignation is under consideration shall not participate in the Nominating and Corporate Governance Committee's recommendation or the deliberations of the Board with respect to such resignation. The Board of Directors is required to consider and act on the recommendation within ninety (90) days following certification of the election results and will publicly disclose its decision whether to accept the resignation offer.
A copy of our Corporate Governance Guidelines is available on our website at www.blucora.com/governance.
A Director Nominee will be elected to the Board of Directors if the votes cast "FOR" such Director Nominee's election exceed the votes cast "AGAINST" such Director Nominee's election (with abstentions and broker non-votes not counted as a vote cast either "FOR" or "AGAINST" such Director Nominee's election).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE DIRECTOR NOMINEES
The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the Company's independent registered public accounting firm for 2019 and recommends that stockholders vote "FOR" the ratification of this appointment. Although stockholder approval of this appointment is not required by law and is not binding on the Company, the Audit Committee will take your vote on this proposal into consideration when appointing the independent registered public accounting firm in the future. Even if you ratify the appointment of Ernst & Young LLP, the Audit Committee may, in its sole discretion, terminate such engagement and direct the appointment of another independent registered public accounting firm at any time during the year, although it has no current intention to do so.
We hold non-binding advisory votes on the compensation of our Named Executive Officers, which are commonly referred to as "say-on-pay" votes, at every annual meeting of stockholders. Our Board of Directors values the opinions of our stockholders and believes an annual advisory vote allows our stockholders to provide us with their input on our executive compensation program. We conducted an advisory vote on the frequency of the advisory say-on-pay vote at our 2017 annual meeting. Following the recommendation of our stockholders, we will continue to hold our advisory say-on-pay vote on an annual basis. We received very strong approval of our say-on-pay vote at our annual meeting of stockholders in 2018, with 97.7% of our stockholders who voted at the meeting voting "FOR" approval.
Pursuant to Section 14A(a)(1) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we are asking you to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers ("Named Executive Officers" or "NEOs") for 2018, as disclosed in the "Compensation Discussion and Analysis" section and the accompanying compensation tables and related narrative discussion beginning on page 37. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the compensation philosophy, policies and practices described in this proxy statement. The next stockholder advisory vote to approve executive compensation will be held at the 2020 annual meeting of stockholders.
We believe that our Named Executive Officer compensation program described throughout the "Compensation Discussion and Analysis" aligns the interests of our executives with those of our stockholders. Our compensation programs are designed to provide a competitive level of compensation to attract, motivate and retain talented and experienced executives and reward our Named Executive Officers for the achievement of short- and long-term strategic and operational goals and increased total stockholder return, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. In addition, we have implemented a number of executive compensation best practices and policies over the last few years that we believe reflect sound governance and promote the long-term interests of our stockholders.
The Board of Directors and its committees value the opinions of our stockholders and will carefully consider the outcome of the advisory vote to approve executive compensation. Because this vote is advisory, it is not binding on the Board of Directors and/or its committees. We ask our stockholders to vote FOR the following resolution at the Annual Meeting:
"RESOLVED, that the compensation of our Named Executive Officers, as disclosed in the proxy statement for our 2019 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and the narrative discussion, is hereby APPROVED on an advisory basis."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" PROPOSAL THREE
Our Board of Directors is currently comprised of ten members. The Board's committee structure currently consists of three principal committees that are all comprised of independent directors: the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. The Board may also convene other ad hoc or sub-committees, the composition, number and membership of which the Board of Directors may revise from time to time, as appropriate.
Lance G. Dunn, who has served as a Class I director since 2012, informed the Board on April 5, 2019, that he will retire from the Board effective as of this annual meeting of stockholders. As a result, immediately following this annual meeting of stockholders the Board size will be reduced from ten (10) directors to nine (9) directors.
Directors and Board Committees as of March 26, 2019
Lance G. Dunn **
* Mr. Clendening is our only director who is not independent because he serves as our President and CEO, accordingly, Mr. Clendening does not serve on any of our committees.
** Mr. Dunn will retire from the Board as of the date of this annual meeting of stockholders.
Board, Background, Skills and Core Competencies
Our Nominating and Governance Committee regularly evaluates the skills, qualifications, and competencies identified as important for directors to provide effective oversight to our Company. The matrix bellow shows the areas of experience and expertise that our Nominating and Governance Committee have identified that our directors bring the Board.
The Company is committed to fostering an environment of diversity and inclusion, including among its Board members. Therefore, in considering director nominees, the Nominating and Governance Committee considers candidates who represent a mix of backgrounds and a diversity of race, ethnicity, gender, age, skills, and professional experiences that enhance the quality of the deliberations and decisions of the Board in the context of the perceived needs of the structure of the Board at that point in time. Currently, three of our ten Board members are women, and the age of our Board members ranges from 45 to 68.
Our Board is responsible for ensuring that our overall business strategy is designed to create long-term, sustainable growth for our stockholders. Our Board recognizes that we operate within industries that are extremely competitive and rapidly evolving and that our business must be capable of quickly adapting to meet the needs of our customers and clients. As a result, the Board maintains an active oversight role in helping management formulate, plan and implement Blucora's strategy. While our Board is not responsible for the day-to-day management of the Company, our Board recognizes the importance of ongoing engagement, and accordingly our Board regularly reviews the alignment of our performance with our strategy.
Board of Directors Membership Changes
On July 10, 2018, our Board increased the size of the Board from eight (8) to ten (10) members and appointed E. Carol Hayles and John MacIlwaine as directors to fill the resulting vacancies. The Board determined that appointing Ms. Hayles and Mr. MacIlwaine would enhance the Board's oversight function and assist the Board in complying with best corporate governance practices. Ms. Hayles and Mr. MacIlwaine were appointed to serve as Class III directors, and their terms will expire at the Company's 2020 Annual Meeting of Stockholders. We believe that the experience and qualifications of each of our new Board members will provide valuable assistance to the Board and the Company as it continues to execute its strategic growth initiatives.
Lance G. Dunn, who has served as a Class I director since 2012 and serves on the Audit Committee, informed the Board on April 5, 2019, that he will retire from the Board effective as of this annual meeting of stockholders. As a result, immediately following this annual meeting of stockholders the Board size will be reduced from ten (10) directors to nine (9) directors. Following Mr. Dunn's resignation, the Company's Audit Committee will consist of three independent directors, and therefore Mr. Dunn's resignation is not expected to impact the Company's ability to comply with NASDAQ Listing Rule 5605(c), which requires that the Company's Audit Committee consist of at least three independent directors.
Information regarding our Director Nominees, which includes our Class I and Class II directors, is included under "Proposal One—Election of Directors." Information regarding our Class III directors who are not up for election is described below.
The names and biographies of the continuing Class III directors whose terms expire in 2020 are set forth below:
John Macllwaine
Former CFO, CIT Group, Inc.
Ms. Hayles is the former Chief Financial Officer of CIT Group Inc., a U.S. bank and global lending and leasing business, a position she held from November 2015 to May 2017. From July 2010 to November 2015, Ms. Hayles was the Controller and Principal Accounting Officer of CIT Group Inc. and was responsible for all financial and regulatory reporting. Prior to joining CIT Group Inc., Ms. Hayles worked at Citigroup Inc. for 24 years in various financial roles, most recently as Deputy Controller, and began her career at PricewaterhouseCoopers in Toronto, Canada. Ms. Hayles has been a director of Webster Financial Corporation, a NYSE listed company, since 2018. She was a Canadian Chartered Accountant from 1985 to 2009, and she received her BBA from York University in Toronto.
Ms. Hayles has significant financial and accounting experience including as the chief financial officer of a large financial institution. This experience provides her with a thorough understanding of public company reporting obligations, Sarbanes-Oxley compliance and planning, and treasury and liquidity management. As a former executive in the financial services industry, Ms. Hayles also has significant executive leadership experience, as well as experience in the areas of operations and strategy. The Board believes this experience and knowledge provides valuable guidance to the Board and the Company as a technology enabled financial solutions company while it seeks to meet its strategic growth initiatives.
VP and Chief Technology Officer, Braintree
Mr. MaclIwaine currently serves as VP, Chief Technology Officer at Braintree, a subsidiary of PayPal, Inc. Prior to joining Braintree, he served as Chief Technology Officer of Lending Club Corporation, a lending company, from August 2012 to January, 2017. From December 2011 to July 2012, Mr. MacIlwaine served as the Chief Information Officer at Green Dot Corporation, a provider of prepaid financial services. From April 2007 to November 2011, Mr. MacIlwaine served as head of global development at Visa, Inc., a credit card processing company, where he led program management and information services, including web application development, data warehousing, business intelligence and mobile development. Mr. MacIlwaine holds a B.S.E. in computer engineering from the University of Michigan.
Mr. MaclIwaine has extensive information technology experience from his years of serving in executive management positions that provides him with unique experience in information technology, operations, strategy, company growth, and management. He also has significant experience with financial organizations. The Board believes Mr. MacIlwaine's experience will provide valuable assistance to the Board and the Company as a technology enabled financial solutions company while it seeks to meet its strategic growth initiatives.
Audit Committee (Chair)
Och-Ziff Capital Management Group (2011-present)
Redwood Trust, Inc. (2006-present)
SunEdison, Inc. (2013-2017)
Bechtel (1999-2002)
Ms. Proctor is the former Chief Financial Officer of TIAA-CREF, a national financial services organization, a position she held from 2006 to 2010. From 2003 to 2005, Ms. Proctor was Executive Vice President, Finance of Golden West Financial Corporation. She served as Chief Financial Officer of Bechtel Group, Inc. from 1997 to 2002 and as a director of Bechtel from 1999 to 2002. Since 2006, Ms. Proctor has been a director of Redwood Trust, Inc., a NYSE listed company, where she currently is chair of the compensation committee and a member of the audit committee. From 2013 until 2017, she was a director of SunEdison, Inc., a NYSE listed company. Since 2011, Ms. Proctor has also served on the board of directors of Och-Ziff Capital Management Group, a NYSE listed company, where she is the chair of the audit committee. Ms. Proctor holds a B.S. in Business Management from the University of South Dakota and an M.B.A. from California State University at Hayward.
Ms. Proctor has significant financial and accounting experience and has worked closely with boards and board committees throughout her career, including as the chief financial officer of large financial institutions. This experience provides her with a thorough understanding of public company reporting obligations, Sarbanes-Oxley compliance and planning, and treasury and liquidity management. Furthermore, her service on the audit and compensation committees of other public companies gives her a strong background in the oversight of financial and corporate governance matters. The Board believes that Ms. Proctor's experience brings an important perspective to the Board and the Company as a technology enabled financial solutions company while it seeks to meet its strategic growth initiatives.
CEO, Brace Industrial Group
Ms. Zappone has extensive experience as an executive, including her current tenure as Chief Executive Officer of Brace Industrial Group, an industrial services company. Prior to joining Brace in October 2017, she served as President and Chief Executive Officer of Service Champ, a specialty distributor of consumable automotive aftermarket maintenance parts and accessories, from November 2015 to September 2017. Prior to joining Service Champ, she served as President and Chief Executive Officer of RecoverCare, a supplier of healthcare equipment, from May 2011 to February 2015. Ms. Zappone worked at Alcoa, Inc. from 2006 to 2011, serving in a variety of roles, most recently as President of the Alcoa Oil & Gas Group, where she was responsible for operations, strategy, business development, and expansion of the aluminum alloy product systems business. During her career, she has also held other senior-level positions at Tyco International, General Electric, and Exxon, and worked at McKinsey & Co., where she advised companies in improving operating performance, capital investment, and merger and acquisition strategies. Ms. Zappone also serves as a director of Alsco Inc. (formerly known as Steiner). She earned her undergraduate degree from Johns Hopkins University, and her M.B.A. in Finance at Columbia Business School.
Ms. Zappone has significant executive leadership experience, including in the areas of operations, strategy, people management, business development and company growth and expansion, as a result of her career as an executive and advisor. This experience includes high-level roles at companies that are renowned for their operational excellence. The Board believes Ms. Zappone is a valuable resource for both the Board and management as the Company seeks to optimize its current operations as a technology enabled financial solutions company and seeks to meet its strategic growth initiatives.
NASDAQ listing rules require that a majority of the members of the Board of Directors be independent directors. The Board of Directors recently undertook its annual review of director independence in accordance with the applicable rules of NASDAQ. The independence rules include a series of objective tests, including that the director is not employed by the Company and has not engaged in various types of business dealings with the Company. In addition, the Board of Directors is required to make a subjective determination as to each independent director that no relationships exist that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making such determinations, the Board of Directors considered transactions and relationships between each non-employee director and the Company, if any, that would require disclosure pursuant to Item 404 of Regulation S-K under the Securities Act of 1933, as amended (the "Securities Act"). The Board of Directors also considered other transactions or relationships, if any, that do not rise to the level of requiring disclosure.
Each of the members of the Audit Committee, Compensation Committee, and Nominating and Governance Committee is independent under the NASDAQ rules. The Board of Directors has also affirmatively determined that each of the members of the Audit Committee qualifies as independent under the audit committee independence rules established by the SEC and meets the NASDAQ's financial knowledge requirements set forth in the NASDAQ rules. In addition, each member of the Compensation Committee qualifies as a "non-employee director" under SEC rules.
The Board and the Committees of the Board
The Board's committee structure currently consists of three principal committees: the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. Our Board has adopted a written charter for each of its committees, and a brief description of the primary responsibilities of our committees is set forth in the following sections.
For 2018, each director attended at least 75% of the aggregate number of meetings of the Board of Directors and committees thereof, if any, on which such director served during the period for which he or she was a director or committee member. During 2018, the Board held 14 meetings, and the independent members of the Board met regularly with independent members only. The Board of Directors has not adopted a formal policy regarding directors' attendance at the annual meetings of stockholders. In 2018, all of the Company's Board members attended the annual meeting of stockholders.
Duties and Responsibilities Meetings in 2018: 9
Georganne C. Proctor (Chair)*
E. Carol Hayles*
Providing independent and objective oversight and review of the Company's auditing, accounting and financial reporting processes;
*Each of Ms. Proctor and Ms. Hayles qualifies as an "audit committee financial expert" in accordance with SEC rules and meets the financial sophistication requirements and professional experience requirements set forth in the NASDAQ rules.
**Mr. Dunn will retire from the Board as of the date of this annual meeting of stockholders.
The Board of Directors has determined that each Audit Committee member has sufficient knowledge in reading and understanding financial statements to serve on the Audit Committee. The Board of Directors has further determined that Ms. Proctor and Ms. Hayles each qualifies as an "audit committee financial expert" in accordance with SEC rules and the professional experience requirements of NASDAQ. The designation of an "audit committee financial expert" does not impose upon such person any duties, obligations, or liabilities that are greater than those that are generally imposed on him or her as a member of the Audit Committee and the Board of Directors, and such designation does not affect the duties, obligations, or liability of any other member of the Audit Committee or the Board of Directors.
Duties and Responsibilities Meetings in 2018: 12
Christopher W. Walters (Chair)
Acting as administrator of our stock and cash incentive plans.
H. McIntyre Gardner (Chair)
Assisting the Board of Directors by identifying prospective director nominees to fill vacancies and recommending to the Board the director nominees for the next annual meeting of stockholders;
Reviewing, and recommending to the Board, any appropriate changes to the Company's Corporate Governance Guidelines and Director Nomination Policy;
Reviewing proposed changes to the Company's Certificate of Incorporation and Bylaws and making recommendations for any such changes to the Board;
Evaluating the performance and effectiveness of the committees and the Board;
Recommending to the Board membership for each committee;
Recommending to the Board any changes to the non-employee director compensation program;
Evaluating Board and committee structure and recommending changes to the Board;
Oversees succession planning for the CEO and senior management;
Monitoring, and periodically reporting to the Board, any significant developments in the law and practice of corporate governance; and
Considering stockholder nominees for election to the Board as described below under "Director Nomination Process."
Under the terms of the Nominating and Governance Committee Charter, the Nominating and Governance Committee is authorized to engage independent advisors, at the Company's expense, to advise the Committee on any matters within the scope of the Nominating and Governance Committee's duties. The Nominating and Governance Committee may also form subcommittees and delegate its authority to those subcommittees as it deems appropriate.
The leadership structure of the Board of Directors consists of the Chairman, William L. Atwell, and the chairs of each of the principal committees of the Board of Directors. The Company's Amended and Restated Bylaws require that the Chairman be an independent director, and thus the Chairman position is not combined with the Chief Executive Officer position, which is currently filled by John S. Clendening. The Board of Directors believes that the current leadership structure is appropriate for the Company because it balances the operational and day-to-day management leadership of the Chief Executive Officer with the independent oversight provided by the independent Chairman of the Board and the independent chairs of each of the principal committees. This structure ensures that oversight of risk management and the Company's management is distributed among multiple independent directors. The Board of Directors currently believes that this distribution of oversight is the best method of ensuring optimal Company performance and risk management.
The Compensation Committee oversees the management of risks relating to our executive and non-executive compensation plans and arrangements.
The Nominating and Corporate Governance Committee manages risks associated with general corporate governance and succession planning.
The Board of Directors believes that management speaks for the Company. Individual Board members may occasionally meet or otherwise communicate with our stockholders and other constituencies that are involved with the Company, but it is expected that Board members will do this with the advance knowledge of management or at the request of management, absent unusual circumstances or as contemplated by Board committee charters or policies. Stockholders who wish to communicate with the Board of Directors, or with any individual member of the Board of Directors, may do so by sending such communication in writing to the attention of the Corporate Secretary at the address of our principal executive office with a request to forward the communication to the intended recipient. The Corporate Secretary will generally forward such communication to the Board of Directors or the specific Board member. However, the Corporate Secretary reserves the right to not forward any material that is inappropriate. In addition, employees may communicate with the Board through, among other processes, the Company's internal whistleblower hotline process administered under the Code of Ethics and Conduct.
The Company's corporate website, located at www.blucora.com, contains information regarding the Company, including information regarding directors, executive officers, and corporate governance documents. That information includes the Restated Certificate of Incorporation, Amended and Restated Bylaws, Committee Charters, Director Nomination Policy, Code of Ethics and Conduct (which is applicable to all employees, executive officers, and members of the Board of Directors), and Corporate Governance Guidelines. The Company uses the corporate website to provide current information to investors, including information on recent developments and upcoming events. You may also request copies of these documents and other corporate governance documents available on the website from the Company's investor relations department at (972) 870-6400.
The Nominating and Governance Committee is committed to fostering an environment of diversity and inclusion, including among its Board members. See the section "Board, Background, Skills, and Core Competencies" for additional information.
The Nominating and Governance Committee generally re-nominates incumbent directors who continue to satisfy the Nominating and Governance Committee's criteria for membership on the Board of Directors, continue to make important contributions to the Board of Directors, and consent to continue their service on the Board of Directors. However, the Committee regularly considers the needs of the Company and the Board with respect to directors, and if appropriate, the Committee will nominate new directors that best fit those needs. When nominating new directors, the Committee actively seeks individuals who satisfy its criteria for membership on the Board of Directors, and the Nominating and Governance Committee may solicit ideas for possible Board of Directors candidates from a variety of sources, including members of the Board of Directors, Company executives, stockholders, or individuals known to the members of the Board of Directors or Company executives through personal or professional relationships. The Nominating and Governance Committee also has the authority to retain a search firm, at the Company's expense, to identify or evaluate director candidates at its discretion.
Any stockholder may nominate candidates for election as directors by following the procedures set forth in our Amended and Restated Bylaws and Director Nomination Policy, including the applicable notice, information, and consent provisions. For further information regarding these procedures, see "Deadline for Receipt of Stockholder Proposals and Director Nominations". Copies of our Amended and Restated Bylaws and Director Nomination Policy are available on our corporate website at www.blucora.com.
In addition, pursuant to our Director Nomination Policy, any single stockholder, or group of stockholders, that has beneficially owned more than 5% of our outstanding common stock for at least one year may propose a director candidate for evaluation by the Nominating and Governance Committee by delivering a written notice to the Nominating and Governance Committee that satisfies the notice, information, and consent requirements of our Amended and Restated Bylaws and the Director Nomination Policy. The Committee will evaluate such recommended nominees using the same criteria that it uses to evaluate other nominees. Any such Board of Directors candidate must be independent of the stockholder in all respects and must also qualify as an independent director under applicable NASDAQ rules. The notice must be received by the Nominating and Governance Committee no later than the date that is 120 calendar days before the anniversary of the date that our Proxy Statement was released to stockholders in connection with the previous year's annual meeting. The notice must include, among other things, proof of the required stock ownership, proof of identification of the stockholder(s) submitting the proposal, and information regarding the proposed Board of Directors candidate. The notice should be sent to the following address:
Non-Employee Director Compensation
Director compensation is overseen by the Nominating and Governance Committee. Non-employee director compensation consists of a mix of cash and equity. The combination of cash and equity compensation is intended to provide incentives for non-employee directors to continue to serve on the Board of Directors, to align the interests of the Board of Directors and stockholders, and to attract new non-employee directors with outstanding qualifications.
Our CEO, as an employee of the Company, does not receive any compensation for serving on the Board of Directors and therefore is excluded from the director compensation table below. His compensation as a Named Executive Officer is included in the Summary Compensation Table.
2018 Non-Employee Director Compensation
The Company's non-employee director compensation program for 2018 did not change from the program that was adopted in mid-2017 following a complete review of our non-employee director compensation policies by our Compensation Committee, which oversaw our director compensation at that time, and Compensia, Inc., who served as the independent compensation consultant at that time.
The 2018 director compensation program consisted of equity grants and annual cash retainers for Board, committee and chair service. The following table sets forth the annual cash retainers in effect during 2018:
Non-Employee Directors (including Chair)
Additional Annual Chair Retainer
The 2018 equity grants consisted of (i) an initial grant to all newly elected or appointed non-employee directors, if applicable, (ii) an annual grant to all non-employee directors, including all newly elected or appointed directors and (iii) an additional annual grant to the Board Chair. Each grant made in 2018 consisted solely of restricted stock units ("RSUs"). The number of RSUs granted was based on a set dollar amount, with the specific number of RSUs granted based on the price of our common stock on the date of the grant. The following table sets forth the equity grants made to directors during 2018 (in dollars):
Initial and Annual Equity Awards
$ Value of Award
Initial equity grants vest in three equal annual installments beginning on the first anniversary of the applicable election or appointment date.
Annual grants are made on the date of the annual meeting of stockholders and vest in full on the earlier of the first anniversary of the grant date or the date of the Company's next annual meeting of stockholders provided that the grantee continues to be a member of the Board on such date. In the case of a newly appointed director who is not appointed on the date of the annual meeting of stockholders, a pro rata portion of this annual grant will be awarded based on the date of appointment.
The following table sets forth information concerning the value of compensation paid or awarded to each non-employee director for the year ended December 31, 2018 pursuant to the director compensation program described above:
(Earned or Paid in Cash)
The dollar amount for stock awards (which consists of RSUs) is the grant date fair value computed in accordance with Accounting Standards Board Accounting Standards Codification Topic 718, Compensation - Stock Compensation ("ASC 718"), excluding the effect of any estimated forfeitures. These amounts reflect the Company's accounting expense and do not correspond to the actual value that will be realized by the director. Assumptions used in the valuation of stock awards granted in 2018 are discussed in "Note 13: Stock-Based Compensation of the Notes to Consolidated Financial Statements (Part II, Item 8) in our Annual Report on Form 10-K for the year ended December 31, 2018.
The vesting for initial RSU grants and the annual RSU grants is described above.
All Director equity grants that were made in 2018 were awarded under the Blucora, Inc. 2018 Long-Term Incentive Plan (the "2018 Plan"). Stock awards consist of RSUs, with each RSU representing the right to receive one share of our common stock upon vesting.
The following table sets forth information concerning the aggregate number of equity awards outstanding for each of our non-employee directors as of December 31, 2018.
Aggregate Number of Options (1)
Vested and Unexercised
Prior to May 2017, equity grants made to non-employee directors consisted of options and RSUs.
2019 Non-Employee Director Compensation Changes
In the second half of 2018, our Nominating and Governance Committee engaged the Compensation Committee's independent compensation consultant, Meridian Compensation Partners, LLC ("Meridian"), to review director compensation. In connection with that review, Meridian reviewed the Company's peer group (as discussed under "Compensation Discussion and Analysis-Compensation Philosophy and Practices") and provided related advice with respect to director compensation. Meridian also provided advice and information on material compensation trends to provide a general understanding of current compensation practices. See "Compensation Discussion and Analysis—Compensation Philosophy and Practices—Role of Compensation Consultant" for additional information about Meridian.
As a result of this review, in December 2018, the Compensation Committee approved changes to the annual cash retainers paid to our non-employee directors in order to better align the Board's total compensation with the median of its peers. These changes will become effective at this annual meeting of stockholders. The annual equity grants described above were not changed as a result of this review. The changes that were approved are set forth below:
Prior to May 23, 2019
On/After May 23, 2019
The Board has adopted stock ownership guidelines that are applicable to all non-employee directors, and the Nominating and Governance Committee is responsible for administering and applying these guidelines. The guidelines that are in effect as of the date of this proxy statement require that all non-employee directors acquire and hold shares of the Company's common stock equal in market value to at least four times (4X) the value of the annual retainer paid to non-employee directors (excluding the additional retainers for the Chairman of the Board and the Chairs of the Board's committees). As described above, the amount of this retainer was $40,000 for 2018, and accordingly, non-employee directors were expected to hold shares with a market value of at least $160,000.
Under the guidelines in effect until this annual meeting of stockholders, non-employee directors who were members of the Board on January 1, 2018 are expected to attain the minimum ownership amount by no later than June 1, 2020. Non-employee directors who joined the Board after January 1, 2018 are expected to attain the minimum ownership amount within five years after the date of their initial appointment or election to the Board. As of December 31, 2018, all of our non-employee directors were in compliance with the applicable ownership guidelines or otherwise expected to achieve the requisite ownership levels within the time-frame.
In February 2019, our Board amended our stock ownership guidelines for non-employee directors (the "Revised Stock Ownership Guidelines") to require that all non-employee directors acquire and hold shares of the Company's common stock equal in market value to at least five times (5X) the value of the annual retainer paid to non-employee directors (excluding the additional retainers for the Chairman of the Board and the chairs of the Board's committees). The revised guidelines will become effective at this annual meeting of stockholders. Under the Revised Guidelines, the non-employee directors who were members of the Board on January 1, 2018 are expected to attain the minimum ownership amount by no later than June 1, 2020. Non-employee directors who joined the Board after January 1, 2018 are expected to attain the minimum ownership amount within five years after the date of their initial appointment or election to the Board.
The following Report of the Audit Committee shall not be deemed to be "soliciting material" or to be "filed" with the SEC, and the information in this report shall not be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
Each member who serves on the Audit Committee is an independent director as defined in the NASDAQ rules, meets the independence criteria in the applicable SEC rules and meets the NASDAQ's financial knowledge requirements set forth in the NASDAQ rules. Our Board of Directors has determined that Ms. Proctor and Ms. Hayles are "audit committee financial experts" under SEC rules and meet the financial sophistication and professional experience requirements set forth in the NASDAQ rules.
Management is responsible for Blucora's internal control over financial reporting, preparation of financial statements and the financial reporting process. The Company's independent registered public accounting firm, which for 2018 was Ernst & Young LLP, is responsible for performing an independent audit of Blucora's consolidated financial statements and internal control over financial reporting in accordance with standards set by the Public Company Accounting Oversight Board ("PCAOB"), and to issue reports thereon. The Audit Committee monitors and oversees these processes. The Audit Committee members rely, without independent verification, on the information provided to them, and on the representations made to them, by management and the independent registered public accounting firm.
Discussed the matters required to be discussed with Ernst & Young LLP by the statement on Auditing Standards No. 1301, as amended (AICPA, Professional Standards, Vol. 1 AU section 380), as adopted by the PCAOB in Rule 3200T and Regulations S-X Rule 2-07;
Audit-related fees
Audit fees reflect fees billed for the annual audits of the Company's consolidated financial statements, the review of interim financial statements and internal control over financial reporting for the year indicated. All other fees consist of fees for our annual subscription to Ernst & Young LLP's Global Accounting & Auditing Information Tool, which the Company's staff used when performing technical accounting research.
The Audit Committee pre-approves all audit and non-audit services to be performed by our independent registered public accounting firm. As part of its pre-approval procedures, the Audit Committee considers whether the provision of any proposed non-audit services is consistent with the SEC's rules on auditor independence. The Audit Committee has considered whether the provision by Ernst & Young LLP of the non-audit services described above is compatible with Ernst & Young LLP's independence. After consideration, the Audit Committee has determined that Ernst & Young LLP's independence as an auditor has not been compromised by its provision of these services. All audit and non-audit services provided by Ernst & Young LLP in 2017 and 2018 were pre-approved by the Audit Committee in accordance with the foregoing policy.
Since the beginning of fiscal year 2018, there have not been any transactions, nor are there any currently proposed transactions, in which the Company was or is to be a participant, where the amount involved exceeded $120,000, and in which any related person had or will have a direct or indirect material interest.
Each of the following directors served on the Compensation Committee for all or a portion of 2018: Christopher W. Walters (Chair), H. McIntyre Gardner (Former Chair), E. Carol Hayles, Georganne C. Proctor and Mary S. Zappone. None of the current or former members of the Compensation Committee who served during 2018 is or has been an officer or an employee of the Company. During 2018, none of our executive officers served on the board of directors or compensation committee (or a committee performing similar functions) of any other company that had one or more executive officers serving on our Board of Directors or our Compensation Committee.
Executive officers are elected annually by the Board to serve at the Board's discretion until their successor is duly elected and qualified or until their earlier death, resignation, or removal. The following table sets forth certain information as of March 26, 2019 with respect to our current executive officers:
Davinder S. Athwal
Todd C. Mackay
Interim Chief Executive Officer, HD Vest
Curtis A. Campbell
President, TaxAct
Michael P. Hogan
President, Tax-Smart Innovation
Transient C. Taylor
Mr. Clendening was appointed to serve as the Company's President and CEO on April 4, 2016, and he was also appointed as a member of the Board on the same date. See Proposal One—Election of Directors on page 12 for a discussion of his experience and qualifications.
Mr. Athwal was appointed to serve as the Company's Chief Financial Officer ("CFO") in February 2018. Prior to joining the Company, Mr. Athwal, served as Vice President Finance and Chief Financial Officer of UGI International, which is a business segment of UGI Corporation through which it conducts its foreign operations, from 2015 to February 2018, and he served as Vice President, Chief Accounting Officer and Chief Risk Officer of UGI Corporation, a holding company that is traded on the NYSE that distributes, stores, transports and markets energy products and related services, from 2008 through 2015. Mr. Athwal holds a bachelor's degree in Accounting and Finance from Kingston University in London and a master's degree in Accounting from Long Island University.
Mr. Mackay was appointed Interim CEO of HD Vest in December 2018. Prior to being appointed the Interim CEO of HD Vest, Mr. Mackay served as the Executive Vice President and General Manager of TaxAct from May, 2018 through December, 2018. Prior to that he served as the Executive Vice President of Corporate Development since 2015. Mr. Mackay also served as an advisor to the Company's executive team focusing on strategy and mergers and acquisitions ("M&A") from 2014 to 2015. During his time with the Company, Mr. Mackay has led corporate development and M&A efforts, including spearheading the acquisition that brought HD Vest into the Blucora family. Mr. Mackay also led initiatives to expand third party partnerships in both TaxAct and HD Vest. Mr. Mackay was a co-founder of P2B Investor, a crowd funding business providing working capital loans to small and medium sized businesses, where he served on the executive team from 2013 to 2014. In addition, Mr. Mackay served as Executive Vice President in charge of Finance and Corporate Development for Emerge Digital Group, a privately held digital media company, from 2011 to 2012. Mr. Mackay served in various executive positions at E*Trade from 1999 to 2010, where he served as the Executive Vice President in charge of Global Corporate Development and Corporate Treasury and Executive Vice President in charge of E*Trade's Asian broker dealer business. Mr. Mackay has also held various positions with Telebanc Financial Corp, Robertson Stephens and Alex Brown focusing on financial institutions and financial technologies. He has also served on the board of directors of both private and public broker dealers outside of the United States. Mr. Mackay received an A.B. from Princeton University in Economics with an emphasis on Mathematics.
Mr. Campbell was appointed President of TaxAct in November 2018. Prior to that, he served as the Managing Vice President at Capital One running the Consumer Auto Business division from 2017 through 2018 where he led digital transformation, technology, operations and strategy. Prior to joining Capital One, Mr. Campbell served in several roles leading Intuit's tax businesses, including as VP of Strategy and VP of Product from 2014 through 2017. Prior to joining Intuit, Mr. Campbell served as the General Manager of Amazon Web Services from 2012 through 2014 where he led the product and technology organizations. Prior to his time at Amazon Web Services, from 1999 through 2010, Mr. Campbell held several positions of increasing responsibility at Hewlett Packard Enterprise and Dell, including leadership roles in software development, hardware engineering, marketing, program management and product management. Mr. Campbell holds a Bachelor of Science degree in Business with a concentration in Engineering from The Citadel Military College and a Masters of International Business Studies from the Moore School of Business.
Mr. Hogan was appointed President of Tax-Smart Innovation in October 2018. Prior to joining the Company, he served in a variety of senior management roles at GameStop from 2008 through 2018, most recently as the Executive Vice President of Strategic Business and Brand Development, where he helped transform the company to a diversified retail business to include digital gaming, technology brands and licensed collectibles. He also held senior management roles at Dean Foods as the Chief Marketing Officer and Frito-Lay as Vice President of U.S. and later International Marketing. Mr. Hogan also serves as a board member for Arcbest Corporation (NASDAQ: ARCB) and Feed the Children. Mr. Hogan holds a Bachelor of Science degree in Economics from Northern Illinois University and a Masters degree in Marketing and Finance from Northwestern University, Kellogg Graduate School.
Ms. Bruder was appointed to serve as the Company's Chief Legal Officer and Secretary in June 2017. Prior to joining the Company, Ms. Bruder served as the Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary at Airlines Reporting Corporation, or ARC, which is a leading provider of data, products and services to the travel industry, from 2015 through 2017. She served as the President of Global Strategic Services, LLC, a boutique strategic advisory firm, from 2014 through 2015. Prior to that, she was employed by Commercial Metals Company ("CMC"), a publicly traded global company with sales and operations in more than 40 countries, from 2007 through 2014. At CMC, Ms. Bruder served as the Senior Vice President of Law, Government Affairs and Global Compliance, General Counsel and Corporate Secretary from mid-2009 through 2014 and the Deputy General Counsel from 2007 through mid-2009. Earlier in her career, she served in various legal roles at CARBO Ceramics Inc., American Airlines, Inc., Continental Airlines, Inc. and the law firm of Thompson Coburn LLP. Ms. Bruder has a Juris Doctorate degree from Washington University and Bachelor of Arts degree in Journalism and Public Relations with a minor in Economics from the University of Wyoming.
Transient (Tran) C. Taylor
Mr. Taylor was appointed as the Company's Chief Human Resources Officer in October, 2018. Prior to joining the Company, Mr. Taylor served as the Chief Human Resources Officer with Mr. Cooper/Nationstar, the fourth largest mortgage servicing and home loans origination company in the U.S., from 2015 through 2018. Mr. Taylor also served as Chief People Officer at Travelocity, a top tier global on-line travel service, from 2008 through 2015, and as the Executive VP of Human Resources at Alliance Data from 2005 through 2008. Mr. Taylor's earlier experience also includes executive level human resources roles with Home Depot, Raytheon Telecommunications and Westinghouse. Mr. Taylor holds a Bachelor of Science degree in International Studies and a Masters degree in public administration from West Virginia University and has served as an active member of the Human Resources Policy Institute and Corporate Leadership Council.
John Palmer served as the Company's Principal Financial and Accounting Officer from November 1, 2017, when our former Chief Financial Officer left the company, through February 21, 2018 when Mr. Athwal joined the Company as our Chief Financial Officer (and Principal Financial Officer). Mr. Palmer continues to serve as the Company's Principal Accounting Officer. Mr. Palmer is not an executive officer, but pursuant to Item 402 of Regulation S‑K he is included as a Named Executive Officer because he served as our Principal Financial Officer for a portion of 2018.
The purpose of this Compensation Discussion and Analysis ("CD&A") is to provide our stockholders with a clear understanding of our compensation philosophy and objectives, compensation-setting process, and 2018 compensation programs and decisions for our Named Executive Officers.
Our executive compensation program is generally designed to attract, motivate and retain highly skilled and motivated executives with significant business experience. Our management and our Compensation Committee believe that a well-structured executive compensation program is necessary for achieving our long-term business objectives to operate and grow our Wealth Management and Tax Preparation businesses that operate under HD Vest and TaxAct, respectively.
Our NEOs for 2018 are set forth below. Additional information regarding our current executive officers is set forth on page 34 under "Information Regarding Executive Officers."
Chief Financial Officer (Principal Financial Officer)
February 2018 - Present
Todd C. Mackay (1)
May 2015 - Present
Mathieu F. Stevenson
Former Chief Marketing and Strategy Officer
October 2016 - January 2019
June 2017 - Present
Vice President - Accounting (Principal Accounting Officer and Former Principal Financial Officer)
Former Chief Executive Officer of HD Vest
Former President of TaxAct
January 2017 - August 2018
Mr. Mackay served in three capacities in 2018 (i) Executive Vice President of Business Development ("Base Role") (ii) Interim General Manager of TaxAct ("TA Interim Role") and (iii) Interim CEO of HD Vest ("HDV Interim Role," together with the TA Interim Role, the "Interim Roles"). Mr. Mackay became an executive officer when he assumed the HDV Interim Role.
Mr. Palmer became the Company's Principal Financial and Accounting Officer on November 1, 2017 when our previous Chief Financial Officer left the Company. Mr. Athwal joined the Company on February 21, 2018 as the Company's Chief Financial Officer and Principal Financial Officer. When Mr. Athwal joined the Company, Mr. Palmer ceased serving as the Company's Principal Financial Officer, but he continues to serve as the Company's Principal Accounting Officer.
Mr. Palmer originally joined the Company on February 20, 2017 and is not an executive officer, but pursuant to Item 402 of Regulation S‑K he is included as an NEO because he served as our Principal Financial Officer for a portion of 2018.
Financial measure used for our 2018 performance-based restricted stock units.
Our Company and our businesses have undergone significant changes since late 2015, and as a result of this transition, our Compensation Committee began a comprehensive restructuring of our executive compensation practices during 2017 to ensure that we are able to attract and retain top caliber executive talent in the new markets and industries in which we currently compete for talent. Below is a summary of executive compensation highlights for our 2018 program:
Company Transformation: Since 2015, our Company has transformed from a Washington-based company that operated a portfolio of internet businesses to a Texas-based technology-enabled financial solutions company that offers wealth management and tax preparation products and services through HD Vest and TaxAct, respectively (the "Strategic Transformation"). As such, our compensation philosophy and practices have evolved so that we can attract top caliber executive talent in the market and industries where we now operate.
New Compensation Consultant: During 2017, our Compensation Committee engaged a new independent compensation consultant to assist in reviewing our executive officer compensation philosophy and practices for 2018 in light of our new business strategy and the new market and industry in which we now operate.
New Peers: We updated our peer group for 2018 in light of the market and industry in which we currently compete for talent.
2018 Annual Bonus Plan Continued To Be Performance-Based: Our annual bonus plan for 2018 was tied to Company financial performance metrics, as well as certain human resources foundation metrics and balanced scorecard metrics, which allowed this element of executive compensation to be performance-based and incentivize management to increase its focus on operational objectives that are key to our growth strategy and operating as "One Company."
2018 Equity Grants Included Performance-Based RSUs: Our 2018 annual equity grants for our executive officers were comprised of 25% performance-based RSUs ("PRSUs"), 50% time-based RSUs ("time-based RSUs") and 25% stock options. We transitioned away from the heavy use of stock options and began granting PRSUs that are based on the achievement of pre-established financial performance metrics and are more in line with our long-term strategy.
Executive Stock Ownership Guidelines: We have stock ownership guidelines requiring our CEO to own an amount of our equity with a value equal to five times (5X) his base salary, and our Board adopted new stock ownership guidelines for all other NEOs during 2018 that require equity ownership with a value equal to three times (3X) the base salary for all NEOs other than the CEO.
Competitive Pay Practices: We believe the changes made to our executive compensation program for 2018 allow us to be competitive with companies with whom we compete for talent and better reflect market expectations for "at-risk" and performance-based compensation.
Not at risk
2018 Mix of Pay: 90% and 78% of the 2018 target compensation for our CEO and average NEO*, respectively, was at risk and based either on the performance of our Company or our stock price.
*The Average NEO pay mix does not include two NEOs because we do not believe that their compensation is reflective of the compensation structure of our executive officers: (i) Mr. Mackay because he was not an executive officer for most of 2018, and (ii) Mr. Palmer because he is not an executive officer of the Company.
Additional detail regarding the 2018 compensation of our NEOs is provided in the Summary Compensation Table and throughout this CD&A.
We hold advisory votes on the compensation of our NEOs (a "say-on-pay vote") at every annual meeting of stockholders. Our Board of Directors values the opinions of our stockholders and believes an annual advisory vote allows our stockholders to provide us with their input on our executive compensation program. We conducted an advisory vote on the frequency of the advisory say-on-pay vote at our 2017 Annual Meeting. Following the recommendation of our stockholders, we will continue to hold our advisory say-on-pay vote on an annual basis.
Of the stockholders who cast a vote in 2018 for or against the approval of the Company's compensation of NEOs, 97.7% voted for approval. Although the Compensation Committee did not make any specific changes to 2018 executive compensation as a result of such say-on-pay vote, the Compensation Committee does monitor and consider the results of say-on-pay votes and will continue to consider results from future advisory votes as appropriate when making compensation decisions.
The table above compares the 2018 target total compensation for our CEO to the actual realizable pay at the end of 2018. The "Target Total Compensation" bonus and equity amounts shown above are the targets set by our Compensation Committee, and the equity amounts reflect the approximate grant date fair values of such awards reported in the Summary Compensation Table. The "Realizable Pay" bonus amount reflects the actual bonus paid to our CEO for 2018, and the equity amounts assume 100% acceleration of the 2018 equity awards as of December 31, 2018 and a closing price of $26.64, which was the closing price of our common stock on the last day of 2018. Since none of these awards had actually vested as of December 31, 2018, the amount actually realized by Mr. Clendening, if any, upon vesting and exercise may vary from this figure.
Consistent with our pay for performance philosophy, the substantial majority of our CEO's compensation is composed of variable cash bonus awards and equity awards that derive their value based on Company financial performance and the performance of the price of our common stock. Further, our philosophy focuses on the long-term performance and growth of our Company. The Realizable Pay illustration shown above is based on a one-year view of our CEO's compensation and is based on a snap shot as of year-end 2018. While the Realizable Pay shown above is 94.6% of our CEO's total target compensation, we believe that, in line with our philosophy, as our stock price continues to increase, the realizable pay will also increase and reflect our long-term pay for performance philosophy.
Much of our CEO's target total compensation opportunity is "at risk," and there can be no assurance that the target amount of the bonuses will be awarded, that the grant date fair values reported for the equity awards will reflect their actual economic value, or that comparable amounts will ever be realized by our CEO.
Pay for Performance: A significant portion of our NEO compensation is at-risk, performance-based compensation that utilizes a diverse set of performance metrics ensuring that no single factor can inappropriately impact compensation. In addition, a portion of our performance-based compensation is subject to multi-year vesting schedules that require sustained performance over time. This aligns the interests of our executive officers with those of our stockholders.
Tax Gross-up Provisions for Change-In-Control: We do not have tax gross-up provisions in our executive employment agreements or in our equity award agreements that would allow for a gross-up payment for excise and other taxes that could become payable as a result of payments made in connection with a change-in-control.
Pay Determinations: We engage in a rigorous process to establish total direct compensation and its components, including reviewing market and survey data sourced from our peer group of companies and our industry. We also utilize an independent compensation consultant.
No Excessive Perquisites and Personal Benefits: We do not provide significant perquisites and personal benefits that are not generally available to all other employees.
Listen to Stockholders: We hold an advisory vote on executive compensation annually and take the results of such vote into account when setting and reviewing our compensation practices and policies. We have had very positive results from our advisory vote on executive compensation each year the vote has been held.
No dividends on Stock Options or Stock Appreciation Rights ("SAR") or Unearned awards: No dividends or dividend equivalents accrue on stock options or SARs or are paid on unearned awards.
No Repricing or Granting of Discounted Stock Options or SARs: Our 2018 Plan prohibits the repricing of stock options and SARs without stockholder approval and the granting of stock options or SARs with exercise prices below fair market value.
Stock Ownership Guidelines: We have stock ownership guidelines that require stock ownership with a value equal to five times (5X) the annual base salary for our CEO, three times (3X) the annual base salaries for our other executive officers and four times (4X) the annual retainer for our directors (which is being increased as of the date of this annual meeting to five times (5X) the annual retainer of our directors.
No Share Recycling and Minimum Vesting Requirements: Our 2018 Plan does not permit liberal share recycling or liberal share counting and has minimum vesting requirements for awards (no awards can vest prior to one-year from the date of grant, subject to certain exceptions).
Risk Management: We perform regular risk management assessments for our compensation and benefit programs related to executive and non-executive compensation practices in order to ensure that our compensation policies and practices are not reasonably likely to have a material adverse effect on our Company and do not encourage excessive risk taking.
2018 Executive Compensation Changes and our Executive Compensation Philosophy
Our Company and our business have undergone significant changes since late 2015, and as a result of this transition, our Compensation Committee began a comprehensive restructuring of our executive compensation practices during 2017 to ensure that we are able to attract and retain executive talent in the markets and industries in which we currently compete for talent.
Our Transformation: In October 2015 we announced plans for our Strategic Transformation, which included transforming our Company from a Washington-based company that operated a portfolio of internet businesses to a Texas-based technology-enabled financial solutions company that offers wealth management and tax preparation products and services through HD Vest and TaxAct, respectively. In connection with this transformation, we moved our headquarters from Bellevue, Washington to Dallas, Texas, which resulted in a leadership transition and the need to recruit and hire new executive team members.
Changing Philosophy and Practices: As our business transformed, so did our compensation philosophy. Our historical philosophy and practices were to set total cash compensation below market with above market equity compensation that largely consisted of stock options. We believe these historical practices were appropriate when we were seeking talent in the Washington State internet-based market. However, in connection with our transition to a Dallas-based technology-enabled financial solutions company, we evolved our philosophy and practices when hiring new executive officers for our Dallas headquarters and established a new compensation philosophy for 2018. As a result, we now focus on having an attractive market-based compensation program in our Dallas-based market and our industry in an effort to attract top-caliber executive talent in the financial and technology industries.
Change in Compensation Consultants: In July 2017, our Compensation Committee engaged a new independent compensation consultant to assist in reviewing our executive officer compensation philosophy and practices in light of our new business strategy and in the new market and industry in which we now operate. Following our new independent compensation consultant's review, we updated our compensation philosophy for setting 2018 executive compensation.
New Philosophy and Principles: Our goal is to provide an attractive and market-based compensation program that is tied to performance and aligns the interests of our executive officers with those of our stockholders. To achieve this goal, our Compensation Committee has adopted the following executive compensation philosophy and principles:
Enable us to attract, motivate and retain high-caliber individuals who will maximize the potential of the business over time.
Engage high-performing executive talent through competitive compensation opportunities.
Clear alignment of executive compensation to the short-term and long-term financial outcomes and value-drivers of the business.
Executive compensation is clearly aligned to the financial outcomes with a particular emphasis over the next three years on growth and the achievement of synergies between our Wealth Management and our Tax Preparation businesses.
Foster sustained growth and alignment through a balanced approach to compensation design.
The compensation program should be structured and consistent, but should allow for appropriate flexibility, differentiation and discretion.
Encourage achievement of the Company's strategy and goals through policies ethics and values.
Cultivate ownership of Blucora's vision and strategic direction through sound compensation policies and structure that reinforce desired behaviors that are in line with Blucora's ethics and values.
New Peers: Our new independent compensation consultant reviewed our peer group in late 2017 and determined that, in light of our Strategic Transformation and the market and industry in which we now operate, our peer group should be updated. See "Compensation Process—Benchmarking Against Peers" below for additional information regarding our new peer group that was used for 2018 compensation decisions.
2018 Executive Compensation: After we established a new peer group, our Compensation Committee approved changes to our executive compensation program for 2018 that it believes allows us to be competitive with our new peer group and with the companies with whom we compete for talent. Our new program is also intended to reflect market expectations for at-risk compensation so that we are able to retain our executive officers and attract additional executive officers when necessary. These changes also allowed us to recalibrate executive compensation, as each of the executive officers hired in 2017 came from different industries with different expectations of compensation. We believe that the executive compensation changes that were made for 2018 will assist us in achieving our strategy of operating as "One Company" and help us to be competitive with our peers and in the market and industry in which we compete for talent while also focusing on internal pay parity.
2018 Compensation Mix: The 2018 compensation mix was comprised of the following, with a significant portion continuing to be performance-based and be "at-risk" (the CEO had 90% of his total target direct compensation "at-risk" for 2018):
Base Salary: In 2018, our NEOs' base salaries increased as a result of our review of our new peer group and of the market and industries in which we compete for talent.
Bonus: In 2018, a substantial portion of our NEOs' compensation was paid pursuant to our short-term bonus plan, which is tied to the achievement of operational and financial goals over a single year, as well as specific individual performance goals, and assists in retaining, attracting, and motivating employees in the near-term. The operational and financial metrics selected by the Compensation Committee for the 2018 annual bonus plan reflect the responsibilities of each NEO, such that they are tied to our overall Company performance or certain metrics related to the different businesses that an NEO oversees or in which an NEO is involved. Our 2018 annual bonus plan metrics were also tied to certain human resources foundation metrics and balanced scorecard metrics, which we believe help us focus on operational objectives that are key to our growth strategy and move toward operating as "One Company."
Equity: The most significant change to our executive compensation program for 2018 was with respect to the type and mix of equity granted to our executive officers. For 2018, we shifted from our equity grants being comprised of stock options and time-based RSUs to the following equity mix (as a percentage of total grant value):
25% PRSUs that are eligible to vest on January 1, 2021, subject to the Company achieving a certain level of non-GAAP earnings per share during 2020;
25% stock options that vest equally each year over a three-year period; and
50% time-based RSUs that vest equally each year over a three-year period.
This change in equity mix was made in order for our executive compensation to be competitive with peers and to reflect market expectations for "at-risk" and performance-based compensation. We have de-emphasized the award of stock options and have moved toward PRSUs, which are based on Company performance metrics that the Compensation Committee believes are in line with our long-term strategy and better align management with long-term stockholder value. In addition, the Compensation Committee believes time-based RSUs and PRSUs have potential advantages over stock options because (i) time-based RSUs and PRSUs are less depletive on the remaining available shares available under the Company's long-term incentive plans because they carry a higher valuation than stock options on the date of grant and therefore less shares are required for each time-based RSU or PRSU than would be required for an equivalent stock option award and (ii) the prospect of a time-based RSU or PRSU motivating an NEO over time can be greater than a stock option because time-based RSUs and PRSUs do not carry an exercise price that must be exceeded for the time-based RSU or PRSU to continue to be of value to the NEO. It is the Compensation Committee's goal
to continue to evolve to a higher mix of PRSUs, which we believe is competitive with our peers and in line with our compensation philosophy.
Adoption of Executive Stock Ownership Guidelines: In February 2018, the Board revised our stock ownership guidelines to make them applicable to all of our executive officers effective as of January 1, 2018 (prior to 2018, they were only applicable to our CEO). These guidelines require that our executive officers acquire and hold shares of our common stock equal in market value to the multiple of each of their base salaries as follows: five times (5X) for our CEO and three-times (3X) for all other NEOs.
Our Compensation Committee is composed entirely of independent directors and administers our executive officer compensation program. In 2018, the Compensation Committee consulted regularly with its independent compensation consultant, our CEO, CFO, CLO, Interim Chief Human Resources Officer, Chief Human Resources Officer and Deputy General Counsel ("Management") regarding the design and implementation of the 2018 executive compensation program.
The Compensation Committee believes it is appropriate to consult with Management on executive compensation matters because each member of Management has significant involvement in and knowledge of the Company's business goals, strategies, and performance and can provide input and valuable feedback. The CEO provides recommendations with respect to the other executive officers' compensation, but he does not participate in decisions regarding his own compensation. The Compensation Committee considers Management's recommendations but retains full discretion in determining executive compensation.
Management was regularly invited to attend Compensation Committee meetings during 2018. The Compensation Committee generally meets in executive session outside the presence of the CEO and other Management. In carrying out its oversight responsibilities, the Compensation Committee regularly reports to the Board on the actions it has taken, as well as confers with the Board on compensation matters, as necessary.
The Compensation Committee's independent compensation consultant regularly attended Compensation Committee meetings during 2018.
Meridian: In connection with the Strategic Transformation, in July 2017, the Compensation Committee engaged a new independent compensation consultant, Meridian, to provide advice with respect to non-employee director and executive officer compensation matters for the remainder of 2017 and for 2018.
Meridian assisted the Compensation Committee with advice on selecting a new peer group for the Company, advice and recommendations regarding proposed changes to the Company's compensation philosophy and strategies for
2018 executive compensation matters, advice on executive compensation levels and practices, guidance on the design of our executive compensation plans for 2018, advice on revising our Executive Officer Stock Ownership Guidelines, determination of performance metrics for 2018 executive compensation, recommendations regarding our long-term incentive plans, and periodic reports to the Compensation Committee on market and industry compensation trends and regulatory developments.
Engagement of Meridian: Other than services provided by Meridian to the Nominating and Governance Committee in connection with the review of director compensation, the Compensation Committee approved all engagement fees and other retention terms for Meridian and determined Meridian's responsibilities for the period for which it served as the independent compensation consultant. The Compensation Committee assessed the independence of Meridian pursuant to applicable SEC and NASDAQ rules and concluded that their work for the Compensation Committee does not raise any conflict of interest.
In late 2017, the Compensation Committee, with the assistance of Meridian, reviewed the Company's peer group and determined that, in light of our Strategic Transformation, our peer group should be updated for 2018 executive compensation decisions. The peer group recommended by Meridian and approved by the Compensation Committee for 2018 consisted of the following 17 companies, which are in the asset management and custody banks, investment banking and brokerage and internet software and services industries, with a similar revenue range and market capitalization of the Company.
2018 Peer Group
●AllianceBernstein Holding L.P.
●Investment Technology Group, Inc.
●Artisan Partners Asset Management Inc.
●j2 Global, Inc.
●Benefitfocus, Inc.
●Ladenburg Thalmann Financial Services Inc.
●Cowen Inc.
●NIC Inc.
●Eaton Vance Corp.
●Oppenheimer Holdings Inc.
●Envestnet, Inc.
●Virtus Investment Partners, Inc.
●Federated Investors, Inc.
●Waddell & Reed Financial, Inc.
●Financial Engines, Inc.
●WisdomTree Investments, Inc.
●Interactive Brokers Group, Inc.
Meridian provided peer group comparison data for the Company's executive officers with respect to salary, annual cash incentive bonus, and equity grants, and the Compensation Committee used this data for background and context when setting the amounts of the various compensation elements for executive officers for 2018, but did not tie any compensation decisions directly to this data or set compensation to fall within a certain percentile of our peers.
It is important to note that in determining executive compensation, the Compensation Committee does not solely rely on comparative data from the peer group. Such comparative data provides helpful market information about our peer group, but the Compensation Committee believes in utilizing a number of resources, such as published compensation surveys and other available proxy and compensation data, to ensure that our executive compensation is competitive in the market in which we compete for talent. The Compensation Committee also considers pay for performance, individual capability, potential to create value, experience, and internal parity objectives in setting compensation. All applicable information is reviewed and considered in the aggregate, and the Compensation Committee does not place any particular weight on any one factor.
Overview of 2018 Executive Compensation Components
In 2018, the key elements of our executive compensation program for the NEOs consisted of:
base salary;
a target annual cash incentive bonus; and
long-term equity incentive awards comprised of options, time-based RSUs and PRSUs.
Each executive receives an annual base salary that provides a minimum fixed level of cash compensation that is intended to provide security and preserve an employee's commitment during downturns in the relevant industries and/or equity markets. The Compensation Committee considers a competitive base salary to be an important factor in retaining and attracting key employees in a competitive marketplace, but it also balances executives' base salaries with performance-based compensation elements to ensure that our executives' incentives are aligned with the objectives of the Company and our stockholders. Base salaries are initially established by the Compensation Committee pursuant to employment or other agreements with the executives and are set at a level that the Compensation Committee believes is competitive in the market place. Any annual changes thereafter may be based on an evaluation of many factors, such as our performance and annual cash compensation budget, each executive's individual performance, criticality of the role, experience of the executive, comparative market data and internal pay equity.
In 2018, the base salaries for our NEOs were increased mainly as a result of our new compensation philosophy and the updated benchmarks for our peer group in the market and industries in which we compete for talent. The Compensation Committee determined the salary increases for the NEOs, excluding Mr. Palmer, as set forth below:
(1) 2018 reflects (i) an annual base salary associated with Mr. Mackay's Base Role of $319,300 and (ii) an additional monthly stipend of $5,900 for each month he served in the Interim Roles (or eight months).
Mr. Clendening: Mr. Clendening's increase in base salary reflects not only the review of philosophy, market and peers discussed above, but also the Compensation Committee's review of Mr. Clendening's performance for 2018, which included a review of his impact on our successful financial and operational results for the year, leadership within our Company, accomplishments that affected our performance and achievement of our strategic goals throughout the year.
Mr. Mackay: Mr. Mackay's increase in base salary reflects his increased responsibilities in connection with his Interim Roles in which he served during 2018.
Mr. Stevenson: Mr. Stevenson's increase in base salary reflects our review of our compensation philosophy and review of market and peer data for executive compensation and takes into account internal pay parity. The increase also takes into account the additional responsibility he assumed in August, 2018 when he was given responsibility for the Company's strategy function.
All Other NEOs, excluding Mr. Palmer: The base salary increases for our other NEOs were made to more closely align with the updated benchmarks for our peer group in the market and industries in which we compete for talent and to better align internal pay. Each executive officer's performance was also considered in determining 2018 base salaries.
Mr. Palmer: Because Mr. Palmer is not an executive officer, his base salary increase was set by his manager and was in line with the Company's standard annual merit increases.
Annual Short-Term Incentive Plan/Bonus Payments
Executives are generally provided the opportunity to earn an annual performance-based cash incentive bonus. This bonus provides incentive for the achievement of our operational and financial goals, as well as individual goals, and assists in retaining, attracting, and motivating executives in the near-term, and provides a balance to the volatility of short-term equity prices and the related impact on the value of an executive's equity holdings. Target annual bonuses, as a percentage of salary, are generally established upon commencement of an executive's employment and are reviewed each year and updated when the Compensation Committee deems it appropriate.
In 2018, a substantial portion of our NEOs' compensation was paid pursuant to the Company's short-term bonus plan, which is tied to the achievement of our operational and financial goals as well as specific individual goals. Similar to 2017, the operational and financial metrics selected by the Compensation Committee for the 2018 annual bonus plan reflect the responsibilities of each NEO, such that they are tied to our overall Company performance or certain metrics related to the different businesses that an NEO oversees or in which an NEO is involved. Our 2018 annual bonus plan metrics are also tied to certain human resources foundation metrics and balanced scorecard metrics, which we believe will help increase our focus on operational objectives that are key to our growth strategy and advance our goal of operating as "One Company."
The Blucora, Inc. Annual Incentive Plan
On February 16, 2018, the Compensation Committee approved the Blucora, Inc. Annual Incentive Plan (the "Incentive Plan"). The Incentive Plan provides for annual cash bonuses to certain eligible employees identified by the Compensation Committee, which may include the Company's NEOs, that are tied to the achievement of pre-established performance goals. The 2018 Executive Bonus Program and 2018 Non-Executive Bonus Program described below were each adopted and operated pursuant to the Incentive Plan.
2018 Short-Term Incentive Programs
2018 Executive Bonus Program: In February 2018, our Compensation Committee approved our 2018 Executive Bonus Program (the "2018 Executive Bonus Program"), which allows potential bonus payments to be made to each of our executive officers based on the operational and financial metrics applicable to each executive officer as described further below.
2018 Bonus Program for Non-Executive Employees: Our 2018 Non-Executive Bonus Program ("2018 Non-Executive Bonus Program," and together with the 2018 Executive Bonus Program, the "Bonus Programs"), allows potential bonus payments to be made to our non-executive officers based on our operational and financial goals and a discretionary component. Mr. Palmer's 2018 bonus was paid under this program because Mr. Palmer is not an executive officer.
Target Bonus and Metrics: The target bonus for each NEO under the Bonus Programs was based on a percentage of annual base pay. The bonus target for each NEO was reviewed in 2018 in light of our updated benchmarks for our peer group in the market and industries in which we compete for talent. As a result of such review, the target bonus for Messrs. Stevenson, Oros and Baskaran and Ms. Bruder were increased in 2018 as shown below to ensure that they remained at competitive levels and to ensure internal pay parity. Mr. Athwal was hired in 2018; therefore, his target bonus reflected the new executive compensation philosophy at the time of his hire.
Target Bonus %
Todd C. Mackay(1)
Mathieu F. Stevenson (2)
Mr. Mackay's 2018 bonus was determined based on two bonus targets: (i) a bonus target of 55% associated with twelve months in his Base Role (the "Mackay Base Bonus") and (ii) a bonus target of 70% associated with time he spent serving in his Interim Roles (eight months) (the "Mackay Interim Bonus").
The increase in Mr. Stevenson's target bonus also took into account the additional responsibility he assumed during 2018 when he was given responsibility for the Company's strategy function.
Under the Bonus Programs, the potential bonus for each NEO for services rendered during 2018 is based on the achievement of financial and strategic performance metrics. The specific weighting of the financial or strategic performance metrics vary by executive based on responsibilities that are specific to the business unit for which the individual executive is responsible or for which the individual is assigned.
The payout percentage for each performance metric is determined based on the actual performance of the Company versus the performance targets established by our Compensation Committee. The maximum payout percentages for each metric were based on a sliding scale between designated levels of threshold, target and maximum achievement. The maximum payout percentages for the Bonus Programs were as follows:
2018 Executive Bonus Program:
Strategic Metrics - 100%;
Financial and Operational Metrics - 200%; and
2018 Non-Executive Bonus Program - 150%.
The ultimate payout of each bonus was based upon the (i) the target bonus amount for each individual, multiplied by (ii) the aggregate of the product of (a) the weighting of the applicable performance criteria for the individual and (b) the payout percentage for each performance criteria applicable to the individual.
For each participating NEO, the target bonus percentage, the financial and/or operational performance metrics used, and the weighting of each metric under the Bonus Plans were as follows:
Segment Revenue
Strategic Metrics (3)
Todd C. Mackay-Base Role (4)
Todd C. Mackay-Interim Roles (4)
The financial and operational metrics selected by the Compensation Committee for the Bonus Programs reflect the responsibilities of each NEO. For Messrs. Clendening, Athwal, Stevenson, Palmer and Ms. Bruder, and during the time he served in the Base Role, Mr. Mackay, the financial metrics were tied to our overall Company performance. For Messrs. Oros and Baskaran and for Mr. Mackay during the time he served in the Interim Roles, a portion of the financial metrics were tied to our overall Company performance and a portion tied to metrics related to the business units that they led.
"Other Metrics" includes certain units in our Tax Preparation segment and net advisory assets (inflows less outflows) in our Wealth Management segment ("Net Advisory Assets"). See "2018 Performance Targets vs. Actual Results" below for additional information regarding each of these metrics.
"Strategic Metrics" include operational metrics around the development and deployment of human resources foundational systems across the Company and the establishment of a balanced scorecard. See "2018 Performance Targets vs. Actual Results" below for additional information regarding each of these metrics.
Each of Mr. Mackay's bonus targets of 55% and 70% were based on financial metrics applicable to the Base Role and for the time that he served in the Interim Roles during 2018, respectively.
2018 Bonus Performance and Payout Scale: Pursuant to the Bonus Plans, the payout percentages for each performance metric were calculated using the following scale, with a maximum payout of 200% of the target amount:
(% of target bonus) (1) (2)
TaxAct Preparation Segment Units
HDV Net Advisory Assets Inflows
Under the terms of the 2018 Non-Executive Bonus Program, which governed Mr. Palmer and Mr. Mackay's bonus, the maximum payout percentage for each performance metric was 150% of the target amount.
Completion of the strategic metrics results in a bonus payout of 100% of the target amount.
The strategic metrics component had a target and maximum payout of 100% of the target amount, and if the Compensation Committee did not determine that the strategic metrics were achieved then no payment could be made.
The target payment amounts were intentionally set to be challenging and to require significant effort by our NEOs.
2018 Performance Targets vs. Actual Results: The specific Company financial targets for 2018 for each metric used in calculating the NEO bonus payouts are set forth in the table below along with the Company's actual performance for each of those metrics.
Wealth Management Segment Net Revenue (4)
Wealth Management Segment Advisory Assets Net Inflows(5)
Tax Preparation Segment Units (7)
101% of Target
HR Foundation (8)
Balanced Scorecard (8)
Per the terms of the Bonus Programs, the achievement percent is rounded up to the nearest whole percentage point.
Blucora Revenue is comprised of our Tax Preparation Segment Revenue and Wealth Management Segment Net Revenue (as described further in Footnote four below).
Reflects consolidated externally reported Adjusted EBITDA, adjusted for internally developed software, bonus accruals and other non-operational items. The Compensation Committee uses Adjusted EBITDA (subject to certain adjustments) because it believes it is an important measure of our operating performance. See Annex A - Non-GAAP Reconciliation" for a reconciliation of Adjusted EBITDA to Net Income and for additional information regarding this non-GAAP measure.
Reflects externally reported revenue for our Wealth Management segment, less amounts paid to advisors and tax professionals utilizing the wealth management platform.
Reflects Net Advisory Assets for our Wealth Management segment.
Reflects externally reported revenue for our Tax Preparation Segment normalized for internally developed software and other non-operational items.
The target is based on the portion of the number of units filed through the Company's TaxAct software that are considered for bonus purposes as compared to the previous year. The Actual column represents the achievement level over the previous year.
Reflects the achievement of the human resources foundational systems across the Company and development and deployment of a Company/ business segment balanced scorecard, as deemed by the Compensation Committee.
2018 Target Bonus and Performance Achievement: The following table sets forth, for each of the participating NEOs, the target annual incentive bonus for 2018, the overall achievement percentage based on each metric of the 2018 Bonus Programs, and the earned annual bonus for 2018 (in dollars and as a percentage of the target bonus):
Target Dollar Value
Davinder S. Athwal (1)
55%/70%
John D. Palmer (4)
The target dollar value shown reflects a pro-rata target bonus for 2018 based on the number of days of employment during 2018. Per the terms of Mr. Athwal's employment agreement his bonus for 2018 would be no less than his pro-rated target bonus.
The bonus target and bonus earned reflects the combination of the Mackay Base Bonus and the Mackay Interim Bonus as described above. The Mackay Interim Bonus is pro-rated for the number of days in which he served in the Interim Roles.
Mr. Stevenson ceased serving in his role in January 2019. Therefore, he was eligible to receive a 2018 bonus based on his applicable metrics under the 2018 Executive Bonus Program.
Mr. Palmer's bonus was paid under the 2018 Non-Executive Bonus Program and was based on the financial and operational metrics described above and also had a discretionary component.
Messrs. Oros and Baskaran did not serve in their roles for all of 2018. Therefore, they were not eligible to receive a bonus payment under the 2018 Executive Bonus Program.
Mr. Palmer's Bonus: In connection with his agreement to serve as our Principal Financial and Accounting Officer, we agreed to pay Mr. Palmer a $50,000 bonus that he received in 2018. As discussed above, Mr. Palmer served as our Principal Financial Officer from November 1, 2017 to February 20, 2018 and continues to serve as our Principal Accounting Officer.
Long-Term Equity Grants
The 2018 annual long-term equity incentive program included the following equity awards:
Time-Based RSUs: Time-based RSUs provide upside incentive when the value of the Company's stock appreciates, but also provide some protection in down markets. Because time-based RSUs vest into shares of the Company's common stock, they serve to create stockholder-management alignment. Each time-based RSU vests over a certain period of time as long as the employee remains employed by us, and each time-based RSU represents the right to receive one share of our common stock upon vesting.
PRSUs: PRSUs are performance-based compensation and provide incentive for the achievement of a company stated performance goal. The number of PRSUs that vest vary with the level of performance attained and vest into shares of the Company's common stock. Like the time-based RSUs, PRSUs serve to create stockholder-management alignment as well as provide upside incentive when the value of the Company's stock appreciates, but also provides some protection in down markets.
Stock Options: Stock options provide incentive for the achievement of stock price growth. They provide a high level of alignment with stockholders because individuals do not realize substantial value from stock options unless our stock price significantly improves following the grant. Stock options represent the right to purchase shares of our common stock. All stock options are required to be granted at an exercise price equal to the closing price of our common stock on the relevant date of grant under our incentive plans.
Prior to 2018, our long-term executive officer equity program consisted of stock options and time-based RSUs, and in 2018 we began utilizing PRSUs in addition to stock options and time-based RSUs. This transition was made in order for our executive compensation to be competitive with peers and to reflect market expectations for "at-risk" and performance-based compensation. We have de-emphasized options, which have a value based on the stock market, and have moved toward PRSUs, which are based on Company performance metrics that the Compensation Committee believes are in line with our long-term strategy and better align management with long-term stockholder value. In connection with this transition, it is the Compensation Committee's goal to continue to award a higher mix of PRSUs and to transition away from the heavy use of stock options, which we believe is competitive with our peers and in line with our compensation philosophy.
Grant Practices for Annual Equity Awards For 2018
In February 2018, following our review of our executive compensation philosophy and review of market and peer data discussed above, the Compensation Committee approved annual equity grants for all of our NEOs. The aggregate value of the 2018 annual equity grants for our NEOs, excluding Messrs. Mackay and Palmer consisted of:
50% time-based RSUs;
25% PRSUs; and
25% stock options.
Messrs. Mackay and Palmer received 100% time-based RSUs in 2018. In addition to his annual equity grant, Mr. Athwal received a one-time new-hire grant of time-based RSUs and stock options when he was hired in 2018.
Mr. Clendening: The aggregate value of Mr. Clendening's 2018 annual equity grant increased by 13.5% from the aggregate value of the equity grant he received in 2017, primarily as a result of our review of our executive compensation philosophy and review of market and peer data discussed above. In addition, when deciding to increase Mr. Clendening's aggregate equity grant amount, the Compensation Committee considered his ability to impact our successful financial and operational results, as well as his previous equity awards.
Other NEOs: The annual equity grants for each of our other NEOs for 2018 were made following our review of our executive compensation philosophy and review of market and peer data discussed above. These equity grants were made at a level our Compensation Committee believed to be competitive in the market and industry in which we compete for talent and also took into account internal pay parity. In 2017, Messrs. Stevenson, Bruder, Oros and Baskaran only received initial new-hire equity grants and did not receive annual equity grants. As a result, their 2017 equity grants are not comparable to their 2018 annual equity grants.
The annual equity grant for Mr. Mackay in 2018 was comprised solely of time-based RSUs because Mr. Mackay did not begin serving as an executive officer until December 24, 2018. The annual equity grant for Mr. Palmer in 2018 was comprised solely of time-based RSUs because Mr. Palmer was not an executive officer in 2018.
2018 NEO Annual Equity Grant Summary
In 2018, our Compensation Committee determined to make the following long-term equity incentive awards to our NEOs:
Share Amounts Awarded
Percentage of Total Annual Equity Award
Time-Based RSUs(#) (1)
(#) (1)
PRSUs# (2)
as a % of Total Grant Value
PRSUs
Ann J. Bruder (5)
Reflects grants that vest pro-rata over a three-year period beginning on the first anniversary of the date of grant. All equity grants were made under the Blucora, Inc. 2015 Incentive Plan, as Amended and Restated (the "2015 Plan"), except for the grant made to Mr. Mackay in December 2018 that was made under the 2018 Plan.
Reflects grants that are eligible to vest on January 1, 2021 subject to the Company achieving a certain level of non-GAAP earnings per share ("Non-GAAP EPS") for the calendar year of 2020. The performance period is from 2018 to 2020. All grants were made under the 2015 Plan.
Includes Mr. Athwal's 2018 annual equity grant. Mr. Athwal also received a new-hire grant when he joined the Company in February 2018 as described further below.
Includes Mr. Mackay's 2018 annual equity grant that he received in connection with his Base Role that vests pro-rata over a three-year period beginning on the first anniversary of the date of grant. Mr. Mackay also received a one-time grant upon the completion of his TA Interim Role, as described further below.
Ms. Bruder's award included a one-time amount of $250,000 that was awarded as a result of the updated benchmarks for our peer group in the market and industries in which we compete for talent and took into account internal pay parity.
When Messrs. Oros and Baskaran left the Company, they forfeited all unvested equity, which included 100% of the equity grants they received in 2018 along with other unvested equity from previous grants.
Athwal 2018 Initial New Hire Grant
In addition to the annual equity grant shown above, when Mr. Athwal was hired in February 2018, he received a new hire grant of $500,000, which consisted of 12,244 time-based RSUs and 26,122 stock options that vest pro-rata over a three-year period, as an inducement to join our Company. The aggregate value of Mr. Athwal's initial new hire grant and his 2018 annual equity grant was $1,500,000.
Mackay Grant
In addition to the annual equity grant shown above, when Mr. Mackay completed the TA Interim Role in December 2018 he received a one-time award of $440,000, which consisted of 18,464 time-based RSUs that vest in full on the two-year anniversary of the date of grant. See "Employment Agreements" for additional information. The aggregate value of Mr. Mackay's one-time grant and his 2018 annual equity grant was $564,000.
2018-2020 PRSUs Performance and Payout Scale
The PRSUs that were granted to certain NEOs (as described above) are eligible to vest following a three-year performance period, beginning on January 1, 2018 and ending December 31, 2020, subject to the Company's achievement of a certain level of non-GAAP EPS for the calendar year of 2020. The actual payout of PRSU shares will be based on the following payout scale: