DEF 14A
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14A-101)

Information Required in Proxy Statement

Schedule 14A Information

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Exchange Act of 1934 (Amendment No.     )

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PEABODY ENERGY CORPORATION

 

(Name of Registrant as Specified In Its Charter)

 

 

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SEC 1913 (02-02)


Table of Contents

 

LOGO

March 24, 2015

Dear Shareholder:

You are cordially invited to attend the 2015 Annual Meeting of Shareholders of Peabody Energy Corporation, which will be held on Monday, May 4, 2015, at 1:30 p.m., Central Time, at The Ritz-Carlton, St. Louis, 100 Carondelet Plaza, Clayton, Missouri.

During this meeting, shareholders will vote on the following items:

 

1.

Election of 12 directors for a one-year term;

 

2.

Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2015;

 

3.

Approval, on an advisory basis, of our named executive officers’ compensation;

 

4.

Approval of our 2015 Long-Term Incentive Plan;

 

5.

Shareholder proposal on proxy access, if properly presented; and

 

6.

Such other business that may properly come before the meeting.

The accompanying Notice of 2015 Annual Meeting of Shareholders and Proxy Statement contain complete details on these items and other matters. We also will be reporting on our business and responding to shareholder questions. If you have questions that you would like to raise at the meeting, we encourage you to submit written questions in advance (by mail or email) to our Corporate Secretary. This will help us respond to your questions during the meeting. If you would like to email your questions, please send them to ir@peabodyenergy.com.

Your understanding of, and participation in, the Annual Meeting is important, regardless of the number of shares you hold. To ensure your representation, we encourage you to vote over the telephone or Internet or to complete and return a proxy card/voting instruction form as soon as possible. If you attend the Annual Meeting, you may then revoke your proxy and vote in person if you so desire.

Thank you for your continued support of Peabody Energy. We look forward to seeing you on May 4.

Very truly yours,

 

 

LOGO

GREGORY H. BOYCE

Chairman and Chief Executive Officer

 


Table of Contents
2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   
LOGO      

PEABODY ENERGY

Peabody Plaza

701 Market Street

St. Louis, MO 63101-1826

NOTICE OF 2015 ANNUAL MEETING

OF SHAREHOLDERS

Peabody Energy Corporation (the “Company”) will hold its 2015 Annual Meeting of Shareholders at The Ritz-Carlton, St. Louis, 100 Carondelet Plaza, Clayton, Missouri, on Monday, May 4, 2015, at 1:30 p.m., Central Time, to:

 

1.

Elect 12 directors for a one-year term;

 

2.

Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2015;

 

3.

Approve, on an advisory basis, our named executive officers’ compensation;

 

4.

Approve our 2015 Long-Term Incentive Plan;

 

5.

Vote on a shareholder proposal on proxy access, if properly presented; and

 

6.

Consider any other business that may properly come before the meeting.

The Board of Directors has fixed March 12, 2015 as the record date for determining shareholders who will be entitled to receive notice of and vote at the Annual Meeting or any adjournment. Each share of Common Stock is entitled to one vote. As of the record date, there were 277,788,954 shares of our Common Stock outstanding.

If you own shares of Common Stock as of March 12, 2015, you may vote those shares via the Internet, by telephone or by attending the Annual Meeting and voting in person. If you received your proxy materials by mail, you may also vote your shares by completing and mailing your proxy card/voting instruction form.

Your vote is important. Whether or not you plan to attend the Annual Meeting, please cast your vote by telephone or the Internet, or complete, date and sign a proxy card/voting instruction form and return it in the envelope provided. If you attend the Annual Meeting, you may withdraw your proxy and vote in person, if you so choose.

ALEXANDER C. SCHOCH

Executive Vice President Law,

Chief Legal Officer and Secretary

March 24, 2015

 

IMPORTANT INFORMATION IF YOU PLAN TO ATTEND THE ANNUAL MEETING:

An admission card or other proof of ownership, together with valid government-issued photo identification such as a driver’s license or passport, is required to attend the Annual Meeting. If you are a shareholder of record, please retain the admission card printed on your Notice of Internet Availability of Proxy Materials or your proxy card for this purpose. Also, please indicate your intention to attend the Annual Meeting by checking the appropriate box on the proxy card, or, if voting by the Internet or by telephone, when prompted. If your shares are held by a bank or broker, you will need to ask that record holder for an admission card in the form of a confirmation of beneficial ownership. If you do not receive a confirmation of beneficial ownership or other admission card from your bank or broker, you must bring proof of share ownership (such as a copy of your most recent brokerage statement) to the Annual Meeting. Please note that seating in the meeting room is limited and you may be required to view the meeting from an overflow room.

 

 

PEABODY ENERGY CORPORATION    1


Table of Contents
2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

TABLE OF CONTENTS

 

NOTICE OF 2015 ANNUAL MEETING OF SHAREHOLDERS     1   
PROXY STATEMENT SUMMARY     4   

2015 Annual Meeting of Shareholders

    4   

Meeting Agenda and Voting Recommendations

    4   

Our Director Nominees

    4   

Governance Highlights

    5   

Executive Compensation Program Highlights

    5   

New in 2015

    6   

2014 Company Performance Highlights

    6   

2014 Executive Compensation Program

    7   

Reported Compensation vs. Realizable Pay

    8   
QUESTIONS AND ANSWERS REGARDING THE ANNUAL MEETING     11   
ELECTION OF DIRECTORS (ITEM 1)     15   

Director Qualifications

    15   
INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES     21   

Director Independence

    21   

Board Attendance and Executive Sessions

    21   

Director Orientation and Continuing Education

    22   

Board Leadership Structure

    22   

Role of the Board in Risk Oversight

    23   

Committees of the Board of Directors

    23   
REPORT OF THE AUDIT COMMITTEE     26   
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     27   
CORPORATE GOVERNANCE MATTERS     28   

Majority Voting Bylaw

    28   

Communications with the Board of Directors

    28   

Overview of Director Nominating Process

    29   
OWNERSHIP OF COMPANY SECURITIES     31   

Beneficial Owners of More Than Five Percent, Directors and Management

    31   

Section 16(a) Beneficial Ownership Reporting Compliance

    32   
COMPENSATION DISCUSSION AND ANALYSIS     33   

Executive Summary

    33   

2014 Say-on-Pay Results and Shareholder Outreach

    33   

Performance Basis of Our 2014 Executive Compensation Program

    34   

What We Pay and Why: Elements of Compensation

    35   

Base Salary

    35   

Annual Cash Incentive

    35   

Long-Term Equity Incentives

    39   

Additional Compensation Elements

    42   

Executive Compensation Program Changes for 2015

    43   

 

2    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

TABLE OF CONTENTS (continued)

 

How We Make Compensation Decisions

    43   

Risk Considerations

    43   

Responsibilities for Executive Compensation

    44   

Role of the Compensation Consultant and Legal Consultant

    45   

Compensation Comparator Group

    45   

Share Ownership Requirements

    46   

Prohibition on Hedging or Pledging Company Stock

    47   

Clawback Provisions

    47   

Transition Agreement with Mr. Boyce

    47   

Employment Agreements

    48   

Executive Severance Plan

    50   

Deductibility of Compensation Expenses

    51   
REPORT OF THE COMPENSATION COMMITTEE     52   
EXECUTIVE COMPENSATION     53   

2014 Summary Compensation Table

    53   

2014 Grants of Plan-Based Awards

    55   

Outstanding Equity Awards at 2014 Fiscal Year-End

    56   

2014 Option Exercises and Stock Vested

    59   

2014 Pension Benefits

    60   

2014 Nonqualified Deferred Compensation

    62   

Potential Payments Upon Termination or Change in Control

    63   
DIRECTOR COMPENSATION     65   

Annual Board and Committee Retainers

    65   

Annual Equity Compensation

    65   

2014 Director Compensation

    66   

Share Ownership Requirements

    66   

Director Compensation Changes for 2015

    67   
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION     67   
POLICY FOR APPROVAL OF RELATED PERSON TRANSACTIONS     68   
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (ITEM 2)     68   
APPROVAL, ON AN ADVISORY BASIS, OF OUR NAMED EXECUTIVE OFFICERS’ COMPENSATION (ITEM 3)     69   
APPROVAL OF OUR 2015 LONG-TERM INCENTIVE PLAN (ITEM 4)     70   
SHAREHOLDER PROPOSAL AND OUR STATEMENT IN OPPOSITION     80   
SHAREHOLDER PROPOSAL ON PROXY ACCESS (ITEM 5)     80   
ADDITIONAL INFORMATION     82   

Information About Shareholder Proposals

    82   

Householding of Proxies

    82   

Additional Filings

    83   

Costs of Solicitation

    83   
OTHER BUSINESS     83   
APPENDICES  

Appendix A – Reconciliation of Adjusted EBITDA

    84   

Appendix B – 2015 Long-Term Incentive Plan

    85   

 

PEABODY ENERGY CORPORATION    3


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

PROXY STATEMENT SUMMARY

 

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider in deciding whether to approve the items to be presented at the Annual Meeting. You should read this entire Proxy Statement carefully before voting. For more complete information regarding our 2014 operating performance, please also review our Annual Report on Form 10-K.

2015 Annual Meeting of Shareholders

 

  §  

Date and Time: May 4, 2015, 1:30 p.m., Central Time

 

  §  

Place: The Ritz-Carlton, St. Louis, 100 Carondelet Plaza, Clayton, Missouri

 

  §  

Record Date: March 12, 2015

 

  §  

Voting: Shareholders as of the close of business on the record date are entitled to vote. Each share of Common Stock is entitled to one vote for each director nominee and one vote for each of the other items to be voted on.

 

  §  

Common Stock Outstanding as of Record Date: 277,788,954

 

  §  

Registrar & Transfer Agent: American Stock Transfer & Trust Company, LLC

 

  §  

State of Incorporation: Delaware

Meeting Agenda and Voting Recommendations

 

     Our Board’s Recommendation

Election of Directors (page 15)

  FOR each nominee

Ratification of Auditors (page 68)

  FOR

Approval, on an advisory basis, of our named executive officers’ compensation (page 69)

  FOR

Approval of our 2015 Long-Term Incentive Plan (page 70)

  FOR

Shareholder proposal on proxy access (page 80)

  AGAINST

Consider other business that properly comes before the meeting

   

Our Director Nominees

 

           

Director

Since

    Principal Occupation   Committee Memberships  

Other

Public

Company

Boards

 
Name   Age             A           C           E       HSSE   NCG  

Gregory H. Boyce

    60        2005      Chairman and Chief Executive Officer           Ch             2   

William A. Coley*

    71        2004     

Former Chief Executive Officer,

British Energy Group plc

    Ch   M   M       0   

William E. James*

    69        2001     

General Partner,

RockPort Capital Partners LLC

    M       M     0   

Robert B. Karn III*

    73        2003      Former Managing Partner in Financial and Economic Consulting with Arthur Andersen LLP in St. Louis   M         M     2   

Glenn L. Kellow

    47        2015     

President and

Chief Executive Officer-elect

              0   

Henry E. Lentz*

    70        1998     

Former Managing Director,

Lazard Freres & Co. LLC

        M   Ch     3   

Robert A. Malone*

    63        2009     

Lead Independent Director,

former Executive Vice President,

BP plc and former Chairman and President, BP Americas Inc.

      M   M             1   

 

4    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

PROXY STATEMENT SUMMARY (continued)

 

 

 

           

Director

Since

    Principal Occupation   Committee Memberships  

Other

Public

Company

Boards

 
Name   Age             A           C           E       HSSE   NCG  

William C. Rusnack*

    70        2002     

Former President and Chief

Executive Officer, Premcor Inc.

  Ch   M   M             2   

Michael W. Sutherlin*

    68        2014     

Former President and Chief

Executive Officer, Joy Global Inc.

    M     M       1   

John F. Turner*

    73        2005     

Former U.S. Assistant Secretary

of State for the Bureau of

Oceans and International Environmental and Scientific

Affairs

        M   M     0   

Sandra A. Van Trease*

    54        2003      Group President, BJC Healthcare   M       Ch       1   

Heather A. Wilson*

    54        2013      President, South Dakota School of Mines and Technology               M   M     0   

* Independent Director

A Audit

C Compensation

E Executive

HSSE Health, Safety, Security and Environmental

NCG Nominating and Corporate Governance

M Member

Ch Chair

 

 

Governance Highlights

Good corporate governance is a priority at Peabody. Highlights include:

 

  ü

10 of 12 Director Nominees are Independent

 

  ü

Annual Election of All Directors

 

  ü

Majority Voting in Director Elections

 

  ü

Lead Independent Director

 

  ü

Structured Process for Board Risk Oversight

 

  ü

Active Shareholder Outreach

 

  ü

No Poison Pill

 

  ü

Executive Compensation Clawback Policy

 

  ü

Prohibition on Hedging and Pledging of Our Stock by Directors, Officers and Employees

Executive Compensation Program Highlights

Our executive compensation practices for our named executive officers (“NEOs”) are designed to drive performance and align with our shareholders’ long-term interests. Highlights include:

 

  ü

Seeking shareholder feedback on our executive compensation program, disclosure practices and corporate governance

 

  ü

Using performance-based (versus time-based) equity awards for most NEO long-term incentive awards

 

  ü

Transition to employment “at will” with all NEOs having “sunset” dates on employment agreements, including newly-appointed President and Chief Executive Officer-elect

 

  ü

Providing reasonable post-employment and change-in-control provisions through employment agreements and an Executive Severance Plan

 

  ü

No excise tax gross-ups for any NEO

 

  ü

Reviewing annually executive compensation program design, market competitiveness and best practices

 

  ü

Periodically reviewing our compensation program to minimize any features that might encourage undue risk-taking

 

  ü

No re-pricing of underwater stock options

 

PEABODY ENERGY CORPORATION    5


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

PROXY STATEMENT SUMMARY (continued)

 

 

 

  ü

Including double-trigger change-in-control provisions in NEO equity award agreements

 

  ü

Periodically reviewing executive compensation tally sheets, which summarize all current and future compensation opportunities, in making compensation decisions

 

  ü

Maintaining share ownership requirements for NEOs, which reinforce our strong focus on executive stock ownership and shareholder alignment

 

  ü

Providing limited perquisites only where business necessity dictates, such as security-related travel arrangements for our Chairman of the Board and Chief Executive Officer (“CEO”), and relocation and tax preparation and equalization services for expatriates

 

  ü

Retaining an independent compensation consultant and independent legal counsel to provide guidance and support to the Compensation Committee and the independent members of the Board (the “Special Committee”)

New in 2015

 

  ü

Changing the mix of long-term equity awards from 50% stock options and 50% performance units to a mix of 25% stock options, 25% time-based restricted stock (or, for retirement-eligible recipients, restricted stock units), and 50% performance units, to better align with competitive market practices, optimize share usage and balance the executive compensation program’s equity award mix

 

  ü

Changing the Total Shareholder Return (“TSR”) metric to reference the S&P Midcap 400 (excluding financial companies) rather than the S&P 500 (excluding financial companies), reflecting Standard & Poor’s decision to move our Common Stock to the S&P Midcap 400 Index

 

  ü

Updating the compensation peer group to validate the integrity of its composition for use in compensation comparisons, by eliminating four companies that are significantly larger than us based on revenues, market capitalization and other measures and replacing them with five companies that are more comparable to our size and exhibit strong business and operational similarities when compared to us

 

  ü

A voluntary $20,000 reduction in the annual retainer fee paid to our non-employee directors in recognition of market conditions and to align with our other cash conservation initiatives

 

  ü

No base salary increases for any of our NEOs other than in connection with Mr. Kellow’s promotion to President and CEO-elect

2014 Company Performance Highlights

In 2014, we delivered on a number of key initiatives as we continue to respond to challenging market conditions that have lasted longer than anticipated. We improved safety, reduced costs, increased productivity and are implementing further steps in our comprehensive plan to improve competitiveness and maintain adequate cash and liquidity.

Key safety, financial and operating highlights include:

 

  ü

We achieved another record year for safety by improving our global safety incidence rate 15% over 2013’s record performance

 

  ü

We implemented aggressive cost containment efforts that generated over $275 million in savings and resulted in our lowest U.S and Australian operating costs per ton since 2010

 

  ü

We increased U.S. productivity by 7% and Australian productivity by 20%

 

  ü

We delivered Adjusted EBITDA of $814 million, despite lower realized pricing of more than $550 million as compared to prior year

 

  ü

We had positive operating cash flow of $336.6 million and ended the year with total liquidity of $2.06 billion. Resource management transactions generated $130 million of cash, and capital spending was reduced to $194.4 million from nearly $1 billion in 2012

 

  ü

We reached record shipments levels from Australia and the North Antelope Rochelle Mine in the Powder River Basin of 38.2 million tons and 118.1 million tons, respectively

 

  ü

We installed new longwall equipment at the North Goonyella Mine and the Metropolitan Mine in Australia, resulting in increased productivity and lower unit costs

 

  ü

We successfully converted the Moorvale Mine in Australia to owner-operator status, and continue to realize cost savings from our other owner-operator conversions, which now comprise over 95% of our total Australian sales volume

 

6    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

PROXY STATEMENT SUMMARY (continued)

 

 

 

  ü

We earned awards for safety, financial performance, environmental excellence and social responsibility

 

  ü

We were recognized as the Energy Company of the Year, and our Chairman and CEO was named CEO of the Year at the 2014 Platts Global Energy Awards

Among the most challenging aspects of our business are managing through short-term business cycles and sharp multi-year market downturns. We responded with an aggressive set of initiatives that include cost containment measures, organizational restructuring and global repositioning of the operational platform.

Over the last two years, our Adjusted EBITDA has been adversely impacted by approximately $1.35 billion in lower pricing, primarily from lower seaborne coal prices. During this time, we were able to partly offset approximately $550 million of this impact, or 40%, through cost and productivity initiatives. We continue to take aggressive action to combat near-term cyclical market headwinds, and remain positive on the long-term coal fundamentals.

We are well positioned to benefit from the eventual improvement in the coal markets, and believe that our assets are located in some of the most competitive areas – the low-cost Southern Powder River and Illinois Basins in the U.S. and the high-growth Asian market. Additionally, our ability to generate cash improves by early 2017 as approximately $350 million of annual fixed obligations relating to the final Powder River Basin reserve installments and health benefit trust payments end within two years. We also benefit from the recent declines in the Australian dollar exchange rate and lower oil prices, as our unhedged positions for these two inputs has improved significantly since July 2014.

Adjusted EBITDA is a financial measure that is not recognized in accordance with U.S. generally accepted accounting principles (GAAP). A definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to its most comparable measure under U.S. GAAP are included in Appendix A to this Proxy Statement.

2014 Executive Compensation Program

For 2014, the principal components of NEO compensation were:

 

  1.

Base salary;

 

  2.

Annual cash incentive;

 

  3.

Long-term equity incentives; and

 

  4.

Retirement and other broad-based benefits provided on the same basis as for other executives.

The graph below illustrates the mix of target direct compensation for our NEOs as determined by the Compensation Committee and the Special Committee (together, the “Committees”). Additional detail about the Compensation Committee’s and Special Committee’s responsibilities appears on page 24. For purposes of the graph, target direct compensation includes base salary and target annual cash incentive and long-term equity incentive awards, but excludes special awards such as the time-based restricted stock units granted to our Chairman and CEO under his April 2013 Transition Agreement with us. These special awards are excluded because they are intended to facilitate an effective leadership succession and are not part of our regular executive compensation program.

Compared with the Industrial comparator group described on page 45, a greater portion of our target total direct compensation program is performance-based and at-risk. The Committees believe this overall mix provides an effective delivery of total direct compensation that:

 

  §  

Encourages alignment of NEO compensation with shareholders;

 

  §  

Guides NEO decision-making to deliver long-term value for the benefit of the enterprise;

 

  §  

Delivers competitive compensation with variable and performance-based elements exceeding market benchmarks only when performance is strong; and

 

  §  

Maintains a strong link to our performance and shareholder returns through a balanced incentive program in which most NEO compensation is significantly at risk.

As reflected in the graph, this heavy weighting of performance-based and at-risk compensation drives strong alignment with shareholders as evidenced by the value of these elements of NEO pay compared to target total direct compensation.

 

PEABODY ENERGY CORPORATION    7


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

PROXY STATEMENT SUMMARY (continued)

 

LOGO

 

(1)

Target total direct compensation excludes equity awards that are not part of our regular executive compensation program. Fixed compensation includes base salary; non-performance-based compensation includes restricted stock awards; and performance-based compensation includes annual cash incentive awards, stock option awards and performance unit awards.

In 2014, our NEOs achieved annual cash incentive payouts ranging from 114% to 122% of target, based on our performance against the Price-collar Adjusted EBITDA (as defined on page 37), Adjusted Total Costs, Total Sales Volumes and Global Safety Incidence Rate targets discussed on page 37, as well as their performance against individual goals as discussed on pages 37-38. By “controlling the controllable”, our NEOs demonstrated the appropriate focus and performance on those metrics that impact most significantly our annual performance results.

With respect to our performance unit program’s results, our NEOs achieved performance of only 18.75%, which was 81.25% below target, consistent with our three-year TSR performance relative to our coal comparator group and the S&P 500 Index (excluding financial services companies) during the 2012-2014 performance period, and our performance relative to our Return on Capital targets over the same period, all as described on pages 59-60. However, due to the decline in our share price during the same performance period, the value of the shares awarded was only 4%, or 96% below grant-date target value. In addition, as of December 31, 2014, all stock options held by our NEOs were “out of the money” and therefore had no realizable value. On their grant dates, these stock option awards had aggregate fair values of approximately $33 million.

Taken in the aggregate, these results demonstrate that our NEOs are achieving only 42% of targeted total direct compensation. Thus, this is in keeping with our pay philosophy and approach to align executive pay with shareholder returns.

The Committees believe the link between our direct compensation program and shareholder returns is best illustrated by comparing our Chairman and CEO’s compensation as reported in the 2014 Summary Compensation Table (“SCT”) on page 53 and his realizable pay during 2012, 2013 and 2014.

Reported Compensation vs. Realizable Pay

Pay reported in the SCT is the total compensation of an NEO in a given year (the “SCT compensation”). While the amounts shown in the SCT reflect the grant-date value of equity awards received by an NEO, they do not reflect the impact of stock price performance on realizable pay, which may be considerably more or less based on actual stock price performance. Our definition of “realizable pay” appears on page 9.

Realizable pay better illustrates the alignment between actual total compensation and shareholder returns, as measured by TSR. The vast majority of SCT compensation is an incentive for future performance and realizable only if we meet or exceed the applicable performance measures. We believe this supplemental information is important because it highlights the differences between SCT compensation and realizable pay, and the alignment of realizable pay to shareholder value.

 

8    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

PROXY STATEMENT SUMMARY (continued)

 

 

 

Our Chairman and CEO’s SCT compensation for 2013 and 2014 includes two of three $1 million time-based restricted stock unit awards to be made under his April 2013 Transition Agreement with us. These awards are intended to facilitate an effective leadership succession throughout 2014 to 2016 and are not part of our regular executive compensation program.

The following graph illustrates the difference between our Chairman and CEO’s SCT compensation and realizable pay in 2012, 2013 and 2014. This table should not be viewed as a replacement or substitute for the SCT or other compensation tables provided on pages 53-64. Average three-year total compensation is presented and displays a high level of performance-based and at-risk pay. Excluding the impact of transition-related restricted stock units (RSUs), average realizable pay was below SCT compensation by 67% for this three-year period. During this same three-year period, our cumulative TSR was a negative 75%.

 

Measurement    Definition

SCT Compensation

  

Amount as reflected in the “Total” column of the SCT.

Realizable Pay

  

Sum of base salary, paid annual cash incentive, paid performance-based equity awards granted in the performance period, target value of unvested performance-based equity awards granted in the performance period, value of vested or unvested restricted stock or restricted stock units granted in the performance period, “in-the-money” value of vested or unvested stock options granted in the performance period and all other compensation as indicated in the SCT; all equity awards are valued at $7.74, our closing market price per share on December 31, 2014.

Chairman and CEO Total Compensation

(as reported in SCT vs. Realizable Pay)

 

 

LOGO

 

($ in millions)

Chairman & CEO Total Compensation vs. Realizable Pay

       2012              2013              2014          3-Year
Average
     % Difference
from 3-Year
Average SCT
 

SCT Compensation

   $ 9.5       $ 10.8       $ 11.0       $ 10.4           

Realizable Pay(1)

   $ 3.5       $ 3.2       $ 3.6       $ 3.4         -67

TSR

     -19%         -25%         -59%         -34%(2)           
(1) 

Transition-related RSUs are excluded as they are not part of our regular executive compensation program.

 

(2) 

Cumulative TSR for the three-year period was a negative 75%.

 

PEABODY ENERGY CORPORATION    9


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

PROXY STATEMENT SUMMARY (continued)

 

 

 

The following graph illustrates the difference between compensation as described in the SCT and realizable pay for our NEOs (other than the Chairman and CEO) in 2012, 2013 and 2014. This table should not be viewed as a replacement or substitute for the SCT or other compensation tables provided below. The SCT compensation and realizable pay is based only on the NEOs identified in this Proxy Statement, and may or may not include the NEOs identified in each Proxy Statement for prior years. For example, SCT and realizable pay for 2012 excludes Mr. Kellow’s pay because his employment with us began in 2013. Average three-year total compensation is presented and displays a high level of performance-based and at-risk pay. Average realizable pay was below SCT compensation by 51% for this three-year period. During this same three-year period, our cumulative TSR was a negative 75%.

Total Compensation for NEOs (Other than the Chairman and CEO)

(as reported in SCT vs. Realizable Pay)

 

 

LOGO

 

($ in millions)

NEOs Total Compensation
(excludes Chairman and CEO) vs.

Realizable Pay

       2012              2013              2014          3-Year
Average
    

% Difference
from

3-Year Average
SCT

 

SCT Compensation

   $ 7.7       $ 13.3       $ 13.8       $ 11.6           

Realizable Pay

   $ 4.1       $ 6.2       $ 6.7       $ 5.7         -51

TSR

     -19%         -25%         -59%         -34%(1)           
(1) 

Cumulative TSR for the three-year period was a negative 75%.

 

10    PEABODY ENERGY CORPORATION


Table of Contents
2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

 

QUESTIONS AND ANSWERS REGARDING THE ANNUAL MEETING

 

Q: Why did I receive a notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

 

A:

In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each shareholder of record, we may furnish proxy materials, including this Proxy Statement and the Peabody Energy Corporation (“Peabody” or the “Company”) 2014 Annual Report to Shareholders, by providing access to them via the Internet. We believe this allows us to provide our shareholders with the information they need, while reducing delivery costs and the environmental impact of our Annual Meeting.

 

    

Some shareholders will not receive printed copies of the proxy materials unless they request them. Instead, a Notice of Internet Availability of Proxy Materials (the “Notice”) was mailed which tells them how to access and review all of the proxy materials on the Internet. The Notice also provides information about how to submit a proxy on the Internet or by telephone. If you received a Notice and would like to receive a paper or email copy of our proxy materials, you should follow the instructions for requesting them in the Notice.

 

Q: Why am I receiving these materials?

 

A:

We are providing these proxy materials to you on the Internet or delivering printed versions of these materials to you by mail in connection with our solicitation of proxies to be voted at our Annual Meeting of Shareholders, which will take place on May 4, 2015. These materials were first made available on the Internet or mailed to shareholders on or about March 24, 2015. You are invited to attend the Annual Meeting and requested to vote on the items described in this Proxy Statement.

 

Q: What is included in these materials?

 

A:

These materials include:

 

  §  

Our Proxy Statement for the Annual Meeting; and

 

  §  

Our 2014 Annual Report to Shareholders, which includes our audited consolidated financial statements.

 

    

If you received printed versions of these materials, they also include the proxy card/voting instruction form for the Annual Meeting.

 

Q: What am I being asked to vote on?

 

A:

You are being asked to vote on the following items:

 

  §  

Election of Gregory H. Boyce, William A. Coley, William E. James, Robert B. Karn III, Glenn L. Kellow, Henry E. Lentz, Robert A. Malone, William C. Rusnack, Michael W. Sutherlin, John F. Turner, Sandra A. Van Trease and Heather A. Wilson as directors for a one-year term;

 

  §  

Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2015;

 

  §  

Approval, on an advisory basis, of our named executive officers’ compensation;

 

  §  

Approval of our 2015 Long-Term Incentive Plan;

 

  §  

Shareholder proposal on proxy access, if properly presented; and

 

  §  

Any other matter properly introduced at the meeting.

 

Q: What are the Board’s voting recommendations?

 

A:

The Board recommends the following votes:

 

  §  

FOR the election of Gregory H. Boyce, William A. Coley, William E. James, Robert B. Karn III, Glenn L. Kellow, Henry E. Lentz, Robert A. Malone, William C. Rusnack, Michael W. Sutherlin, John F. Turner, Sandra A. Van Trease and Heather A. Wilson as directors (Item 1);

 

  §  

FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2015 (Item 2);

 

PEABODY ENERGY CORPORATION    11


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

QUESTIONS AND ANSWERS REGARDING THE ANNUAL MEETING (continued)

 

 

 

  §  

FOR the advisory resolution to approve our named executive officers’ compensation (Item 3);

 

  §  

FOR approval of our 2015 Long-Term Incentive Plan (Item 4); and

 

  §  

AGAINST the shareholder proposal on proxy access (Item 5).

 

Q: Will any other matters be voted on?

 

A:

We are not aware of any other matters that will be brought before the shareholders for a vote at the Annual Meeting. If any other matter is properly brought before the meeting, your proxy will authorize each of Henry E. Lentz and Alexander C. Schoch to vote on such matters in his discretion.

 

Q: How do I vote?

 

A:

If you are a shareholder of record or hold Common Stock through the Peabody Investments Corp. Employee Retirement Account (or any of the other 401(k) plans sponsored by our subsidiaries), you may vote using any of the following methods:

 

  §  

Via the Internet, by visiting the website “www.proxyvote.com” and following the instructions for Internet voting on your Notice or proxy card/voting instruction form;

 

  §  

By dialing 1-800-690-6903 and following the instructions for telephone voting on your Notice or proxy card/voting instruction form;

 

  §  

If you received your proxy materials by mail, by completing and mailing your proxy card/voting instruction form; or

 

  §  

By casting your vote in person at the Annual Meeting.

 

    

If you vote over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible. The telephone and Internet voting facilities for the shareholders of record of all shares, other than those held in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries), will close at 10:59 p.m. Central Time on May 3, 2015. The Internet and telephone voting procedures are designed to authenticate shareholders by use of a control number and to allow you to confirm that your instructions have been properly recorded.

 

    

If you participate in the Peabody Energy Stock Fund under the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries), and had shares of Common Stock credited in your account as of the record date of March 12, 2015, you will receive a single Notice or proxy card/voting instruction form with respect to all shares registered in your name, whether inside or outside of the plan. If your accounts inside and outside of the plan are not registered in the same name, you will receive a separate Notice or proxy card/voting instruction form with respect to the shares credited in your plan account. Voting instructions regarding plan shares must be received by 10:59 p.m. Central Time on April 29, 2015, and all telephone and Internet voting facilities with respect to plan shares will close at that time.

 

    

Shares of Common Stock in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries) will be voted by Vanguard Fiduciary Trust Company (“Vanguard”), as trustee of the plan. Plan participants should provide their voting instructions to Vanguard for each action to be taken under proxy by Internet or telephone, or by completing and returning a proxy card/voting instruction form. All voting instructions from plan participants will be kept confidential. If a plan participant fails to sign or to timely return the proxy card/voting instruction form or otherwise timely provide his or her instructions by telephone or over the Internet, the shares allocated to such participant, together with unallocated shares, will be voted in the same proportion as plan shares for which Vanguard receives voting instructions.

 

    

If you vote by Internet or telephone, or return your signed proxy card/voting instruction form, your shares will be voted as you indicate. If you do not indicate how your shares are to be voted on a matter, your shares will be voted for all matters in accordance with the Board’s voting recommendations.

 

    

If your shares are held in a brokerage account in your broker’s name (also known as “street name”), you should follow the instructions for voting provided by your broker or nominee. You may submit voting instructions by Internet or telephone or, if you received your proxy materials by mail, you may complete and mail a proxy card/voting instruction form to your broker or nominee. If you provide specific voting instructions by telephone, Internet or mail, your broker or nominee will vote your shares as you have directed. Please note that shares in our U.S. Employee Stock Purchase Plan are held in street name by Computershare Ltd., the plan administrator.

 

12    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

QUESTIONS AND ANSWERS REGARDING THE ANNUAL MEETING (continued)

 

 

 

    

Ballots will be provided during the Annual Meeting to anyone who wants to vote in person at the meeting. If you hold shares in street name, you must request a confirmation of beneficial ownership from your broker or nominee to vote in person at the meeting.

 

Q: Can I change my vote?

 

A:

Yes. If you are a shareholder of record, you can change your vote or revoke your proxy before the Annual Meeting by:

 

  §  

Submitting a valid, later-dated proxy card/voting instruction form;

 

  §  

Submitting a valid, subsequent vote by telephone or the Internet at any time prior to 10:59 p.m. Central Time on May 3, 2015;

 

  §  

Notifying our Corporate Secretary in writing that you have revoked your proxy; or

 

  §  

Completing a written ballot at the Annual Meeting.

 

    

You can revoke your voting instructions with respect to shares held in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries) at any time prior to 10:59 p.m. Central Time on April 29, 2015 by timely delivery of an Internet or telephone vote, or a properly executed, later-dated proxy card/voting instruction form, or by delivering a written revocation of your voting instructions to Vanguard.

 

    

If your shares are held in a brokerage account in your broker’s or nominee’s name, you should follow the instructions for changing or revoking your vote provided by your broker or nominee.

 

Q: Is my vote confidential?

 

A:

Yes. All proxies, ballots and vote tabulations that identify how individual shareholders voted will be kept confidential and not be disclosed to our directors, officers or employees, except in limited circumstances, including:

 

  §  

When disclosure is required by law;

 

  §  

During any contested solicitation of proxies; or

 

  §  

When written comments by a shareholder appear on a proxy card/voting instruction form or other voting material.

 

Q: What will happen if I do not instruct my broker how to vote?

 

A:

If your shares are held in street name and you do not instruct your broker how to vote, one of two things can happen depending on the type of proposal. Under New York Stock Exchange (“NYSE”) rules, brokers have discretionary power to vote your shares on “routine” matters, but they do not have discretionary power to vote your shares on “non-routine” matters. We believe the only proposal that will be considered routine under NYSE rules is Item 2, which means your broker may vote your shares in its discretion on that item if you have not provided instructions. This is known as “broker discretionary voting.”

 

    

The election of directors (Item 1) and Items 3, 4, and 5 are considered non-routine matters. Accordingly, your broker may not vote your shares with respect to these items if you have not provided instructions. This is called a “broker non-vote.”

 

    

We strongly encourage you to submit your proxy and exercise your right to vote as a shareholder.

 

Q: How will my Company stock in the Peabody Investments Corp. Employee Retirement Account or other 401(k) plans sponsored by the Company’s subsidiaries be voted?

 

A:

Vanguard, as the plan trustee, will vote your shares according to your instructions if you vote by Internet or telephone or send in a completed proxy card/voting instruction form before 10:59 p.m. Central Time on April 29, 2015. All telephone and Internet voting facilities with respect to plan shares will close at that time. Vanguard will vote allocated shares of Common Stock for which it has not received direction, as well as shares not allocated to individual participant accounts, in the same proportion as plan shares for which Vanguard receives voting instructions.

 

Q: How many shares must be present to hold the Annual Meeting?

 

A:

Holders of a majority of the shares of outstanding Common Stock as of the record date must be represented in person or by proxy at the Annual Meeting in order to conduct business. This is called a quorum. If you vote, your shares will be part of the quorum. Abstentions, “Withheld” votes and broker non-votes also will be counted in determining whether a quorum exists.

 

PEABODY ENERGY CORPORATION    13


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

QUESTIONS AND ANSWERS REGARDING THE ANNUAL MEETING (continued)

 

 

 

Q: What vote is required to approve the proposals?

 

A:

In the election of directors (Item 1), the number of shares voted “For” a nominee must exceed 50% of the number of votes cast with respect to such nominee’s election in order for such nominee to be elected. Votes cast include votes to withhold authority with respect to a nominee’s election, but exclude abstentions and broker non-votes. If the number of shares voted “For” a nominee does not exceed 50% of the number of votes cast with respect to such nominee’s election, our Corporate Governance Guidelines require that such nominee promptly tender his or her resignation to the Chairman of the Board following certification of the shareholder vote. The procedures to be followed by the Board with respect to such resignation are described on page 28.

 

    

The proposals to ratify the appointment of Ernst & Young LLP (Item 2), to approve, on an advisory basis, our named executive officers’ compensation (Item 3), to approve our 2015 Long-Term Incentive Plan (Item 4) and to approve the shareholder proposal on proxy access (Item 5) will require approval by the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. Abstentions will count as a vote against these proposals, and broker non-votes will have no effect on these proposals (excluding Item 2 for which we do not expect any broker non-votes). Votes will be tabulated by the independent inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes.

 

Q: What does it mean if I receive more than one Notice or proxy card or voting instruction form?

 

A:

It means your shares are registered differently or are held in more than one account at the transfer agent and/or with banks or brokers. Please vote all of your shares.

 

Q: Who may attend the Annual Meeting?

 

A:

All of our shareholders as of March 12, 2015 may attend the Annual Meeting.

 

Q: What do I need to do to attend the Annual Meeting?

 

A:

An admission card or other proof of ownership, together with valid government-issued photo identification such as a driver’s license or passport, is required to attend the Annual Meeting. The registration desk will open at 12:30 p.m. on the day of the meeting, and the meeting will begin at 1:30 p.m. Please note that seating in the meeting room is limited and shareholders may be required to view the meeting from an overflow room.

 

    

If you are a shareholder of record or a participant in the Peabody Investments Corp. Employee Retirement Account (or other 401(k) plans sponsored by our subsidiaries), your admission card is printed on the Notice or attached to your proxy card or voting instruction form. You will need to bring this admission card with you to the Annual Meeting.

 

    

If you own shares in street name, you will need to ask your bank or broker for an admission card in the form of a confirmation of beneficial ownership. You will need to bring a confirmation of beneficial ownership with you to vote at the Annual Meeting. If you do not receive your confirmation of beneficial ownership in time, bring your most recent brokerage statement with you to the Annual Meeting. We can use that to verify your share ownership and admit you to the meeting; however, you will not be able to vote your shares at the meeting without a confirmation of beneficial ownership.

 

    

For safety reasons, we will not allow anyone to bring large bags, briefcases, packages, or other similar items into the meeting or overflow rooms, or to record or photograph the meeting.

 

Q: Where can I find the voting results of the Annual Meeting?

 

A:

We plan to announce preliminary voting results at the Annual Meeting and to publish final results in a Current Report on Form 8-K filed with the SEC within four business days after the Annual Meeting.

 

14    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

ELECTION OF DIRECTORS (ITEM 1)

 

The Board of Directors has nominated Gregory H. Boyce, William A. Coley, William E. James, Robert B. Karn III, Glenn L. Kellow, Henry E. Lentz, Robert A. Malone, William C. Rusnack, Michael W. Sutherlin, John F. Turner, Sandra A. Van Trease and Heather A. Wilson for election as directors, each to serve for a term of one year and until his or her successor is duly elected and qualified. Each nominee is currently serving as a director and has consented to serve for the new term. Should any of them become unavailable for election, your proxy authorizes us to vote for such other person, if any, as the Board may recommend.

The Board of Directors recommends that you vote “FOR” the Director nominees named above.

Director Qualifications

Under its charter, the Nominating and Corporate Governance Committee reviews with the Board, at least annually, the requisite qualifications, independence, skills and characteristics of Board candidates, members and the Board as a whole. While the selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, the Committee believes that candidates should generally meet the following criteria:

 

  Ø

Broad training, experience and a successful track record at senior policy-making levels in business, government, education, technology, accounting, law, consulting and/or administration;

 

  Ø

The highest personal and professional ethics, integrity and values;

 

  Ø

Commitment to representing our long-term interests and those of all of our shareholders;

 

  Ø

An inquisitive and objective perspective, strength of character and the mature judgment essential to effective decision-making;

 

  Ø

Expertise that is useful to us and complementary to the background and experience of other Board members; and

 

  Ø

Sufficient time to devote to Board and committee activities and to enhance their knowledge of our business, operations and industry.

The Board believes that all of our directors meet these criteria. In addition, as outlined below, each director brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including the coal industry, related energy industries, engineering, finance and accounting, operations, environmental affairs, international affairs, governmental affairs and administration, public policy, healthcare, corporate governance, board service and executive management.

We believe the Board as a whole and each of our directors individually possess the necessary qualifications and skills to effectively advise management on strategy, monitor our performance and serve our best interests and the best interests of our shareholders.

 

     

GREGORY H. BOYCE

Age: 60

Director Since: March 2005

 

Board Committees:

    Executive (Chair)

 

Other Public Directorships:

    Marathon Oil Corporation

    Monsanto Company

Mr. Boyce was elected Chairman of the Board in October 2007 and has been a director of the Company since March 2005. He was named Chief Executive Officer Elect of the Company in March 2005 and assumed the position of Chief Executive Officer in January 2006. He was President of the Company from October 2003 to December 2007 and was Chief Operating Officer of the Company from October 2003 to December 2005. He previously served as Chief Executive – Energy of Rio Tinto plc (an international natural resource company) from 2000 to 2003. Other prior positions include President and Chief Executive Officer of Kennecott Energy Company from 1994 to 1999 and President of Kennecott Minerals Company from 1993 to 1994. He has extensive engineering and operating experience with Kennecott. Mr. Boyce serves on the board of directors of Marathon Oil Corporation and Monsanto Company. He is Chairman of the Coal Industry Advisory Board of the International Energy Agency and is a former Chairman of the National Mining Association. He serves on the Board of Directors of the U.S. China Business Council, and is a member of the Business Council, Business Roundtable and the

 

PEABODY ENERGY CORPORATION    15


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

ELECTION OF DIRECTORS (ITEM 1) (continued)

 

 

 

National Coal Council. In addition, Mr. Boyce is a member of the Board of Trustees of Washington University in St. Louis and the Advisory Council of the University of Arizona’s Department of Mining and Geological Engineering. He also is a member of the Board of Commissioners for the St. Louis Science Center.

Mr. Boyce’s extensive experience in the global energy and mining industries, combined with his drive for innovation and excellence, make him highly qualified to serve as our Chairman and Chief Executive Officer and, following the Annual Meeting, as our Executive Chairman.

 

     

WILLIAM A. COLEY

Age: 71

Director Since: March 2004

 

Board Committees:

    Compensation (Chair)

    Executive

    Health, Safety, Security and         Environmental

 

Other Public Directorships:

    None

 

Former Public Directorships:

    British Energy Group plc

    CT Communications, Inc.

    SouthTrust Bank

From March 2005 to July 2009, Mr. Coley served as Chief Executive Officer and Director of British Energy Group plc, the United Kingdom’s largest electricity producer. He was previously a non-executive director of British Energy. Mr. Coley served as President of Duke Power, the U.S.-based global energy company, from 1997 until his retirement in February 2003. During his 37-year career at Duke Power, Mr. Coley held various officer-level positions in the engineering, operations and senior management areas, including Vice President, Operations (1984-1986), Vice President, Central Division (1986-1988), Senior Vice President, Power Delivery (1988-1990), Senior Vice President, Customer Operations (1990-1991), Executive Vice President, Customer Group (1991-1994) and President, Associated Enterprises Group (1994-1997). Mr. Coley was elected to the board of Duke Power in 1990 and was named President following Duke Power’s acquisition of PanEnergy in 1997. Mr. Coley earned his B.S. in electrical engineering from the Georgia Institute of Technology and is a registered professional engineer. He is also a director of two private companies, E. R. Jahna Enterprises and Ontario Power Generation.

Mr. Coley’s executive management and energy industry experience, together with his past service on other public company boards of directors, make him a valued advisor and highly qualified to serve as a member of the Board and its Executive and Health, Safety, Security and Environmental Committees and as Chair of its Compensation Committee.

 

     

WILLIAM E. JAMES

Age: 69

Director Since: July 2001

  

Board Committees:

    Compensation

    Nominating and Corporate         Governance

  

Other Public Directorships:

    None

 

Former Public Directorships:

    Ener1, Inc.

In July 2000, Mr. James co-founded RockPort Capital Partners LLC, a venture capital fund specializing in energy and power, advanced materials, process and prevention technologies, transportation and green building technologies. From July 2000 to December 2013, he was Managing General Partner of the fund. In January 2014, he became a General Partner of the fund. Prior to joining RockPort, Mr. James co-founded and served as Chairman and Chief Executive Officer of Citizens Power LLC, the nation’s first and a leading power marketer. He also co-founded the nonprofit Citizens Energy Corporation and served as the Chairman and Chief Executive Officer of Citizens Corporation, its for-profit holding company, from 1987 to 1996. Mr. James is also a director of a private company, MicroSeismic, Inc.

Mr. James’ executive management and energy industry experience, together with his past service on another public company board of directors, make him a valued advisor and highly qualified to serve as a member of the Board and its Compensation and Nominating and Corporate Governance Committees.

 

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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

ELECTION OF DIRECTORS (ITEM 1) (continued)

 

 

 

     

ROBERT B. KARN, III

Age: 73

Director Since: January 2003

 

Board Committees:

    Audit

    Nominating and Corporate

        Governance

 

Other Public Directorships:

    Natural Resource Partners L.P.

    Numerous NYSE-listed closed-end, open-end mutual and exchange-traded funds under the Guggenheim

        Financial Family of Funds

        (about 85 funds)

Investment Company Directorships:

    Kennedy Capital Management

 

Former Investment Company Directorships:

    Fiduciary/Claymore Dynamic Equity Fund

Mr. Karn is a financial consultant and former managing partner in financial and economic consulting with Arthur Andersen LLP in St. Louis. Before retiring from Arthur Andersen in 1998, Mr. Karn served in a variety of accounting, audit and financial roles over a 33-year career, including Managing Partner in charge of Arthur Andersen’s global coal mining practice from 1981 through 1998. He is a Certified Public Accountant and has served as a Panel Arbitrator with the American Arbitration Association.

Mr. Karn’s extensive experience in accounting, auditing and financial matters, together with his service on other boards of directors, make him a valued advisor and highly qualified to serve as a member of the Board and its Audit and Nominating and Corporate Governance Committees.

 

     

GLENN L. KELLOW

Age: 47

Director Since: January 2015

 

Board Committees:

    None

 

Other Public Directorships:

    None

Mr. Kellow was named our President and Chief Operating Officer in August 2013 and our President and Chief Executive Officer-elect in January 2015, at which time he also became a member of our Board. He has executive responsibility for all aspects of our global operations, including safety, environment, production, sales and marketing, engineering and planning. Mr. Kellow has extensive experience in the global resource industry, where he has served in multiple executive, operational and financial roles in coal and other commodities in the United States, Australia and South America. Prior to joining Peabody, Mr. Kellow held multiple leadership posts on three continents over a 28-year career with BHP Billiton Ltd., the world’s largest mining company, including senior appointments as President, Aluminum and Nickel (2012-2013), President, Stainless Steel Materials (2010-2012), President and Chief Operating Officer, New Mexico Coal (2007-2010), and Chief Financial Officer, Base Metals (2003-2007). He is a former director of the World Coal Association and the U.S. National Mining Association, and a past member of the executive committee of the Western Australian Chamber of Minerals and Energy and the advisory board of the Energy and Mining Institute of the University of Western Australia. Mr. Kellow also was the Chairman of Worsley Alumina (Australia), Chairman of Mozal (Mozambique) and Chairman of the global Nickel Institute.

Mr. Kellow’s extensive experience in the global resource industry makes him highly qualified to serve as a member of our Board and our President and CEO-elect.

 

PEABODY ENERGY CORPORATION    17


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

ELECTION OF DIRECTORS (ITEM 1) (continued)

 

 

 

     

HENRY E. LENTZ

Age: 70

Director Since: February 1998

 

Board Committees:

    Health, Safety, Security and Environmental

    Nominating and Corporate

        Governance (Chair)

 

Other Public Directorships:

    CARBO Ceramics, Inc.

    Macquarie Infrastructure Company

    WPX Energy, Inc.

Former Public Directorships:

    Rowan Companies, Inc.

Mr. Lentz served as a Managing Director of Lazard Frères & Co. LLC, an investment banking firm, from June 2009 to May 2011. He was a Managing Director of Barclays Capital, an investment banking firm and successor to Lehman Brothers Inc., an investment banking firm, from September 2008 to June 2009. From January 2004 to September 2008 he was employed as an Advisory Director by Lehman Brothers. He joined Lehman Brothers in 1971 and became a Managing Director in 1976. He left the firm in 1988 to become Vice Chairman of Wasserstein Perella Group, Inc., an investment banking firm. In 1993, he returned to Lehman Brothers as a Managing Director and served as head of the firm’s worldwide energy practice. In 1996, he joined Lehman Brothers’ Merchant Banking Group as a Principal and in January 2003 became a consultant to the Merchant Banking Group.

Mr. Lentz’s experience in investment banking and financial matters, together with his experience in serving on other public company boards of directors, make him a valued advisor and highly qualified to serve as a member of the Board and its Health, Safety, Security and Environmental Committee and as Chairman of its Nominating and Corporate Governance Committee.

 

     

ROBERT A. MALONE

Age: 63

Director Since: July 2009

 

Board Committees:

    Compensation

    Executive

 

Lead Independent Director

 

Other Public Directorships:

    Halliburton Company

Mr. Malone was elected Executive Chairman, President and CEO of First Sonora Bancshares, Inc., a financial services holding company, in October 2014. He was previously President and Chief Executive Officer of the First National Bank of Sonora, Texas, a position he held since October 2009. He is a retired Executive Vice President of BP plc and the retired Chairman of the Board and President of BP America Inc., at the time the largest producer of oil and natural gas and the second largest gasoline retailer in the U.S. He served in that position from 2006 to 2009. Mr. Malone previously served as Chief Executive Officer of BP Shipping Limited from 2002 to 2006, as Regional President Western United States, BP America Inc. from 2000 to 2002 and as President, Chief Executive Officer and Chief Operating Officer, Alyeska Pipeline Service Company from 1996 to 2000. Mr. Malone previously served in senior positions with Kennecott Copper Corporation. He is also a director of four private companies, First Sonora Bancshares, Inc., the First National Bank of Sonora, Texas, INTERA Incorporated and International City Mortgage, Inc.

Mr. Malone’s global executive operating experience, including crisis management and safety performance, and mining, engineering and energy industry experience, together with his service on another public company board of directors, make him a valued advisor and highly qualified to serve as a member of the Board and its Compensation and Executive Committees and as our Lead Independent Director.

 

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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

ELECTION OF DIRECTORS (ITEM 1) (continued)

 

 

 

     

WILLIAM C. RUSNACK

Age: 70

Director Since: January 2002

 

Board Committees:

    Audit (Chair)

    Compensation

    Executive

 

Other Public Directorships:

    Sempra Energy Company

    Flowserve Corporation

 

Former Public Directorships:

    Solutia Inc.

Mr. Rusnack is the former President and Chief Executive Officer of Premcor Inc., one of the largest independent oil refiners in the U.S. prior to its acquisition by Valero Energy Corporation in 2005. He served as President, Chief Executive Officer and Director of Premcor from 1998 to February 2002. Prior to joining Premcor, Mr. Rusnack was President of ARCO Products Company, the refining and marketing division of Atlantic Richfield Company. During a 31-year career at ARCO, he was also President of ARCO Transportation Company and Vice President of Corporate Planning.

Mr. Rusnack’s executive management and energy industry experience, together with his service on other public company boards of directors, make him a valued advisor and highly qualified to serve as a member of the Board and its Executive and Compensation Committees and as Chair of its Audit Committee.

 

     

MICHAEL W. SUTHERLIN

Age: 68

Director Since: January 2014

 

Board Committees:

    Compensation

    Health, Safety, Security and

        Environmental

 

Other Public Directorships:

    Tesco Corporation

 

Former Public Directorships:

    Joy Global Inc.

Mr. Sutherlin is the former President and Chief Executive Officer of Joy Global Inc., a mining equipment and services provider, having served in that position from 2006 to 2013. From 2003 to 2006, he served as Executive Vice President of Joy Global Inc. and as President and Chief Operating Officer of its subsidiary, Joy Mining Machinery. Prior to joining Joy Global Inc., Mr. Sutherlin served as President and Chief Operating Officer of Varco International, Inc.

Mr. Sutherlin’s executive operating experience and industry experience, together with his experience in serving on other public company boards of directors, make him a valued advisor and highly qualified to serve as a member of the Board and its Compensation and Health, Safety, Security and Environmental Committees.

 

     

JOHN F. TURNER

Age: 73

Director Since: July 2005

 

Board Committees:

    Health, Safety, Security and

        Environmental

    Nominating and Corporate

        Governance

 

Other Public Directorships:

    None

 

Former Public Directorships:

    American Electric Power

        Company, Inc.

    Ashland, Inc.

    International Paper Company

Mr. Turner served as Assistant Secretary of State for the Bureau of Oceans and International Environmental and Scientific Affairs from November 2001 to July 2005. Mr. Turner was previously President and Chief Executive Officer of The Conservation Fund, a national nonprofit organization dedicated to public-private partnerships to protect land and water resources. He was director of the U.S. Fish and Wildlife Service from 1989 to 1993. Mr. Turner also served in the Wyoming state legislature for 19 years and is a past president of the Wyoming State Senate. He serves on the National Council of The Conservation Fund. Mr. Turner also serves as Chairman of the Board of Advisors to the Haub School of Environment and Natural Resources, the University of Wyoming.

Mr. Turner’s extensive experience in international, environmental, regulatory and governmental affairs and public policy, together with his past service on other public company boards of directors, make him a valued advisor and highly qualified to serve as a member of the Board and its Health, Safety, Security and Environmental and Nominating and Corporate Governance Committees.

 

PEABODY ENERGY CORPORATION    19


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ELECTION OF DIRECTORS (ITEM 1) (continued)

 

 

 

     

SANDRA A. VAN TREASE

Age: 54

Director Since: January 2003

 

Board Committees:

    Audit

    Health, Safety, Security and

        Environmental (Chair)

 

Other Public Directorships:

    Enterprise Financial Services

        Corporation

Ms. Van Trease is Group President, BJC HealthCare, a position she has held since September 2004. BJC HealthCare is one of the nation’s largest nonprofit healthcare organizations, delivering services to residents in the greater St. Louis, southern Illinois and mid-Missouri regions. Prior to joining BJC HealthCare, Ms. Van Trease served as President and Chief Executive Officer of UNICARE, an operating affiliate of WellPoint Health Networks Inc., from 2002 to September 2004. Ms. Van Trease also served as President, Chief Financial Officer and Chief Operating Officer of RightCHOICE Managed Care, Inc. from 2000 to 2002 and as Executive Vice President, Chief Financial Officer and Chief Operating Officer from 1997 to 2000. Prior to joining RightCHOICE in 1994, she was a Senior Audit Manager with Price Waterhouse LLP. She is a Certified Public Accountant and Certified Management Accountant.

Ms. Van Trease’s executive management, healthcare and accounting experience, together with her experience in serving on another public company board of directors, make her a valued advisor and highly qualified to serve as a member of the Board and its Audit Committee and as Chair of its Health, Safety, Security and Environmental Committee.

 

     

HEATHER A. WILSON

Age: 54

Director Since: August 2013

 

Board Committees:

    Health, Safety, Security and

        Environmental

    Nominating and Corporate

        Governance

 

Other Public Directorships:

    None

Dr. Wilson has served as President of the South Dakota School of Mines and Technology since June 2013. During 2011 and 2012, Dr. Wilson was a candidate for election to the U.S. Senate. From 2009 to 2011, she served as President of the consulting firm of Heather Wilson & Company. From 1998 to 2009, Dr. Wilson served as a member of the U.S. House of Representatives, where she served as a senior member of the House Energy and Commerce Committee and Chair of the House Intelligence Subcommittee on Technical and Tactical Intelligence. Prior to that time, Dr. Wilson served as Cabinet Secretary for the State of New Mexico Children, Youth and Families Department, as founder and President of Keystone International, Inc., a company dedicated to international business development, and as Staff Director of Defense Policy and Arms Control for the National Security Council. She is a former U.S. Air Force officer. Dr. Wilson is also a director of a private company, Seeker Aircraft America, Inc.

Dr. Wilson’s experience in government, strategy and global affairs and intelligence make her a valued advisor and highly qualified to serve as a member of the Board and its Health, Safety, Security and Environmental and Nominating and Corporate Governance Committees.

 

20    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES

 

Director Independence

As required by NYSE rules, the Board of Directors evaluates the independence of its members at least annually, and at other appropriate times when a change in circumstances could potentially impact the independence or effectiveness of one or more directors (such as in connection with a change in employment status or other significant status changes). This process is administered by the Nominating and Corporate Governance Committee, which consists entirely of directors who are independent under applicable NYSE rules. After carefully considering all relevant relationships with us, the Nominating and Corporate Governance Committee submits its recommendations regarding independence to the full Board, which then makes a determination with respect to each director.

In making independence determinations, the Nominating and Corporate Governance Committee and the Board consider all relevant facts and circumstances, including (1) the nature of any relationships with us, (2) the significance of the relationship to us, the other organization and the individual director, (3) whether or not the relationship is solely a business relationship in the ordinary course of our and the other organization’s businesses and does not afford the director any special benefits, and (4) any commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. For purposes of this determination, the Board deems any relationships that have expired for more than three years to be immaterial.

After considering NYSE standards for independence and various other factors as described herein, the Board has determined that all directors other than Messrs. Boyce and Kellow are independent. None of the directors other than Messrs. Boyce and Kellow receives any compensation from us other than customary director and committee fees.

Messrs. Rusnack and Turner, Ms. Van Trease and Dr. Wilson and/or their immediate family members serve as directors, officers or trustees of charitable organizations to which we made contributions in the normal course of our charitable contributions program. After careful consideration, the Board has determined that these contributions do not impair, or appear to impair, these directors’ independent judgment.

Until April 22, 2014, Mr. Turner served as a member of the board of directors of one of our customers, American Electric Power Company, Inc. After careful consideration, the Board has determined that this relationship does not impair, or appear to impair, Mr. Turner’s independent judgment.

Until December 2013, Mr. Sutherlin was the President and Chief Executive Officer of one of our suppliers, Joy Global Inc. After careful consideration, the Board has determined that this relationship does not impair, or appear to impair, Mr. Sutherlin’s independent judgment.

Until his retirement on January 22, 2015, Alan H. Washkowitz, served as member of our Board. After considering NYSE standards for independence and various other factors as described herein, the Board determined that he was independent.

Board Attendance and Executive Sessions

The Board of Directors met eight times in 2014. During that period, each incumbent director attended 75% or more of the aggregate number of meetings of the Board and the committees on which he or she served, and their average attendance was 95%.

Under our Corporate Governance Guidelines, the non-management directors meet in executive session at least quarterly. During 2014, our non-management directors met in executive session ten times. Our Lead Independent Director, Mr. Malone, chaired these executive sessions.

Under Board policy, each director is expected to attend the Annual Meeting in person, subject to occasional excused absences due to illness or unavoidable conflicts. All 12 directors who were elected to the Board at the 2014 Annual Meeting of Shareholders were in attendance.

 

PEABODY ENERGY CORPORATION    21


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INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES (continued)

 

 

 

Director Orientation and Continuing Education

Our Corporate Governance Guidelines require that each new director participate in a director orientation program which includes presentations by senior management to familiarize the new director with our strategic plans, our significant financial, accounting and risk management issues, our compliance program, our Code of Business Conduct and Ethics, our principal officers and our internal and independent auditors.

On an ongoing basis, our directors receive continuing education through presentations at Board meetings as well as regular visits to our significant mining operations. In addition, directors are required to attend an approved director education program at least once every three years.

Board Leadership Structure

Our bylaws and Corporate Governance Guidelines permit the roles of Chairman and CEO to be filled by different individuals. The Board of Directors deliberates and decides, each time it selects a CEO, whether the roles should be combined or separate, based upon our needs at that time. Mr. Boyce has led our Company as CEO since January 2006, and was appointed to the additional role of Chairman in October 2007. The Board believes that Mr. Boyce’s management of our complex operations on a day-to-day basis provides him with first-hand knowledge of the opportunities and challenges facing us, which, together with his qualifications and experience, position him to best lead productive discussions of the Board and help ensure effective risk oversight for the Company.

In conjunction with our ongoing succession planning process, we entered into a Transition Agreement with Mr. Boyce in April 2013 and a Restated Transition Agreement in May 2014. The Restated Transition Agreement calls for Mr. Boyce to remain Chairman and CEO through June 30, 2015 or such earlier date as his successor as CEO is appointed. On January 22, 2015, the Board elected Mr. Kellow to the position of President and Chief Executive Officer-elect, and he will become CEO effective May 4, 2015. Upon Mr. Kellow’s appointment as the new CEO, and continuing until the earlier of the appointment of Mr. Boyce’s successor as Chairman and June 30, 2016, Mr. Boyce will continue as a full-time employee in the position of Executive Chairman.

Our Board leadership structure provides for strong oversight by independent directors. The Board is currently comprised of Messrs. Boyce and Kellow and 10 independent directors. With the exception of the Executive Committee, which is chaired by Mr. Boyce, all Board committees are chaired by and composed entirely of independent directors.

In 2013, the Board created the role of Lead Independent Director and appointed Mr. Malone to serve in that capacity for a one-year term. He was reelected to that position in March 2014. The Lead Independent Director’s duties are to:

 

  Ø

Preside at all meetings of the Board at which the Chairman and CEO is not present;

 

  Ø

Immediately assume the role of Crisis Event Director under our Crisis Board Communication Plan and to serve in such role pending any further determination by the Board;

 

  Ø

Serve as Interim Chairman of the Board if the Chairman and CEO is incapacitated due to a CEO Emergency Event, as defined in our Crisis Board Communication Plan;

 

  Ø

Organize, convene and preside over executive sessions of the independent directors and over meetings of the independent directors;

 

  Ø

Serve as liaison between the independent directors and the Chairman and CEO for promptly communicating to the Chairman and CEO feedback and direction discussed in executive sessions;

 

  Ø

In an executive session, each year, call and facilitate the discussion of the independent directors to evaluate the performance of the Chairman and CEO. With the Chair of the Compensation Committee, he/she communicates the content and results of the evaluation to the Chairman and CEO;

 

  Ø

Advise and concur with the Chairman and CEO on the quality, quantity and timeliness of information sent to the Board and on the agenda items and timeframes for discussion;

 

  Ø

Facilitate the independent directors’ approval of the number and frequency of meetings of the Board;

 

  Ø

Authorize the retention of outside advisors and consultants who report directly to the independent directors on Board-wide issues;

 

  Ø

If requested by the Chairman and CEO, or with direction from the independent directors, ensure that he or she is available, when appropriate, for consultation and direct communication with external constituencies; and

 

  Ø

Perform such other duties as may be assigned from time to time by the independent directors.

 

22    PEABODY ENERGY CORPORATION


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INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES (continued)

 

 

 

The Board believes that the candor and objectivity of the Board’s deliberations are not affected by whether its Chairman is independent or a member of management.

Role of the Board in Risk Oversight

The Board of Directors oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to enhance long-term organizational performance and shareholder value. A fundamental part of risk management is not only understanding the risks we face, how those risks may evolve over time, and what steps management is taking to manage and mitigate those risks, but also understanding what level of risk tolerance is appropriate for us. Management is responsible for the day-to-day management of the risks we face, while the Board, as a whole and through its committees, is responsible for the oversight of risk management.

In its risk oversight role, the Board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The Board regularly reviews information regarding marketing, operations, safety performance, trading, finance and business development as well as the risks associated with each. In addition, the Board holds strategic planning sessions with management to discuss our strategies, key challenges, and risks and opportunities. The full Board receives reports on our enterprise risk management initiatives on at least an annual basis.

While the Board is ultimately responsible for risk oversight, Board committees also have been allocated responsibility for specific aspects of risk oversight. In particular, the Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to risk management in the areas of financial reporting, internal controls, risk assessment and risk management. The Compensation Committee assists the Board in fulfilling its oversight responsibilities with respect to the risks arising from our compensation policies and programs. The Health, Safety, Security and Environmental Committee assists the Board in fulfilling its oversight responsibilities with respect to the risks associated with our health, safety, security and environmental objectives, policies and performance. The Nominating and Corporate Governance Committee assists the Board in fulfilling its oversight responsibilities with respect to the risks associated with board organization, membership and structure, ethics and compliance, political contributions and lobbying expenditures, succession planning for our directors and executive officers, and corporate governance.

Committees of the Board of Directors

The members of the Board and the committees of the Board on which they serve as of the date of this Proxy Statement are identified below.

 

     

Audit

Committee

  

Compensation

Committee

  

Executive

Committee

   Health, Safety,
Security and
Environmental
Committee
   Nominating
and
Corporate
Governance
Committee

Gregory H. Boyce

         Ch      

William A. Coley

      Ch    M    M   

William E. James

      M          M

Robert B. Karn III

   M             M

Glenn L. Kellow

              

Henry E. Lentz

            M    Ch

Robert A. Malone

      M    M      

William C. Rusnack

   Ch    M    M      

Michael W. Sutherlin

      M       M   

John F. Turner

            M    M

Sandra A. Van Trease

   M          Ch   

Heather A. Wilson

            M    M

Number of Meetings in 2014

   9    7    1    9    6

M Member

Ch Chair

 

PEABODY ENERGY CORPORATION    23


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INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES (continued)

 

 

 

A copy of each committee charter can be found on our website (www.peabodyenergy.com) by clicking on “Investors,” and then “Corporate Governance.” Information on our website is not considered part of this Proxy Statement.

The Board of Directors has affirmatively determined that, in its judgment, all members of the Audit Committee, Compensation Committee, Health, Safety, Security and Environmental Committee and Nominating and Corporate Governance Committee are independent under NYSE and SEC rules. The Board also has determined that each of the members of the Audit Committee (Messrs. Rusnack and Karn and Ms. Van Trease) is an “audit committee financial expert” under SEC rules.

In addition to the risk oversight responsibilities outlined on page 23, the primary functions of each committee are as follows:

Audit Committee

 

Ø

Assist the Board in fulfilling its oversight responsibility with respect to: (a) the quality and integrity of our financial statements and financial reporting processes; (b) our systems of internal accounting and financial controls and disclosure controls; (c) the independent registered public accounting firm’s qualifications and independence; (d) the performance of our internal audit function and independent registered public accounting firm; and (e) compliance with legal and regulatory requirements, and codes of conduct and ethics programs established by management and the Board;

 

Ø

Appoint our independent registered public accounting firm, which reports directly to the Audit Committee;

 

Ø

Approve all audit engagement fees and terms, and all permissible non-audit engagements with our independent registered public accounting firm;

 

Ø

Ensure that we maintain an internal audit function and review the appointment of the senior internal audit team;

 

Ø

Meet on a regular basis with our financial management, internal audit management and independent registered public accounting firm to review matters relating to our internal accounting controls, internal audit program, accounting practices and procedures, the scope and procedures of the external audit, the independence of the independent registered public accounting firm and other matters relating to our financial condition;

 

Ø

Oversee our financial reporting process and review in advance of filing or issuance of our quarterly reports on Form 10-Q, annual reports on Form 10-K, annual reports to shareholders and earnings press releases;

 

Ø

Review our guidelines and policies with respect to risk assessment and risk management, and our major financial risk exposures and steps management has taken to monitor and control such exposures; and

 

Ø

Make regular reports on its activities to the Board.

Compensation Committee

 

Ø

Annually review and recommend to the Special Committee the corporate goals and objectives relevant to compensation of our Chairman and CEO, initiate the evaluation by the Board of the Chairman and CEO’s performance in light of those goals and objectives, and together with the other independent members of the Board, determine and approve the Chairman and CEO’s compensation levels based on this evaluation;

 

Ø

Annually review with the Chairman and CEO the performance of our executive officers and make recommendations to the Board with respect to the compensation plans for such officers;

 

Ø

Annually review and approve for the NEOs and recommend for our Chairman and CEO base salary, annual incentive opportunity and long-term incentive opportunity, stock ownership requirements and, as appropriate, employment agreements, severance arrangements, retirement and other post-employment benefits, change-in-control provisions and any special supplemental benefits;

 

Ø

Approve annual incentive awards for executive officers other than the Chairman and CEO;

 

Ø

Oversee our annual and long-term incentive programs;

 

Ø

Periodically assess our director compensation program and stock ownership requirements and, when appropriate, recommend modifications for Board consideration; and

 

Ø

Make regular reports on its activities to the Board.

 

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INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEES (continued)

 

 

 

Executive Committee

When the Board of Directors is not in session, the Executive Committee has all of the power and authority as delegated by the Board, except with respect to:

 

Ø

Amending our certificate of incorporation and bylaws;

 

Ø

Adopting an agreement of merger or consolidation;

 

Ø

Recommending to shareholders the sale, lease or exchange of all or substantially all of our property and assets;

 

Ø

Recommending to shareholders dissolution of the Company or revocation of any dissolution;

 

Ø

Declaring a dividend;

 

Ø

Issuing stock;

 

Ø

Filling vacancies on the Board;

 

Ø

Appointing members of Board committees; and

 

Ø

Changing major lines of business.

Health, Safety, Security and Environmental Committee

 

Ø

Review with management our significant risks or exposures in the health, safety, security and environmental areas, and steps taken by management to address such risks;

 

Ø

Review our health, safety, security and environmental objectives, policies and performance, including processes to ensure compliance with applicable laws and regulations;

 

Ø

Review our efforts to advance our progress on sustainable development;

 

Ø

Review and discuss with management any material noncompliance with health, safety, security and environmental laws, and management’s response to such noncompliance;

 

Ø

Review and recommend approval of the environmental and mine safety disclosures required to be included in our periodic reports on Forms 10-K and 10-Q;

 

Ø

Consider and advise the Board on health, safety, security and environmental matters and sustainable development;

 

Ø

Consider and advise the Compensation Committee on our performance with respect to incentive compensation metrics relating to health, safety, security or environmental matters;

 

Ø

Review and discuss significant legislative, regulatory, political and social issues and trends that may affect our health, safety, security and environmental management process and system, and management’s response to such matters; and

 

Ø

Make regular reports on its activities to the Board.

Nominating and Corporate Governance Committee

 

Ø

Identify, evaluate and recommend qualified candidates for election to the Board;

 

Ø

Advise the Board on matters related to corporate governance;

 

Ø

Assist the Board in conducting its annual assessment of Board performance;

 

Ø

Recommend the structure, composition and responsibilities of other Board committees;

 

Ø

Advise the Board on matters related to corporate social responsibility (e.g., equal employment, corporate contributions and lobbying);

 

Ø

Ensure we maintain an effective orientation program for new directors and a continuing education and development program to supplement the skills and needs of the Board;

 

Ø

Provide review and oversight of potential conflicts of interest situations, including transactions in which any related person had or will have a direct or indirect material interest;

 

Ø

Review our policies and procedures with respect to related person transactions at least annually and recommend any changes for Board approval;

 

Ø

Monitor compliance with, and advise the Board regarding any significant issues arising under, our corporate compliance program and Code of Business Conduct and Ethics;

 

Ø

Review and make recommendations to the Board in conjunction with the Chairman and CEO, as appropriate, with respect to executive officer succession planning and management development; and

 

Ø

Make regular reports on its activities to the Board.

 

PEABODY ENERGY CORPORATION    25


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

REPORT OF THE AUDIT COMMITTEE

 

The Audit Committee has reviewed and discussed the Company’s audited financial statements and management’s report on internal control over financial reporting as of and for the fiscal year ended December 31, 2014 with management and Ernst & Young LLP, the Company’s independent registered public accounting firm. Management is responsible for the Company’s financial statements and internal control over financial reporting. Ernst & Young is responsible for conducting its audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), and expressing an opinion on the Company’s financial statements in accordance with U.S. generally accepted accounting principles, and on the Company’s internal control over financial reporting.

The Audit Committee reviewed with Ernst & Young the overall scope and plans for their audit of the Company’s financial statements and internal control over financial reporting. The Audit Committee also discussed with Ernst & Young matters relating to the quality and acceptability of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee by the standards of the PCAOB, including Auditing Standard No. 16, “Communications with Audit Committees,” as adopted by the PCAOB, the rules of the Securities and Exchange Commission, and other applicable regulations. The Audit Committee has received written management representation letter disclosures and a letter from Ernst & Young regarding the independent registered public accounting firm’s independence, and has discussed with Ernst & Young its independence from management and the Company. As part of its review, the Audit Committee reviewed fees paid to Ernst & Young and considered whether Ernst & Young’s performance of non-audit services for the Company was compatible with the auditor’s independence.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for filing with the Securities and Exchange Commission.

MEMBERS OF THE AUDIT COMMITTEE:

WILLIAM C. RUSNACK, CHAIR

ROBERT B. KARN III

SANDRA A. VAN TREASE

 

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FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Ernst & Young LLP served as our independent registered public accounting firm for the fiscal years ended December 31, 2014 and 2013. The following fees were paid to Ernst & Young LLP for services rendered during our last two fiscal years:

 

  Ø

Audit Fees: $4,963,000 (for the fiscal year ended December 31, 2014) and $4,897,000 (for the fiscal year ended December 31, 2013) for fees associated with the annual audit of our consolidated financial statements, including the audit of internal control over financial reporting, the reviews of our quarterly reports on Form 10-Q, services provided in connection with statutory and regulatory filings, assistance with and review and accounting and financial reporting consultations.

 

  Ø

Audit-Related Fees: $220,000 (for the fiscal year ended December 31, 2014) and $244,000 (for the fiscal year ended December 31, 2013) for assurance-related services for internal control reviews, and other attest services not required by statute.

 

  Ø

Tax Fees: $199,000 (for the fiscal year ended December 31, 2014) and $1,171,000 (for the fiscal year ended December 31, 2013) for tax compliance, tax advice and tax planning services.

 

  Ø

All Other Fees: $2,000 (for the fiscal year ended December 31, 2014) and $2,000 (for the fiscal year ended December 31, 2013) for fees related to an online research tool.

Under the Board’s established procedures, the Audit Committee is required to pre-approve all audit and non-audit services performed by our independent registered public accounting firm to ensure that the provisions of such services do not impair such firm’s independence. The Audit Committee may delegate its pre-approval authority to one or more of its members, but not to management. The member or members to whom such authority is delegated must report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

Each fiscal year, the Audit Committee reviews with management and the independent registered public accounting firm the types of services that are likely to be required throughout the year. Those services are comprised of four categories, including audit services, audit-related services, tax services and all other permissible services. At that time, the Audit Committee pre-approves a list of specific services that may be provided within each of these categories, and sets fee limits for each specific service or project. Management is then authorized to engage the independent registered public accounting firm to perform the pre-approved services as needed throughout the year, subject to providing the Audit Committee with regular updates. The Audit Committee regularly reviews the amount of all billings submitted by the independent registered public accounting firm to ensure their services do not exceed pre-defined limits. The Audit Committee must review and approve in advance, on a case-by-case basis, all other projects, services and fees to be performed by or paid to the independent registered public accounting firm. The Audit Committee also must approve in advance any fees for pre-approved services that exceed the pre-established limits, as described above.

Under our policy and/or applicable rules and regulations, our independent registered public accounting firm is prohibited from providing the following types of services to us: (1) bookkeeping or other services related to our accounting records or financial statements, (2) financial information systems design and implementation, (3) appraisal or valuation services, fairness opinions or contribution-in-kind reports, (4) actuarial services, (5) internal audit outsourcing services, (6) management functions, (7) human resources, (8) broker-dealer, investment advisor or investment banking services, (9) legal services, (10) expert services unrelated to audit, (11) any services entailing a contingent fee or commission (not including fees awarded by a bankruptcy court if we are in bankruptcy) and (12) tax services to any of our officers whose role is in a financial reporting oversight capacity (regardless of whether we or the officer pays the fee for the services).

During the fiscal years ended December 31, 2014 and 2013, all of the services described under the headings “Audit Fees,” “Audit-Related Fees,” “Tax Fees” and “All Other Fees” were approved by the Audit Committee in accordance with the procedures described above.

 

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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

CORPORATE GOVERNANCE MATTERS

 

Good corporate governance is a priority at Peabody. Our key governance practices are outlined in our Corporate Governance Guidelines, committee charters, and Code of Business Conduct and Ethics. These documents can be found on our Corporate Governance webpage (www.peabodyenergy.com) by clicking on “Investors” and then “Corporate Governance.” Information on our website is not considered part of this Proxy Statement. The Code of Business Conduct and Ethics applies to all of our directors, officers and salaried employees.

The Nominating and Corporate Governance Committee is responsible for reviewing the Corporate Governance Guidelines from time to time and reporting and making recommendations to the Board concerning corporate governance matters. Each year, the Nominating and Corporate Governance Committee, with the assistance of outside experts, reviews our corporate governance practices, not only to ensure that they comply with applicable laws and NYSE listing requirements, but also to ensure that they continue to reflect what the Committee believes are best practices and promote our best interests and the best interests of our shareholders.

Majority Voting Bylaw

In July 2007, the Board of Directors amended our bylaws to provide for majority voting in the election of directors. In the case of uncontested elections, in order to be elected the number of shares voted in favor of a nominee must exceed 50% of the number of votes cast with respect to that nominee’s election at any meeting of shareholders for the election of directors at which a quorum is present. Votes cast include votes to withhold authority with respect to that nominee’s election, but excludes abstentions and broker non-votes.

If a nominee is an incumbent director and receives a greater number of votes withheld from his or her election than votes in favor of his or her election, our Corporate Governance Guidelines require that such director promptly tender his or her resignation to the Chairman of the Board following certification of the shareholder vote. The Nominating and Corporate Governance Committee will promptly consider the resignation submitted by such director and will recommend to the Board whether to accept or reject the tendered resignation. In considering whether to accept or reject the tendered resignation, the Committee will consider all factors deemed relevant by its members. The Board will act on the Committee’s recommendation no later than 90 days following the date of the shareholders’ meeting where the election occurred. In considering the Committee’s recommendation, the Board will consider the factors considered by the Committee and such additional information and factors the Board deems to be relevant. Any director who tenders his or her resignation under our Corporate Governance Guidelines will not participate in the Committee recommendation or Board consideration regarding whether or not to accept the tendered resignation.

In the case of contested elections, directors will be elected by a plurality of the votes of the shares present in person or by proxy and voting for nominees in the election of directors at any meeting of shareholders for the election of directors at which a quorum is present. For these purposes, a contested election is any election of directors in which the number of candidates for election as directors exceeds the number of directors to be elected.

Communications with the Board of Directors

The Board of Directors has adopted the following procedures for shareholders and other interested persons to send communications to the Board and/or individual directors (collectively, “Shareholder Communications”).

Shareholders and other interested persons seeking to communicate with the Board and/or individual directors should submit their written communications to the Chairman, Peabody Energy Corporation, Peabody Plaza, 701 Market Street, St. Louis, Missouri 63101. The Chairman will forward such communications to each Board member (excluding routine advertisements and business solicitations, as instructed by the Board), and provide a report on the disposition of matters stated in such communications at the next regular meeting of the Board. If a Shareholder Communication (excluding routine advertisements and business solicitations) is addressed to a specific individual director, the Chairman will forward that communication to the named director, and will discuss with that director whether the full Board and/or one of its committees should address the subject matter.

 

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CORPORATE GOVERNANCE MATTERS (continued)

 

 

 

If a Shareholder Communication raises concerns about management’s or the Company’s ethical conduct, it should be sent directly to our Chief Legal Officer at Peabody Energy Corporation, Peabody Plaza, 701 Market Street, St. Louis, Missouri 63101. The Chief Legal Officer will review the communication and, if appropriate, forward a copy of it to the Chair of the Audit Committee and, if appropriate, the Chairman of the Board, and see that the subject matter is addressed by the appropriate Board committee, management and/or the full Board.

If a shareholder or other interested person seeks to communicate exclusively with our non-management directors, individually or as a group, such communication should be sent directly to the Corporate Secretary who will forward it directly to the Lead Independent Director. The Corporate Secretary will first consult with and receive the approval of the Lead Independent Director before disclosing or otherwise discussing the communication with members of management or directors who are members of management.

At the direction of the Board, we reserve the right to screen all materials sent to our directors for potential security risks, harassment and/or other inappropriate content.

At our Annual Meeting, shareholders will normally have an opportunity to pose questions to the directors.

Overview of Director Nominating Process

The Board of Directors believes one of its primary goals is to advise management on strategy and to monitor our performance. The Board also believes the best way to accomplish this goal is by choosing directors who possess a diversity of experience, knowledge and skills that are particularly relevant and helpful to us. As such, current Board members and director nominees possess a wide array of skills and experience in the coal industry, related energy industries and other important areas, including engineering, finance and accounting, operations, environmental affairs, international affairs, governmental affairs and administration, public policy, healthcare, corporate governance, board service and executive management. When evaluating potential members, the Board seeks to enlist the services of candidates who possess high ethical standards and a combination of skills and experience which the Board determines are the most appropriate to meet its objectives. The Board believes all candidates should be committed to creating value over the long term and to serving our best interests and the best interests of our shareholders.

The Nominating and Corporate Governance Committee is responsible for identifying, evaluating and recommending qualified candidates for election to the Board. The Committee will consider director candidates submitted by shareholders. Any shareholder wishing to submit a candidate for consideration should send the following information to the Corporate Secretary, Peabody Energy Corporation, Peabody Plaza, 701 Market Street, St. Louis, Missouri 63101:

 

  Ø

Shareholder’s name, number of shares owned, length of period held and proof of ownership;

 

  Ø

Candidate’s name, age and address;

 

  Ø

A detailed resume describing, among other things, the candidate’s educational background, occupation, employment history and material outside commitments (e.g., memberships on other boards and committees, charitable foundations, etc.);

 

  Ø

A supporting statement which describes the candidate’s reasons for seeking election to the Board, and documents the candidate’s ability to satisfy the director qualifications criteria described above;

 

  Ø

A description of any arrangements or understandings between the shareholder and the candidate; and

 

  Ø

A signed statement from the candidate confirming his/her willingness to serve on the Board, if elected.

The Corporate Secretary will promptly forward such materials to the Committee Chair and the Chairman of the Board. The Corporate Secretary also will keep copies of such materials for future reference by the Committee when filling Board positions.

Shareholders may submit potential director candidates at any time in accordance with these procedures. The Committee will consider such candidates if a vacancy arises or if the Board decides to expand its membership, and at such other times as the Committee deems necessary or appropriate. Separate procedures apply if a shareholder wishes to nominate a director candidate at the 2016 Annual Meeting. Those procedures are described below under the heading “Information About Shareholder Proposals.”

 

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CORPORATE GOVERNANCE MATTERS (continued)

 

 

 

Under its charter, the Committee must review with the Board, at least annually, the requisite qualifications, independence, skills and characteristics of Board candidates, members and the Board as a whole. When assessing potential new directors, the Committee considers individuals from various and diverse backgrounds. While the selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, the Committee believes candidates should generally meet the criteria listed above under the heading “Director Qualifications.”

While the Board does not have a formal policy of considering diversity when evaluating director candidates, the Board does believe that its members should reflect diversity in professional experience, geographic origin, gender and ethnic background. These factors, together with the director qualifications criteria noted above, are taken into account by the Committee in assessing potential new directors.

The Committee will consider candidates submitted by a variety of sources (including, without limit, incumbent directors, shareholders, management and third-party search firms) when filling vacancies and/or expanding the Board. If a vacancy arises or the Board decides to expand its membership, the Committee generally asks each director to submit a list of potential candidates for consideration. The Committee then evaluates each potential candidate’s educational background, employment history, outside commitments and other relevant factors to determine whether he/she is potentially qualified to serve on the Board. At that time, the Committee also will consider potential candidates submitted by shareholders in accordance with the procedures described above. The Committee seeks to identify and recruit the best available candidates, and it intends to evaluate qualified shareholder nominees on the same basis as those submitted by Board members or other sources.

After completing this process, the Committee will determine whether one or more candidates are sufficiently qualified to warrant further investigation. If the process yields one or more desirable candidates, the Committee will rank them by order of preference, depending on their respective qualifications and our needs. The Committee Chair, or another director designated by the Committee Chair, will then contact the preferred candidate(s) to evaluate their potential interest and to set up interviews with members of the Committee. All such interviews are held in person, and include only the candidate and the independent Committee members. Based upon interview results and appropriate background checks, the Committee then decides whether it will recommend the candidate’s nomination to the full Board.

The Committee believes this process has consistently produced highly qualified, independent Board members to date. However, the Committee may choose, from time to time, to use additional resources (including independent third-party search firms) after determining that such resources could enhance a particular director search.

 

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OWNERSHIP OF COMPANY SECURITIES

 

The following table sets forth information as of March 1, 2015 with respect to persons or entities who are known to beneficially own more than 5% of our outstanding Common Stock, each director and director nominee, each executive officer named in the Summary Compensation Table below, and all directors and executive officers as a group.

Beneficial Owners of More Than Five Percent, Directors and Management

 

Name and Address of Beneficial Owner(1)   

Amount and Nature

of Beneficial

Ownership(2)(3)(4)

    

Percent of 

Class(5)

 

Manning & Napier Advisors, LLC(6)
290 Woodcliff Drive
Fairport, NY 14450

     32,561,753         11.97

FMR LLC(7)
245 Summer Street
Boston, MA 02210

     22,667,293         8.22

BlackRock, Inc.(8)
55 East 52nd Street
New York, NY 10022

     17,910,895         6.60

The Vanguard Group(9)
100 Vanguard Blvd.
Malvern, PA 19355

     16,271,081         5.99

Balyasny Asset Management L.P.(10)
181 West Madison, Suite 3600
Chicago, IL 60602

     14,028,694         5.17

Gregory H. Boyce

     1,603,487         *   

William A. Coley

     37,066         *   

Michael C. Crews

     293,844         *   

William E. James

     37,545         *   

Robert B. Karn III

     41,679         *   

Glenn L. Kellow

     190,244         *   

Henry E. Lentz

     24,291         *   

Robert A. Malone

     30,653         *   

Charles F. Meintjes

     169,885         *   

William C. Rusnack

     33,651         *   

Michael W. Sutherlin

     5,000         *   

John F. Turner

     23,440         *   

Sandra A. Van Trease

     33,453         *   

Kemal Williamson

     267,663         *   

Heather A. Wilson

             *   

All directors and executive officers as a group (20 people)

     3,466,034         1.26

 

(1) 

The address for all officers and directors listed is c/o Peabody Energy Corporation, Peabody Plaza, 701 Market Street, St. Louis, Missouri 63101.

 

(2) 

Beneficial ownership is determined in accordance with SEC rules and includes voting and investment power with respect to shares. Unless otherwise indicated, the persons and entities named in the table have sole voting and dispositive power with respect to all shares beneficially owned.

 

(3) 

Includes shares issuable pursuant to stock options exercisable within 60 days after March 1, 2015, as follows: Mr. Boyce, 1,114,404; Mr. Coley, 7,521; Mr. Crews, 156,513; Mr. James, 7,521; Mr. Karn, 7,521; Mr. Kellow, 87,065; Mr. Lentz, 7,521; Mr. Meintjes, 15,594: Mr. Rusnack, 7,521; Mr. Turner, 7,413; Ms. Van Trease, 7,521; Mr. Williamson, 186,018; and all directors and executive officers as a

 

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OWNERSHIP OF COMPANY SECURITIES (continued)

 

 

 

 

group, 1,865,429. Also includes restricted stock that remains unvested as of March 1, 2015 as follows: Mr. Boyce, 142,576; Mr. Crews, 43,605; Mr. Kellow, 96,899; Mr. Meintjes, 103,676; Mr. Williamson, 32,300; and all directors and executive officers as a group, 638,829.

 

(4) 

Excludes deferred stock units held by our non-employee directors as of March 1, 2015, as follows: Mr. Coley, 28,480; Mr. James, 28,480; Mr. Karn, 31,890; Mr. Lentz, 29,915; Mr. Malone, 28,480; Mr. Rusnack, 28,480; Mr. Sutherlin, 24,178; Mr. Turner, 28,480; Ms. Van Trease, 31,833; Dr. Wilson, 27,138; and all directors and executive officers as a group, 287,354. Also excludes restricted stock units as of March 1, 2015 as follows: Mr. Boyce, 101,027; Mr. Kellow,110,803; and all directors and executive officers as a group, 266,376

 

(5) 

Applicable percentage ownership is based on 274,829,289 shares of Common Stock outstanding at March 1, 2015. An asterisk (*) indicates that the applicable person beneficially owns less than one percent of the outstanding shares.

 

(6) 

This information is based on a Schedule 13G filed with the SEC on January 16, 2015 by Manning & Napier Advisors, LLC in which it reported sole voting power as to 26,999,363 shares and sole dispositive power as to 32,561,753 shares as of December 31, 2014.

 

(7) 

This information is based on a Schedule 13G/A filed with the SEC on February 13, 2015 by FMR LLC in which it reported sole voting power as to 22,667,293 shares and sole dispositive power as to 22,667,293 shares as of December 31, 2014.

 

(8) 

This information is based on a Schedule 13G/A filed with the SEC on January 29, 2015 by BlackRock, Inc., in which it reported sole voting power as to 16,842,297 shares and sole dispositive power as to 17,910,895 shares as of December 31, 2014.

 

(9) 

This information is based on a Schedule 13G/A filed with the SEC on February 11, 2015 by The Vanguard Group in which it reported sole voting power as to 180,246 shares, sole dispositive power as to 16,112,935 shares and shared dispositive power as to 158,146 shares as of December 31, 2014.

 

(10) 

This information is based on a Schedule 13G filed with the SEC on February 9, 2015 by Balyasny Asset Management L.P., in its capacity as investment manager for certain of its affiliates, and its sole managing member in which they reported sole voting and dispositive power as to 14,028,694 shares as of December 31, 2014.

Section 16(a) Beneficial Ownership Reporting Compliance

Our officers and directors and persons beneficially holding more than 10% of our Common Stock are required under the Securities Exchange Act of 1934, as amended, to file reports of ownership and changes in ownership of our Common Stock with the SEC and the NYSE. We file these reports of ownership and changes in ownership on behalf of our officers and directors.

To the best of our knowledge, based solely on our review of the copies of such reports furnished to us during the fiscal year ended December 31, 2014, filings with the SEC and written representations from certain reporting persons that no additional reports were required, all required reports were timely filed for such fiscal year.

 

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Compensation Discussion and Analysis

 

TABLE OF CONTENTS

 

      Page No.  

Executive Summary

     33   

2014 Say-on-Pay Results and Shareholder Outreach

     33   

Performance Basis of Our 2014 Executive Compensation Program

     34   

What We Pay and Why: Elements of Compensation

     35   

Base Salary

     35   

Annual Cash Incentive

     35   

Long-Term Equity Incentives

     39   

Additional Compensation Elements

     42   

Executive Compensation Program Changes for 2015

     43   

How We Make Compensation Decisions

     43   

Risk Considerations

     43   

Responsibilities for Executive Compensation

     44   

Role of the Compensation Consultant and Legal Consultant

     45   

Compensation Comparator Group

     45   

Share Ownership Requirements

     46   

Prohibition on Hedging or Pledging Company Stock

     47   

Clawback Provisions

     47   

Transition Agreement with Mr. Boyce

     47   

Employment Agreements

     48   

Executive Severance Plan

     50   

Deductibility of Compensation Expenses

     51   

Executive Summary

In 2014, we achieved solid financial and operating results, despite adverse market conditions that were impacted by significant price declines for most key coal products due to increased supplies globally, the impact of competing fuels and railroad issues related to the shipment of our U.S. products. In the face of these strong headwinds, we delivered a number of significant accomplishments, including achieving our best global safety incidence rate, delivering cost savings of approximately $275 million from cost-containment efforts, generating approximately $130 million in proceeds from asset sales, lowering capital investments and generating over $336 million in operating cash flow.

We believe that our executive compensation decisions reflect a balanced and responsible pay approach within our current industry environment and our lead position as the largest public company coal producer. The Compensation Committee and the independent members of the Board of Directors (collectively, the “Special Committee”) have responsibility for oversight of our executive compensation framework and, within that framework and by working with senior management, aligning pay with performance, creating incentives that reward responsible risk-taking, and creating shareholder value while also considering the environment in which compensation decisions are made.

2014 Say-on-Pay Results and Shareholder Outreach

At the 2014 Annual Meeting of Shareholders, 77.9% of the votes cast on Item 3 were in favor of the advisory vote to approve our NEOs’ compensation, commonly known as “Say-on-Pay”. While representing majority support for our executive compensation program, this result is less than desired. We are committed to achieving greater shareholder support through our outreach efforts, incorporation of shareholder input into our executive compensation program, disclosure practices and corporate governance and implementation of best practices.

 

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Compensation Discussion and Analysis (continued)

 

 

 

Following our 2014 Say-on-Pay vote, we reached out to our 50 largest institutional shareholders in an effort to:

 

§  

Better understand the underlying reasons for the Say-on-Pay vote results;

 

§  

Identify any concerns they may have with our executive compensation program; and

 

§  

Obtain their input on how our executive compensation program, disclosure practices and corporate governance may be strengthened.

Ten of those shareholders (owning approximately 34% of our outstanding stock measured at June 30, 2014) agreed to have at least one telephonic meeting with us. The valuable feedback from our outreach effort showed that shareholders generally support our executive compensation program, but want greater transparency around program structure and the linkage between pay and performance. We received notable comments about the new proxy format, which was generally found easier to understand and analyze, and requests for more information about the drivers behind compensation decisions and a fuller explanation on selected incentive metrics. We have modified the discussion of our annual incentive plan that follows in this Compensation Discussion and Analysis (or “CD&A”) to reflect these comments. In addition, some shareholders suggested that we review our compensation comparator group; we have done so and describe the changes we made to our comparator group below. In the course of our executive compensation discussions, we also received feedback regarding our CEO succession process and other aspects of our corporate governance that were of interest to shareholders, specifically the separation of the Chairman and CEO roles. Where possible, we have attempted to address each of these topics in our program design and throughout this CD&A.

The Compensation Committee believes the core design elements of our executive compensation program are effective at attracting, retaining and incentivizing our NEOs. This belief has been validated by reviewing our program against the market. However, we are working to enhance program design, incorporate best practices and provide greater transparency regarding our program and the link between pay and performance.

At the 2015 Annual Meeting, shareholders will again have the opportunity to vote on an advisory resolution on NEO compensation (Item 3). While this vote is nonbinding, the Compensation Committee highly values this input and will fully consider the outcome of the vote, along with other factors, when making future compensation decisions for the NEOs and other members of senior management.

Performance Basis of Our 2014 Executive Compensation Program

Decisions regarding executive compensation made by the Compensation Committee and the Special Committee during 2014 reflected our industry context, operating environment and results. Our compensation philosophy and programs are based on the following core principles: competitive compensation opportunities, shareholder alignment through stock ownership and pay for performance.

In 2014, the Compensation Committee, in conjunction with our independent advisors, reviewed our executive compensation program to determine whether it appropriately aligns pay and performance and links officer activities and performance with shareholder interests. The analysis indicated that our 2014 executive compensation program aligned well with our compensation philosophy and performance.

For 2014, the performance-based portion of NEO compensation consisted of an annual cash incentive opportunity, and stock options and performance units awarded under our 2011 Long-Term Equity Incentive Plan. Annual cash incentive plan payouts were contingent on meeting certain goals for Price-collar Adjusted EBITDA (as defined on page 37), adjusted total costs, sales volume (tons), safety and individual goals. For 2014, our NEOs achieved annual cash incentive payouts ranging from 114% to 122% of target.

With respect to our performance unit program, our NEOs achieved performance of only 18.75%, or 81.25% below target, consistent with our three-year TSR relative to coal industry comparators and the S&P 500 Index (excluding financial services companies) during the 2012-2014 performance period, and our performance relative to our Return on Capital targets over the same period. However, due to the decline in our share price during the performance period, the value of the shares awarded was only 4%, or 96% below the grant-date target value.

 

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Compensation Discussion and Analysis (continued)

 

 

 

At December 31, 2014, all stock options held by our NEOs were “out of the money” and therefore had no currently realizable value. On their grant dates, these stock options had an aggregate fair value of approximately $33 million.

The following discussion provides detail regarding our executive compensation program and 2014 compensation arrangements for each of our NEOs.

 

Name    Title at December 31, 2014

Gregory H. Boyce

  

Chairman and Chief Executive Officer(1)

Glenn L. Kellow

  

President and Chief Operating Officer(1)

Michael C. Crews

  

Executive Vice President and Chief Financial Officer

Charles F. Meintjes

  

President – Australia

Kemal Williamson

  

President – Americas

(1) 

On January 22, 2015, Mr. Kellow was appointed President and CEO-elect and will become CEO effective May 4, 2015. At that time, Mr. Boyce will become Executive Chairman.

What We Pay and Why: Elements of Compensation

We have three elements of total direct compensation: base salary, annual cash incentive and long-term equity incentives. As illustrated in the chart on page 8, in 2014, 86% and 73% respectively of reported total target direct compensation for our Chairman and CEO and other NEOs was performance-based and not guaranteed. This places the vast majority of the NEO total direct compensation at-risk and in direct alignment with shareholders.

Base Salary

We pay base salaries to attract and retain talented executives and to provide a fixed base of cash compensation. Base salary for our Chairman and CEO is recommended by the Compensation Committee and approved by the Special Committee after an extensive review of peer information conducted by the independent compensation consultant, F.W. Cook & Co., Inc. (“F.W. Cook”). Base salaries for the other NEOs are individually recommended by our Chairman and CEO and approved by the Compensation Committee. In each case, base salaries are set after consideration of:

 

  Ø

Breadth, scope and complexity of the NEO’s role;

 

  Ø

Comparability with the external and internal marketplace (roles of similar responsibilities, experience and organizational impact);

 

  Ø

Current compensation levels; and

 

  Ø

Individual performance.

In light of challenging market conditions and additional cost reduction programs, no changes were made in the 2014 base salary for our Chairman and CEO or any of our other NEOs.

Annual Cash Incentive

Our annual incentive compensation plan provides opportunities for our executives, including the NEOs, to earn annual cash incentive payments tied to the successful achievement of safety, operating and financial objectives that support our business strategy.

Under the annual incentive compensation plan, the NEOs are assigned threshold, target and maximum incentive opportunities. The target incentive opportunity is established through an analysis of compensation for comparable positions in companies of similar size and complexity and is intended to provide a competitive level of compensation when performance objectives are achieved. Maximum incentive payments may be awarded when target performance objectives are significantly exceeded.

At threshold performance, the incentive that can be earned generally equals 50% of the target incentive and, at maximum performance, the incentive that can be earned is up to 200% of the target incentive. No incentive is earned if actual performance does not meet the threshold level.

 

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Compensation Discussion and Analysis (continued)

 

 

 

Each year, the Committees review and approve the goals and payouts for the NEOs.

2014 Annual Cash Incentive Performance Measures

Based on input from management and information and advice from F.W. Cook, the Committees established performance metrics and weightings for determining the NEOs’ 2014 annual cash incentive opportunities, with a focus on “controlling the controllables” given the price volatility inherent in our business. Consistent with that approach, in 2014 we replaced last year’s Earnings Per Share metric with two new metrics: Adjusted Total Costs and Total Sales Volumes. We believe these new metrics drive shareholder value by focusing management on operational efficiency, cash conservation and effective cost management. Definitions of our 2014 performance measures appear below.

Given the price volatility endemic to the coal sector and the cyclical nature of the global commodity markets, the annual cash incentive plan has a “price collar” feature to eliminate potential windfalls and penalties arising from uncontrollable factors that can significantly affect Adjusted EBITDA. This allows our NEOs to focus on operational performance and take the necessary actions to benefit us and our shareholders on an annual basis and in the longer term. In years when coal prices decline significantly, the price collar has the effect of increasing Adjusted EBITDA as used for the annual incentive compensation plan. Conversely, in years when coal prices rise significantly, the price collar has the effect of decreasing Adjusted EBITDA as used for the annual incentive compensation plan. In 2014, Adjusted EBITDA performance was $814.0 million, while our Price-collar Adjusted EBITDA (as defined on page 37) was $1,118.1 million, reflecting an adjustment of $304.1 million for price volatility, an aggregation of negative price impact in Australia and positive pricing within the Americas platform as compared to target.

Given the importance of safety in our Company, in 2013 we instituted an additional component to the safety goal which states: “In the event of a work related fatality, the safety component for the impacted Business Unit and the safety component for the corporate incentive plan would result in a zero percent achievement.”

In the past, we have not included injuries and hours associated with contractors in calculating our Global Safety Incidence Rate. However, in keeping with leading industry practices, we are doing so in 2015. In recognition of safety performance issues at some of our contractor-managed U.S. operations in 2014, Messrs. Boyce, Kellow and Williamson voluntarily agreed to reduce the weighting of their individual safety metric from 15.00% to 11.25%, which had the effect of decreasing their annual cash incentive awards. We believe this visible and tangible impact on their 2014 annual cash incentive awards is appropriate, and consistent with our core organizational values and focus on superior safety performance. The following table shows the performance metrics and our actual results for 2014.

 

Metric   % of Total
Award
    Threshold     Target     Maximum     

Actual

      Results      

    Achievement

Price-collar Adjusted EBITDA ($ millions)

    30     838.4        1,048.0        1,257.6         1,118.1      Above target

Adjusted Total Costs ($ millions)

    15     4,726.6        4,296.9        3,867.2         4,153.6      Above target

Total Sales Volumes (Tons)

    15     209        232        255         228      Below target

Global Safety Incidence Rate(1)

    15 %(2)      1.80        1.62        1.44         1.55      Above target

Individual Goals

    25     N/A        N/A        N/A        
 
Ranged from
100% to 120%
  
  
  Various
(1) 

The rate excludes the injuries and hours associated with office workers, as well as the impacts of certain mines classified as discontinued operations and inactive operations in the process of being reclaimed.

 

(2) 

Messrs. Boyce, Kellow and Williamson voluntarily forfeited 3.75% of their opportunity, which reduced the amount of their annual cash incentive awards.

 

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Compensation Discussion and Analysis (continued)

 

 

 

The following table provides a definition for each of the operating performance measures used in 2014 and describes how we use these measures in managing the Company.

 

Price-collar Adjusted EBITDA   

This metric is based on Adjusted EBITDA (as defined below), after excluding 50% of the Adjusted EBITDA impact of realized pricing vs. budget. This adjustment was $304.1 million in 2014.

 

Adjusted EBITDA is equal to (loss) income from continuing operations before deducting net interest expense; income taxes; asset retirement obligation expenses; depreciation, depletion and amortization; asset impairment and mine closure costs; charges for the settlement of claims and litigation related to previously divested operations and changes in deferred tax asset valuation allowance and amortization of basis difference related to equity affiliates.

   Management uses this metric to measure our performance, the impact of cost savings programs and operational earnings across the global platform. The price collar addresses the impact of extraordinary price volatility, both positive and negative.
Adjusted Total Costs    This metric is based on aggregate total production costs for our Americas and Australia business units in U.S. dollars and asset retirement expense, but excluding depreciation, depletion and amortization, expenses associated with currency, fuel and explosives hedging, sales-related costs and exploration expenses. Australia costs and asset retirement expense are converted into U.S. dollars at the budgeted rate of 0.90.    Reflects the efficiency and effectiveness of the operational platform and is a benchmark metric to competitors and historical trends.
Total Sales Volumes    This metric is calculated using total sales volumes for our Americas and Australia operations in short tons, excluding purchased coal and sales from the Middlemount Mine, in which we own a 50% equity interest.    The key metric related to revenue generation, market share and customer engagement
Global Safety Incidence Rate    The Global Safety Incidence Rate is the number of injuries (U.S. Mine Safety and Health Administration reportable injury degree codes 1 to 6) divided by the number of employee hours worked, multiplied by 200,000 hours. The rate excludes the injuries and hours associated with office workers, as well as the impacts of certain mines classified as discontinued operations and inactive operations in the process of being reclaimed.    Safety is a core value that is integrated into all areas of our business. For 2014, our quantitative safety target was set at a 10% improvement over 2013’s actual results

Quantitative and Qualitative Factors – Individual Performance

The global coal sector faced significant challenges in 2014 with lower prices, the impact of competing fuels and oversupply in both thermal and metallurgic coal markets. Our management was also challenged with:

 

  Ø

Completing and maximizing the benefits of owner-operator conversions within our Australian operations, on time and on budget;

 

  Ø

Substantially reducing operational costs and improving productivity;

 

  Ø

Maintaining over $2 billion in liquidity; and

 

  Ø

Implementing a comprehensive repositioning initiative, which included office closures, workforce reductions and establishing a global shared services framework to consolidate activities and lower annual overhead costs.

Despite these challenges, our 2014 Global Safety Incidence Rate improved 15% over 2013’s record performance, and we generated over $336 million in operating cash flow while reducing capital investment to less than $200 million.

 

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Compensation Discussion and Analysis (continued)

 

 

 

In determining the amount of each NEO’s actual annual cash incentive award within the range determined by the payout formula, the Committees considered the quantitative and qualitative factors relating to the following individual accomplishments:

Mr. Boyce: Mr. Boyce’s strategic vision and leadership in the areas of organizational efficiency, fiscal health, safety, and succession planning were instrumental to the enterprise success in 2014. He oversaw the finalization of the CORESafety® implementation plan, an industry-wide safety standard he championed when he was Chairman of the National Mining Association in 2011. In his role as Chairman and CEO, Mr. Boyce is a visible and effective advocate for the coal sector and the societal benefits of electricity access and is an active collaborator with the regulatory and legislative agencies in the countries where we do business. Mr. Boyce also was responsible for the timely development of the President and COO, Mr. Kellow, to enable a successful CEO leadership transition, which was announced in January 2015. Additionally, Mr. Boyce worked extensively with the Lead Independent Director on a series of Board governance issues in response to changing legislation and market practices.

In recognition of these accomplishments, Mr. Boyce was named CEO of the Year at the 2014 Platts Global Energy Awards.

Mr. Kellow: Mr. Kellow’s contributions to our operational and organizational efficiency were critical, especially in light of the strong countervailing market pressures facing us during 2014. As President and COO, he oversaw the operational performance of the global platform that resulted in a historically low Global Safety Incidence Rate, aggressive cost reductions, productivity improvements and a functional restructuring to centralize sales, marketing and trading activities. In 2014, our operational cost profile decreased across each of the U.S. and Australian platforms and operating cash flow generation was over $336 million, while resource management transactions generated approximately $130 million in proceeds. Mr. Kellow oversaw the organizational effectiveness processes which included the right sizing of support functions, increased delegations to the operating business units and the establishment of a Global Business Services framework. Mr. Kellow was active in the advocacy space and as a leading proponent of our sustainable energy solutions position. In addition, Mr. Kellow led the revisions of our Mission Statement to engage and align the workforce to our strategic plan.

In January 2015, the Board appointed Mr. Kellow President and CEO-elect, with an effective transition to CEO on May 4, 2015.

Mr. Crews: Mr. Crews made significant contributions to our strong financial and operating performance in 2014 despite uncertain global capital markets and steep pricing declines. We generated more than $336 million in operating cash flow and sustained liquidity above the $2.0 billion levels. Mr. Crews took accountability for the platform-wide Global Repositioning project, which has resulted in annualized savings and led to the establishment of a Global Business Services framework to reduce administrative and support costs. Mr. Crews also facilitated the on-going relationships with banks to help ensure optimal credit efficiency. In addition, under Mr. Crews’ leadership, we successfully offered a voluntary lump-sum pension payout option to eligible former salaried employees who participated in our legacy pension plan and settled approximately $42 million of pension obligations.

Mr. Meintjes: Under Mr. Meintjes’ leadership, our Australia platform achieved its lowest safety incidence rate ever, while increasing its volumes to a record 38.2 million tons. Mr. Meintjes led a comprehensive and detailed cost reduction program to position the Australia platform for sustained lower pricing, resulting in a $6/ton cost reduction. Key projects included the successful installation of a longwall at our Metropolitan Mine, completion of the owner-operator conversions through the successful Moorvale Mine transition, and the Millennium Mine being awarded Coal Mine of the Year and Australian Mine of the Year at the 2014 Australian Mining Prospect Awards ceremony. Finally, Mr. Meintjes was our primary representative to the Australian government and inter-disciplinary agencies during the Carbon Tax and Mineral Resource Rent Tax repeal process.

Mr. Williamson: Mr. Williamson led the safe, productive and efficient Americas operations. In 2014, the Americas generated over $1.0 billion in Adjusted EBITDA off a revenue base of $4.0 billion. Under Mr. Williamson’s leadership, we increased Southern Powder River Basin volumes to the highest annual level since 2011, and the flagship North Antelope Rochelle Mine achieved record production levels, even as rail issues constrained industry shipments. Key mining extensions at the Gateway and Twentymile mines have progressed within budgeted timeframes and costs and will add low-cost capacity to the platform to sustain production levels. Mr. Williamson achieved greater than budgeted pricing in all U.S. regions and lowered annual costs per unit.

 

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Compensation Discussion and Analysis (continued)

 

 

 

2014 Annual Cash Incentive Awards

The following table shows the 2014 annual cash incentive awards earned by each NEO.

 

Name    Target
Opportunity
as a % of
Base Salary
   

2014 Cash
Incentive
Award
Opportunity
Range

as a % of
Base Salary

   

2014 Cash
Incentive
Award

($)

     2014 Cash
Incentive
Award
Earned as
a % of
Target
 

Gregory H. Boyce

     120     0-240     1,682,889         114

Glenn L. Kellow

     100     0-200     955,365         119

Michael C. Crews

     80     0-160     586,219         122

Charles F. Meintjes

     80     0-160     537,368         122

Kemal Williamson

     80     0-160     462,683         116

Long-Term Equity Incentives

The NEOs generally receive long-term equity incentive compensation through awards of stock options or time-vested restricted stock, and awards of performance units. In approving long-term equity incentive awards, the Committees consider the advice of F.W. Cook, as well as available benchmarking data, to recognize the achievement of long-term goals and provide a retentive element for key executives. These awards are structured to provide competitive long-term equity incentive opportunities where earned values are based on performance, aligned with shareholder value.

The Compensation Committee approved new guidelines for delivering long-term equity compensation opportunity in 2013 for NEOs, except our Chairman and CEO. The existing fixed long-term equity award opportunities were replaced with ranges of award opportunity from zero to 1.75 times an NEO’s target opportunity. In any given year, the NEO’s opportunity can be increased or decreased within the range. This provides us more flexibility to align long-term compensation opportunities with changes in roles and assignments, to recognize extraordinary performance efforts or shortfalls and to respond to competitive market conditions.

For 2014, the targeted value of these awards, shown in the table below as a percentage of each NEO’s base salary, is split evenly between stock option and performance unit awards. Mr. Meintjes received restricted stock awards in lieu of stock options of commensurate value and comparable vesting terms, as this approach is more tax-efficient under Australian tax laws.

2014 Long-Term Equity Incentive Award Targets

 

      Award Range as a % of Base Salary
Name    Minimum      Target      Maximum      Actual(1)

Gregory H. Boyce

   N/A      500%      N/A      500%

Glenn L. Kellow

   0%      375%      656%      375%

Michael C. Crews

   0%      225%      394%      250%

Charles F. Meintjes

   0%      200%      350%      250%

Kemal Williamson

   0%      200%      350%      250%
(1) 

Messrs. Crews, Meintjes and Williamson each received above-target long-term equity incentive awards in recognition of their historical and anticipated individual performance.

Stock Options

Our stock option program is a long-term incentive plan designed to create a direct link between executive compensation and increased shareholder value, provide an opportunity for increased equity ownership by NEOs and maintain competitive levels of total compensation opportunity.

 

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The Committees meet in December of each year to evaluate, review and approve the annual stock option award design and level of awards for the NEOs. The Committees approve stock option awards prospectively. Annual stock option awards are generally approved in early December for granting on the first trading day in January at our closing market price per share on the grant date. The Committees may occasionally approve stock option awards that are granted other than on the first trading day of the year, to recognize promotions or new hires. In these cases, the award is approved in advance of the grant date, and the stock option grant is awarded on the determined date with an exercise price equal to our closing market price per share on the grant date. We use a Black-Scholes valuation model to establish the grant-date fair value of all stock option grants.

Stock options have intrinsic value only if the market price of our Common Stock increases after the grant date. Stock options generally vest in one-third increments over a three-year period. If an NEO other than Mr. Boyce terminates employment without good reason (generally as defined in his employment agreement), all unvested stock options are forfeited. In accordance with the terms of his employment agreement, Mr. Boyce is provided continued vesting through the end of the vesting period set forth in the option agreement of unvested stock option awards, if his employment terminates for any reason other than cause or retirement where he does not give us six months’ advance written notice. Stock options expire ten years from the grant date.

At December 31, 2014, all stock options held by our NEOs were “out of the money” and therefore had no currently realizable value. On their grant dates, these stock options had an aggregate fair value of approximately $33 million.

Performance Units

Similar to the stock option program, our performance unit program is a long-term incentive plan designed to create a direct link between executive compensation and increased shareholder value by rewarding NEOs for performance over a three-year performance period.

Performance units granted in 2014 to the NEOs other than Mr. Boyce will be payable, if earned, in shares of our Common Stock. Performance units granted in 2014 to Mr. Boyce will be payable, if earned, in cash due to limitations on the number of awards that could be issued under the plan to an individual in any calendar year. The percentage of the performance units earned is based on (i) our TSR over a period beginning January 2, 2014 and ending December 31, 2016 (the “performance period”) relative to the coal comparator group and the S&P 500 Index (excluding financial services companies) (the “S&P 500 Index group”) and (ii) our Return on Mining Assets (“ROMA”) over the performance period. TSR relative to the coal comparator group and the S&P 500 Index group are each weighted at 25% of the total award, and ROMA is weighted at the remaining 50% of the total award.

The target number of performance units granted is determined using the average closing market price per share of our Common Stock during the four weeks of trading immediately following the grant date.

Units vest ratably each month and are payable in our Common Stock (or cash for Mr. Boyce) at the end of the performance period, subject to the achievement of performance goals and subject to proration/acceleration if an NEO terminates prior to the end of the performance period in instances of death, disability, retirement or in connection with a change in control. If an NEO other than Mr. Boyce terminates employment without good reason, all performance units are forfeited.

TSR Component

Total Stockholder Return (“TSR”) measures cumulative stock price appreciation plus dividends. We measure TSR relative to the coal comparator group because that group is subject to similar market conditions and investor reactions. For purposes of the 2014 performance unit award, the coal comparator group consisted of the following five companies and one exchange-traded fund (“ETF”):

 

Alpha Natural Resources, Inc.

  

Consol Energy Inc.

Arch Coal, Inc.

  

Walter Energy, Inc.

Cloud Peak Energy, Inc.

  

Market Vectors Coal Index ETF(1)

  (1) 

Excluding Peabody and other companies in the coal comparator group.

 

 

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Compensation Discussion and Analysis (continued)

 

 

 

Performance unit payout formulas for the 2014 award (assuming a positive TSR at the end of the performance period) are as follows:

Three-Year Cumulative TSR (Positive Return) – Coal Comparator Group & S&P 500 Index Group

 

TSR Percentile Ranking

   < 35th    35th    42.5th    50th    62.5th    ³ 75th

Payout Percentage

   0%    40%    70%    100%    150%    200%

Performance unit payout formulas for the 2014 award (assuming a negative TSR at the end of the performance period) are as follows:

Three-Year Cumulative TSR (Negative Return) – Coal Comparator Group & S&P 500 Index Group

 

TSR Percentile Ranking

   < 50th    ³ 50th

Payout Percentage

   0%    100%

The maximum payout under the TSR component of the performance unit awards cannot exceed 100% if TSR performance is at or above the 50th percentile, but is negative.

Payouts are ratably adjusted for performance between threshold and maximum levels using straight-line interpolation.

Our TSR over the three-year performance period is based on the average closing market price per share of our Common Stock during the first four weeks of trading in the performance period compared to the average closing market price per share of our Common Stock during the last four weeks of trading in the performance period.

ROMA Component

Return on Mining Assets (ROMA) is calculated as the average annual operating profit on our assets related to our worldwide mining operations, expressed as a percentage of such assets employed (calculated as the average of the assets employed at the beginning and end of each year). In the calculation of ROMA, annual operating profit is defined as operating profit before deducting (a) selling and administrative expenses; (b) operating losses (or profits) associated with the results from our 50% equity interest in the Middlemount Mine; and (c) asset impairment and mine closure costs.

The Compensation Committee, in consultation with F.W. Cook, selected ROMA over other performance measures as it is the best reflection of the return capabilities of “active” assets in the portfolio. As such, ROMA measures the efficiency of employed capital in our operational structures and guides management as to which assets are best deployed in different pricing environments. The Compensation Committee believes that ROMA is the most appropriate metric to use for a single commodity, global mining company subject to significant price volatility. ROMA targets are set using the three-year forward budget forecast and then establishing thresholds and maximums based on spreads of +/- 25%.

Performance unit payout formulas for the 2014 award with respect to the ROMA component are as follows:

Three-Year Cumulative ROMA (Positive Return)

 

ROMA

   < 5.6%    5.6%    7.5%    ³ 9.4%

Payout Percentage

   0%    50%    100%    200%

To the extent ROMA is between the listed percentages, the payout percentage is interpolated on a straight-line basis. For example, if ROMA is 6.55%, the payout percentage would be 75%.

Earned Performance Unit Awards for 2012 Grant

With respect to our performance unit program’s results, our NEOs achieved performance of only 18.75%, which was 81.25% below target, consistent with our three-year TSR performance relative to our coal comparator group and the S&P 500 Index (excluding financial services companies) during the 2012-2014 performance period, and our performance relative

 

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Compensation Discussion and Analysis (continued)

 

 

 

to our Return on Capital targets over the same period, all as described on pages 59-60. However, due to the decline in our share price during the same performance period, the value of the shares awarded was only 4%, or 96% below grant-date target value.

Restricted Stock

In 2014, we granted time-based, non-performance driven restricted stock in lieu of stock options as part of our long-term equity incentive program to Mr. Meintjes, who has residency status in Australia. This approach is more tax-efficient under Australian tax laws. Generally, restricted stock vests at the end of a three-year period.

When appropriate, we may also grant time-based and/or performance-based restricted stock awards for various retention or special recognition purposes at the NEO level. In addition, based on tax requirements in the geographies in which we operate, we may grant restricted stock awards in lieu of stock option awards.

Restricted Stock Units

To date, we have granted restricted stock unit (“RSU”) awards to NEOs only in special situations, such as a new hire. Restricted stock units may be performance-based or time-based, depending upon the circumstances.

Mr. Boyce received a grant of time-based RSUs in April 2013, January 2014 and January 2015, under his April 2013 Transition Agreement with us. These awards are intended to facilitate an effective leadership succession and are not part of our regular executive compensation program, and are described on page 47.

Mr. Kellow received an award of 110,803 performance-based RSUs (the “Inducement Equity Award”) when he joined us as President and Chief Operating Officer on September 16, 2013 (the “Commencement Date”). These RSUs will vest, if at all, on the fifth anniversary of the Commencement Date as follows:

 

  Ø

50% of the RSUs will vest only if our TSR equals or exceeds 20% for any 20 consecutive trading days between the Commencement Date and September 16, 2017; and

 

  Ø

The remaining 50% of the RSUs will vest only if our TSR equals or exceeds 40% for any 20 consecutive trading days between the Commencement Date and September 16, 2018.

Vesting of these RSUs is also conditioned on Mr. Kellow’s continued employment with us through September 16, 2018. If, however, his employment is terminated by us without cause or by him for good reason, or by reason of death or disability, the RSUs (or a prorated portion of the RSUs, if Mr. Kellow resigns pursuant to a specified clause of the good reason definition in his employment agreement) will continue to vest in accordance with their terms, subject to his compliance with his restrictive covenant agreement, as though he remained employed with us at that date.

Additional Compensation Elements

Benefits

NEOs are eligible to participate in benefit plans generally available to the broader employee group.

 

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Perquisites

We provide perquisites that we feel are necessary to enable the NEOs to perform their responsibilities safely and efficiently. We believe the benefit we receive from providing these perquisites significantly outweighs the cost of providing them. The table below summarizes and provides the business rationale for each of the perquisites provided to the NEOs.

 

Perquisite    Description and Business Rationale

Aircraft Usage

  

The Board requires Mr. Boyce, but not the other NEOs, to travel on our corporate or chartered private aircraft for business and personal travel. This is required for security purposes based on an analysis conducted by the Board’s independent advisor on corporate security.

 

We do not provide tax gross-ups for imputed income due to personal aircraft use. Reimbursement is provided for taxes incurred only when a spouse travels for business purposes. Employees do not pay for business travel.

Security

   We provide personal security to NEOs when circumstances warrant. A car and driver are also provided only when necessary for security reasons.

Other

   We may provide tax equalization to NEOs on expatriate assignments to keep them tax neutral. We also provide relocation, temporary housing and tax return preparation costs as discussed in the All Other Compensation table.

Executive Compensation Program Changes for 2015

The Compensation Committee seeks to continually improve our executive compensation program and further adopt programs and practices that foster shareholder alignment, and has made the following program changes which took effect in 2015:

 

  ü

For our long-term equity incentive plan, we changed the mix of long-term equity incentive awards from 50% stock options and 50% performance units to a mix of 25% stock options, 25% time-based restricted stock (or, for retirement eligible recipients, RSUs) and 50% performance units, to better align with competitive market practices, optimize share usage and balance the equity vehicles;

 

  ü

We updated the compensation comparator group to validate the integrity of its composition and appropriateness of use for compensation comparisons, as discussed on page 45, resulting in the elimination of four companies of a larger size and the addition of five companies more appropriate to our screening criteria; and

 

  ü

For our annual cash incentive plan, we updated our safety metric to include equal weighting between a Global Safety Incidence Rate metric (inclusive of contractor rates), and the implementation of Safety A Way of Life (SAWOL), our management system to continue integration with CORESafety® and fatality prevention.

How We Make Compensation Decisions

Risk Considerations

The Compensation Committee periodically reviews our compensation programs for features that might encourage inappropriate risk-taking. The programs are designed with features that mitigate risk without diminishing the incentive nature of the compensation. We believe our compensation programs encourage and reward prudent business judgment without encouraging undue risk.

In 2014, we conducted, and the Compensation Committee reviewed, a comprehensive global risk assessment. The risk assessment included a global inventory of incentive plans and programs and considered factors such as the plan metrics, number of participants, maximum payments and risk mitigation factors.

 

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Responsibilities for Executive Compensation

Compensation decisions for our Chairman and CEO are determined by the Special Committee and for the other NEOs by the Compensation Committee and the Chairman and CEO, as outlined below. F.W. Cook and the Compensation group in our Human Resources Department support the Committees’ efforts.

 

Special Committee

(Comprises all independent Board members)

  

§    Assesses our Chairman and CEO’s performance

§    Determines our Chairman and CEO’s compensation

§    Helps ensure the compensation program for our Chairman and CEO is consistent with our compensation philosophy and is market competitive

Compensation Committee   

§    Has overall responsibility for evaluating and approving our executive compensation plans, policies and programs, and for monitoring performance and compensation levels

§    Oversees our annual and long-term incentive plans and programs and periodically assesses our non-employee director compensation program

§    Reviews, discusses, modifies and approves, as appropriate, our Chairman and CEO’s compensation recommendations for the other NEOs.

Independent Compensation Committee Consultant—

F.W. Cook & Co., Inc.

  

§    Provides the Committees with independent advice concerning the types and levels of compensation to be paid to our Chairman and CEO and the other NEOs.

§    Provides market compensation data (e.g., industry compensation surveys and benchmarking data) on base salary, annual incentives and long-term incentives and industry trends.

§    Facilitates the independent review of our Chairman and CEO’s performance.

Chairman and CEO   

§    Reviews performance of other NEOs with the Compensation Committee.

§    Makes recommendations on base salary, annual incentive and long-term incentives for the other NEOs.

Assessment of Individual Performance

Individual performance has a significant impact on the annual cash incentive award and is weighted at 25% of the award. The remaining 75% of the award is driven by our performance relative to our performance measures as described on page 36. The Special Committee meets with our Chairman and CEO in private sessions at the beginning of the year to agree upon his performance objectives for the year. At the end of the year, each independent director provides feedback on the Chairman and CEO against the performance objectives through a robust process led by the Lead Independent Director and facilitated by F.W. Cook. A summary of collective feedback is developed and the Special Committee meets in executive session led by the Lead Independent Director to review the feedback and arrive at a consensus evaluation. This evaluation is reviewed with our Chairman and CEO, and the Special Committee uses it in determining the Chairman and CEO’s annual cash incentive award.

For other NEOs, the Compensation Committee receives a performance assessment and compensation recommendation from our Chairman and CEO and applies its judgment based on the Board’s interactions with each NEO and their knowledge of his contributions to our success. As with our Chairman and CEO, each NEO’s performance is based on his achievement of performance objectives, contributions to our performance and other leadership qualities.

In making these compensation decisions, the Committees use several resources and tools, including competitive market information. One such tool is a “tally sheet,” which assigns a dollar amount to each of the compensation elements discussed above as well as accumulated outstanding long-term equity awards and deferred compensation. The Committees believe a tally sheet is useful in evaluating each NEO’s total compensation opportunity.

Assessment of Company Performance

The Committees use Company performance measures to establish total compensation ranges relative to our performance and the performance of our comparator groups as outlined on the following page. In addition, the Committees establish specific performance measures that determine payouts under cash and equity-based incentive programs.

 

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Role of the Compensation Consultant and Legal Consultant

The Compensation Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other advisor and is directly responsible for the appointment, compensation arrangements and oversight of the work of any such person. In making any such decisions, the Compensation Committee is required to consult with the Lead Independent Director. We will provide appropriate funding, as determined by the Compensation Committee, for payment of reasonable compensation to any compensation consultant, legal counsel or other adviser retained by the Compensation Committee.

The Compensation Committee may select a compensation consultant, legal counsel or other advisor to the Committee only after taking into consideration all factors relevant to that person’s independence from management.

Under this authority, the Committee has engaged an independent compensation consultant, F.W. Cook, and an independent law firm for guidance on executive compensation issues. Neither of these advisors provides any other services to us and their work in support of the Committees did not raise any conflicts of interest or independence concerns.

Compensation Comparator Group

Talent for senior-level management positions and key roles in the organization can be acquired across a broad spectrum of companies. As such, we rely on compensation data for a group of publicly-held companies of similar size and/or complexity as us based on revenue, market capitalization and assets (the “Industrial comparator group”):

 

  §  

As an input in developing base salary ranges, annual incentive targets and long-term equity award ranges;

 

  §  

To evaluate share utilization by reviewing overhang levels and annual run rate;

 

  §  

To benchmark the form and mix of equity awarded to NEOs;

 

  §  

To benchmark share ownership guidelines;

 

  §  

To assess the competitiveness of total direct compensation awarded to NEOs;

 

  §  

To validate whether our executive compensation program is aligned with our performance; and

 

  §  

As an input in designing compensation plans, benefits and perquisite programs.

While the Compensation Committee examines executive compensation data for the Industrial comparator group companies, compensation paid at those companies is not the sole factor in their decision-making process.

Each year, the Compensation Committee commissions a compensation analysis conducted by its independent compensation consultant to determine whether our executive compensation program is appropriate compared to the Industrial comparator group.

The Industrial comparator group for 2014 comprised the following companies:

 

Air Products & Chemicals, Inc.

  

Freeport-McMoRan Copper & Gold, Inc.

Alpha Natural Resources, Inc.

  

Monsanto Company

Arch Coal, Inc.

  

National Oilwell Varco, Inc.

Barrick Gold Corporation

  

Newmont Mining Corporation

Cliffs Natural Resources Inc.

  

Praxair, Inc.

CONSOL Energy Inc.

  

Rockwell Automation, Inc.

Eastman Chemical Company

  

Southern Copper Corporation

Ecolab, Inc.

  

SPX Corporation

EOG Resources, Inc.

  

Teck Resources, Inc.

 

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Based on the advice of its independent compensation consultant, the Compensation Committee approved the following changes to the industrial comparator group for 2015:

 

  §  

Remove EOG Resources, Inc., Monsanto Company, National Oilwell Varco, Inc. and Southern Copper Corporation, as they are significantly larger than us based on revenues, market capitalization and other measures; and

 

  §  

Add AK Steel Corporation, Allegheny Technologies Inc., Domtar Corporation, Joy Global Inc. and Kinross Gold Corporation, as they meet our size screening criteria and exhibit strong business and operational similarities to us.

Share Ownership Requirements

We have share ownership requirements for our executives, including the NEOs, which are designed to align their long-term financial interests with those of our shareholders.

The NEO share ownership requirements are as follows:

 

Role   

Value of Common Stock

to be Owned

CEO

   5 times base salary

Other NEOs

   3 times base salary

If at any time an NEO does not meet his ownership requirement, he must retain (a) any of our Common Stock owned by him (whether owned directly or indirectly) and (b) any net shares received as the result of the exercise, vesting or payment of any equity award until the ownership requirement is met, in each case unless otherwise approved by the Compensation Committee. For this purpose, “net shares” means the shares of stock that remain after shares are sold or withheld to (i) pay the exercise price for a stock option award or (ii) satisfy any tax obligations, including withholding taxes, arising in connection with the exercise, vesting or payment of an equity award.

Compliance with these requirements is evaluated as of December 31 of each year. The value of an individual’s share ownership as of such date is determined by multiplying the number of shares of our stock or other eligible equity interests held by the individual by the average of the closing prices of our stock on each trading day during such year.

For purposes of determining executive stock ownership levels, only the following forms of our equity interests are included:

 

  §  

Stock owned directly (including stock or stock units held in any defined contribution plan or employee stock purchase plan;

 

  §  

Stock held by immediate family members residing in the same household or through trusts for the benefit of the person or his or her immediate family members residing in the same household;

 

  §  

Unvested restricted stock or RSUs (provided that vesting is based solely on the passage of time and/or continued service with the Company); and

 

  §  

Phantom shares issued to Mr. Boyce under his employment agreement.

The following table summarizes NEO ownership of our Common Stock as of December 31, 2014.

 

Name    Ownership
Requirement
Relative to
Base Salary
     Ownership
Relative to
Base
Salary as of
December 31,
2014
(1)
 

Gregory H. Boyce

     5.0x         2.7x   

Glenn L. Kellow

     3.0x         1.1x   

Michael C. Crews

     3.0x         1.4x   

Charles F. Meintjes

     3.0x         1.3x   

Kemal Williamson

     3.0x         0.7x   
(1) 

Value is calculated based on the closing market price per share of our stock on December 31, 2014, which was $7.74.

 

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During 2014, several NEOs made open market purchases of our stock to increase their share ownership and to express their confidence in our long-term value. In November and December 2014, Mr. Boyce purchased a total of 10,000 shares; and in November 2014, Mr. Crews purchased 3,000 shares. In December 2014, Mr. Kellow purchased 5,374 shares through our 401(k) plan.

Prohibition on Hedging or Pledging Company Stock

Our Insider Trading Policy prohibits our directors and all of our employees, including our officers, from entering into hedging transactions involving our stock, and from holding our stock in a margin account as collateral for a margin loan or otherwise pledging our stock as collateral for a loan.

Clawback Provisions

If we are required to prepare an accounting restatement due to fraudulent and/or intentional material misrepresentation, the Board may take action to recoup incentive awards and equity gains on awards granted to NEOs to the extent such awards exceeded the payment that would have been made based on the restated financial results. This right to recoup expires unless such determination is made by the Board within three years following the payment of the award.

Transition Agreement with Mr. Boyce

We believe succession planning that results in an orderly transition in key executive positions is a cornerstone of good corporate governance. In April 2013, as part of our succession plan for the CEO position, we entered into a Transition Agreement with Mr. Boyce that amended his existing employment agreement with us. The Transition Agreement provided that Mr. Boyce will continue his term as Chairman and CEO through December 31, 2014, and as Executive Chairman through December 31, 2015, subject to the terms of the Transition Agreement. On May 8, 2014, we entered into a Restated Transition Agreement with Mr. Boyce, which extended Mr. Boyce’s term as Chairman and CEO by six months.

As announced in January 2015, Mr. Boyce will continue as our Chairman and CEO through May 4, 2015, at which date Mr. Kellow will assume the role of CEO and Mr. Boyce will assume the role of Executive Chairman of the Board. On June 30, 2016, Mr. Boyce’s employment with us will cease, and his employment term will end, upon the appointment of his successor as Chairman (the “Separation Date”).

The Restated Transition Agreement provides that termination of Mr. Boyce’s service as a result of the appointment of his successor(s) as Chairman and CEO will be considered a termination of his employment without cause for purposes of his employment agreement.

Mr. Boyce received three grants of restricted stock units, each valued at $1,000,000 as of the close of business on the applicable grant date, as follows: (i) the first grant was made on April 30, 2013 (the “2013 Transition Award”); (ii) the second grant was made on January 2, 2014 (the “2014 Transition Award”); and (iii) the third grant was made on January 2, 2015 (the “2015 Transition Award” and, together with the 2013 Transition Award and the 2014 Transition Award, the “Special Transition Awards”).

The 2013 Transition Award and 2014 Transition Award vested as to 50% of the RSUs included in each Special Transition Award on the appointment of Mr. Kellow as CEO-elect, and the remaining 50% of the RSUs included in each Special Transition Award will vest on the date of the appointment of Mr. Boyce’s successor as Chairman. Mr. Boyce’s 2015 Transition Award will vest as to 100% of the RSUs included in such Special Transition Award on the date that his successor as Chairman is appointed. Special Transition Awards will vest immediately if Mr. Boyce’s employment with us is terminated by us without cause (including as described above), if his employment with us terminates by reason of death or disability, or if he continues employment with us until December 31, 2015. The 2013 and 2014 Transition Awards will be settled in our Common Stock. The 2015 Transition Award was made outside our 2011 Long-Term Equity Incentive Plan and will be settled in cash.

The Restated Transition Agreement provides that, beginning January 1, 2015, Mr. Boyce no longer has a right to resign for good reason and receive severance.

 

PEABODY ENERGY CORPORATION    47


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Compensation Discussion and Analysis (continued)

 

 

 

Employment Agreements

The Compensation Committee approves the terms of all NEO employment agreements other than Mr. Boyce’s. The Special Committee approves Mr. Boyce’s employment agreement. The terms of those agreements, including the provision of post-termination benefits, were structured to attract and retain persons believed to be key to our success, as well as to be competitive with compensation practices for executives in similar positions at companies of similar size and complexity. In assessing whether the terms of the employment agreements were competitive, the Committees received advice from F.W. Cook and reviewed appropriate surveys and industry benchmarking data.

The Compensation Committee has approved a form of employment agreement which provides for a three-year term. We intend for this new form of agreement to be used for newly-hired executives. Following the initial three-year term, the executive would be an “at-will” employee without an employment agreement and would participate in our Executive Severance Plan. The Compensation Committee expects that legacy employment agreements with different terms will be phased out over time in accordance with a transition approach approved by the Compensation Committee.

We are following this new approach with our recently announced President and CEO-elect, Mr. Kellow. In connection with his promotion, the Compensation Committee and the Special Committee amended Mr. Kellow’s employment agreement to provide for his appointment and transition to the role of CEO, but did not enter into a new employment agreement with him. Mr. Kellow’s current three-year agreement, as amended, will expire August 21, 2016, after which he will become an employee at will, and a participant in our Executive Severance Plan.

The following table highlights employment agreement provisions for our Chairman and CEO and other NEOs:

 

Employment Agreement Provisions
Position  

§    Chairman and CEO

 

§    Other NEOs

Most recent employment agreement date  

§    12/31/09 (as amended by the Restated Transition Agreement dated 5/8/14)

 

§    8/21/13 (Mr. Kellow)

 

§    12/31/08 (Mr. Crews)

 

§    12/12/12 (Mr. Meintjes)

 

§    12/20/12 (Mr. Williamson)

Term of contract  

§    12/31/09 – 06/30/16, subject to earlier termination as described in the Transition Agreement

 

§    Three-year employment agreement (Mr. Kellow)

 

§    Three-year initial contract, automatic renewal for one-year at the end of initial term, unless either party provides notice 90 days before the end of the applicable period (Messrs. Crews, Meintjes and Williamson).

 

Mr. Crews’ employment agreement was not renewed and therefore expired on December 31, 2014. Messrs. Meintjes and Williamson have been notified that their employment agreements will not be renewed at the end of their initial terms.

 

48    PEABODY ENERGY CORPORATION


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Compensation Discussion and Analysis (continued)

 

 

 

Severance Benefits  

§    No severance for a termination of employment occurring after December 31, 2014

 

§    Upon termination other than for cause or upon resignation for good reason, severance is equal to a 2X multiple (1X for Messrs. Meintjes and Williamson) times:

 

§    Annual base salary

 

§    Average annual cash incentive award paid for the three years preceding the year of termination

 

§    6% of annual base salary (to compensate for Company contributions he otherwise would have earned under our 401(k) plan)

 

   

§    Upon termination other than for cause or resignation for good reason, executive is also entitled to:

 

§    One-time prorated annual cash incentive award for the year of termination

 

§    Medical and other benefits for 18 months

 

   

§    1/2 (1/4 for Mr. Kellow) of severance benefit total paid in lump sum on the earlier of executive’s death or first day after six-month anniversary of termination

 

   

§    Remaining 1/2 (3/4 for Mr. Kellow) of severance benefits total paid in six (18 for Mr. Kellow) equal monthly payments beginning on the first day of the month next following the initial lump sum payment

 

 

§    We are not obligated to provide any benefits under tax qualified plans that are not permitted by plan terms or applicable laws

 

§    We are not obligated to provide any benefits under tax qualified plans that are not permitted by plan terms or applicable laws

 

Restrictive Covenants

(post-termination)

 

§    Confidentiality (perpetual)

 

§    Confidentiality (perpetual)

 

 

§    Non-compete (1 year) — (For Messrs. Crews, Meintjes and Williamson, the non-compete does not apply if the employment agreement is not renewed and no severance benefits are paid following termination)

 

§    Non-solicitation (2 years)

 

§    Breach will result in forfeiture of any unpaid amounts or benefits

 

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Compensation Discussion and Analysis (continued)

 

 

 

Make-Whole Payments

 

§    Upon termination of employment, Mr. Boyce is entitled to an $800,000 payment to compensate him for amounts he forfeited upon leaving a former employer

 

§    Upon termination for any reason, deferred compensation payable in cash in one of the following amounts:

 

§    If termination occurred (a) prior to age 62, the greatest of (1) $622,500 plus interest through the date of termination, or (2) an amount equal to the fair market value of 86,602 shares of Common Stock on the date of termination; or (3) $1.6 million, reduced by 0.333% for each month that termination occurs before he reaches age 62; or (b) on or after age 62, the greater of the amount referenced in (a) on the date of termination or $1.6 million

 

§    None

Tax Gross-Ups  

§    No tax gross-up payments for any excise taxes or related interest or penalties imposed by Internal Revenue Code Section 4999 (collectively, “Excise Tax”). If Mr. Boyce becomes entitled to any payment, benefit or distribution which is subject to Excise Tax, the aggregate payments will be reduced (using a method that complies with Internal Revenue Code Section 409A) to the safe harbor amount under Internal Revenue Code Section 280G if the value of Mr. Boyce’s net after-tax benefit as a result of the reduction would exceed the value of the net after-tax benefit if such reduction were not made and Mr. Boyce paid the Excise Tax

 

§    For Mr. Crews, if Excise Tax is incurred, we will make the tax gross-up payments to put him in the same financial position as if the Excise Tax was not incurred. Mr. Crews’ employment agreement expired 12/31/2014 and the tax gross-up is no longer applicable. Messrs. Kellow, Meintjes and Williamson are not entitled to any tax gross-up payments if Excise Tax is incurred. If Mr. Kellow becomes entitled to any payment, benefit or distribution which is subject to Excise Tax, his aggregate payments are subject to reduction on the same terms as described for Mr. Boyce

Executive Severance Plan

As part of a transition process which will result in all officers being employed on an “at-will” basis rather than under individual employment agreements, in 2013 we adopted an Executive Severance Plan to provide transitional assistance to certain senior executives whose employment is terminated by us (for reasons other than cause, death or disability). The plan provides cash severance based upon a tiered severance multiple of annual base salary and average annual cash incentive paid over the preceding three years ranging from 1X for certain executives to 2X for NEOs (2.5X for the CEO if termination occurs within two years of a change in control), as well as continuing healthcare benefits. NEOs will be eligible to participate in the plan as executive employment agreements expire and are not renewed.

 

50    PEABODY ENERGY CORPORATION


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Compensation Discussion and Analysis (continued)

 

 

 

Deductibility of Compensation Expenses

Under Section 162(m) of the Internal Revenue Code, some compensation paid to NEOs in excess of $1 million is not tax deductible, except to the extent it constitutes “performance-based compensation.” The Committees will consider the impact of Section 162(m) of the Internal Revenue Code when establishing incentive compensation plans. As a result, a significant portion of our executive compensation is designed so that it may be able to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code depending upon facts and circumstances. At the same time, the Committees consider as their primary goal the design of compensation strategies that further our best interests and the best interests of our shareholders. In certain cases, for example, the Committees may determine that the amount of tax deductions lost is not significant when compared to the potential opportunity an executive compensation program provides for creating shareholder value. The Committees therefore retain the ability to evaluate our NEOs’ performance and to pay appropriate compensation, even if some of it may be non-deductible. Moreover, even if the Committees intend to grant compensation that qualifies as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code, the Committees cannot guarantee that such compensation will so qualify or ultimately will be deductible.

 

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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

 

REPORT OF THE COMPENSATION COMMITTEE

 

The Compensation Committee has reviewed and discussed with management the Company’s disclosure under “Compensation Discussion and Analysis” beginning on page 33.

Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for filing with the Securities and Exchange Commission.

MEMBERS OF THE COMPENSATION COMMITTEE:

WILLIAM A. COLEY, CHAIR

WILLIAM E. JAMES

ROBERT A. MALONE

WILLIAM C. RUSNACK

MICHAEL W. SUTHERLIN

 

52    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

 

EXECUTIVE COMPENSATION

 

2014 Summary Compensation Table

The following table summarizes the compensation of our named executive officers for their performance during the years ended December 31, 2014, 2013 and 2012.

 

Name and Principal Position   Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)
(1)
    Option
Awards
($)
(1)
    Non-Equity
Incentive Plan
Compensation
($)
(2)
    Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
(3)
    All Other
Compensation
($)
(4)
    Total
($)
 

Gregory H. Boyce

    2014        1,225,660               4,619,615        3,064,014        1,682,889               401,905        10,994,083   

Chairman and

    2013        1,225,660               4,795,733        3,064,914        1,325,104               377,978        10,789,389   

Chief Executive

    2012        1,208,160               3,222,463        2,903,452        1,712,689               444,641        9,491,405   

Officer

                 

Glenn L. Kellow

    2014        800,000               1,771,919        1,499,933        955,365               552,299        5,579,516   

President and

    2013        233,333        500,000        2,240,153        499,985        246,157               259,236        3,978,864   

Chief Operating

                 

Officer

                 

Michael C. Crews

    2014        600,000               885,969        749,967        586,219        5,192        71,730        2,899,077   

Executive Vice President

    2013        595,833               1,021,959        825,209        503,731               71,501        3,018,233   

and Chief

    2012        537,500               2,127,373        565,280        542,067        5,661        62,188        3,840,069   

Financial Officer

                 

Charles F. Meintjes

    2014        550,000               1,497,585               537,368               352,644        2,937,597   

President - Australia

    2013        550,000               1,907,718               441,954               386,338        3,286,010   
    2012        406,386        125,000        710,645        189,815        612,489               254,707        2,299,042   

Kemal Williamson

    2014        500,000               738,299        624,970        462,683        1,434        76,438        2,403,824   

President - Americas

                                                                       
(1) 

Amounts in the Stock Awards and Option Awards columns reported for 2014 represent the aggregate grant-date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”). A discussion of the relevant fair value assumptions is set forth in Note 18 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. For 2014 performance unit awards included in the Stock Awards column, the maximum potential payout is estimated as follows: Mr. Boyce, $7,239,247; Mr. Kellow, $3,543,839; Mr. Crews $1,771,938; Mr. Meintjes, $1,624,244; and Mr. Williamson, $1,476,598. The amounts actually realized from the stock and option awards will vary based on a number of factors, including our actual operating performance, stock price fluctuations and the timing of exercises (for options only) and stock sales.

 

(2) 

Amounts in this column reported for 2014 represent awards under our annual incentive plan. The material terms of the 2014 awards are described under the heading “Annual Cash Incentive” in the CD&A section above.

 

(3) 

Amounts in this column reported for 2014 reflect only changes in the actuarial present value of Messrs. Crews’ and Williamson’s accumulated benefit under the Peabody Investments Corp. (PIC) Retirement Plan, which for 2014 were increases in value of $5,192 and $1,434, respectively. See pages 60-61 for further discussion about the PIC Retirement Plan.

 

(4) 

Amounts included in this column are described in the All Other Compensation table below.

 

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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

EXECUTIVE COMPENSATION (continued)

 

 

 

All Other Compensation

The following table sets forth detailed information regarding the 2014 amounts reported in the All Other Compensation column of the Summary Compensation Table above.

 

Name    Group
Term Life
Insurance
($)
    

Annual 401(k)

Matching and
Performance
Contributions
($)

    

Tax
Gross-

Ups

($)

    Perquisites
($)
(1)(2)
     Total ($)  

Gregory H. Boyce

     7,524         143,402         17,625 (3)      233,354         401,905   

Glenn L. Kellow

     1,710         93,600         162,421 (4)      294,568         552,299   

Michael C. Crews

     1,530         70,200                        71,730   

Charles F. Meintjes

     2,139         64,350         98,313 (5)      187,842         352,644   

Kemal Williamson

     3,612         58,500                14,326         76,438   
(1) 

Amounts include the aggregate incremental cost to us of trips where a spouse/guest accompanied the executive on our corporate aircraft for company business purposes, and for Mr. Boyce, the aggregate incremental cost of his personal use of corporate aircraft. Aggregate incremental cost to us of use of our corporate aircraft was determined on a per flight basis and includes the following: cost of fuel; landing fees; in-flight meals; sales tax; crew expenses; the hourly cost of aircraft maintenance for the applicable number of flight hours; and other variable costs specifically incurred. Aggregate incremental cost to us of a company-provided car and driver is determined as the sum of an allocable portion of vehicle operating expenses and an allocable portion of the driver’s salary and benefits.

 

(2) 

For Mr. Boyce, includes $216,367 for corporate aircraft usage and $16,987 for use of a company-provided car and driver. For Mr. Kellow, includes $271,454 for relocation expenses, $19,391 for tax return preparation costs, and $3,723 for corporate aircraft usage. For Mr. Meintjes, includes relocation expenses of $144,383 and tax return preparation costs of $43,459. For Mr. Williamson, includes tax return preparation costs of $14,326.

 

(3) 

Represents tax gross-ups relating to taxes due for use of our corporate aircraft when his spouse accompanied him on business travel ($13,377) and for use of a company-provided car and driver ($4,248).

 

(4) 

Represents tax gross-ups relating to taxes due for relocation ($159,438) and use of our corporate aircraft when his spouse accompanied him on business travel ($2,983).

 

(5) 

Represents tax gross-ups relating to taxes due for relocation ($98,313).

 

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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

EXECUTIVE COMPENSATION (continued)

 

 

 

2014 Grants of Plan-Based Awards

The following table sets forth information concerning grants to the NEOs of plan-based awards during the year ended December 31, 2014.

 

             

Estimated Possible Payouts

Under Non-Equity Incentive

Plan Awards(1)

   

Estimated Possible Payouts
Under Equity Incentive Plan
Awards
(2)

    All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)
(3)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
(4)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
(4)
    Grant
Date Fair
Value of
Stock
and
Option
Awards
($)
(5)
 
Grant
Date
    Approval
Date
    Threshold
($)
   

Target

($)

    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
         

 

Gregory H. Boyce

  

    735,396        1,470,792        2,941,584                                                           
  1/2/2014        12/10/2013              68,896        172,240        344,480              3,619,624   
  1/2/2014        12/10/2013                      412,402        19.54        3,064,014   
  1/2/2014        12/10/2013                    51,177            999,991   

 

Glenn L. Kellow

  

    400,000        800,000        1,600,000                 
  1/2/2014        12/10/2013              33,727        84,317        168,634              1,771,919   
  1/2/2014        12/10/2013                      201,884        19.54        1,499,933   

 

Michael C. Crews

  

    240,000        480,000        960,000                 
  1/2/2014        12/10/2013              16,864        42,159        84,318              885,969   
  1/2/2014        12/10/2013                      100,942        19.54        749,967   

 

Charles F. Meintjes

  

    220,000        440,000        880,000                 
  1/2/2014        12/10/2013              15,458        38,645        77,290              812,122   
  1/2/2014        12/10/2013                    35,080            685,463   

 

Kemal Williamson

  

    200,000        400,000        800,000                 
  1/2/2014        12/10/2013              14,053        35,132        70,264              738,299   
  1/2/2014        12/10/2013                                                                84,118        19.54        624,970   
(1) 

Represents the estimated payouts under the annual cash incentive plan. The target award represents 100% of the maximum award value payable upon the achievement of the performance measures (Price-collar Adjusted EBITDA, Adjusted Total Costs, Total Sales Volumes, Global Safety Incidence Rate and Individual Goals) described in the CD&A under the heading “2014 Annual Cash Incentive Performance Measures” at 100% of the specified performance measures. The maximum award represents 200% of the target award value and the threshold award represents 50% of the target award value. The actual amounts earned by the NEOs for 2014 are set forth in the “Non-Equity Incentive Plan Compensation” column of the SCT.

 

(2) 

Represents the number of shares of our Common Stock underlying performance unit awards granted in 2014. The performance units were granted on January 2, 2014, and vest over a three-year performance period ending on December 31, 2016. Payout is subject to the achievement of the following goals: (i) our three-year TSR performance relative to the applicable peer group and the S&P 500 Index (excluding financial services companies) and (ii) a three-year return on mining asset target. The material terms of these awards, including payout formulas, are described under the heading “Performance Units” in the CD&A.

 

(3) 

Represents the number of restricted stock units that were granted on January 2, 2014 to Mr. Boyce, which will vest on the date that his successor as Chairman is appointed, as described under the heading “Transition Agreement with Mr. Boyce” in the CD&A. Represents the number of restricted shares that were granted to Mr. Meintjes on January 2, 2014, which will vest in three equal annual installments beginning on the first anniversary of the grant date.

 

(4) 

Represents the number of shares of our Common Stock underlying stock option awards granted in 2014. All options vest in three equal annual installments beginning on the first anniversary of the grant date. The material terms of these awards are described under the heading “Stock Options” in the CD&A.

 

(5) 

Represents the grant date fair value of awards determined under FASB ASC Topic 718. A discussion of the relevant fair value assumptions is set forth in Note 18 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. We caution that the amount ultimately realized from the stock and option awards will vary based on a number of factors, including our actual operating performance, stock price fluctuations and the timing of exercises (for options only) and stock sales.

 

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EXECUTIVE COMPENSATION (continued)

 

 

 

Outstanding Equity Awards at 2014 Fiscal Year-End

The following table sets forth details about the outstanding equity awards for each of the NEOs as of December 31, 2014. We note that the amount actually realized from the outstanding equity awards will vary based on a number of factors, including our actual operating performance, stock price fluctuations and the timing of exercises (for options only) and stock sales. For certain equity incentive awards, the amount ultimately realized will also vary with our TSR relative to the Coal comparator group and the S&P 500 Index (excluding financial services companies).

All unexercisable options and unvested shares or stock units reflected in the table held by an NEO other than Mr. Boyce are subject to forfeiture if he terminates employment without good reason (as defined in his employment agreement). In accordance with the terms of his employment agreement, Mr. Boyce is provided continued vesting through the end of the vesting period set forth in the option agreement of unvested stock option awards if his employment terminates (1) on or before December 31, 2014 for any reason other than cause or retirement without his giving us six months’ written notice or (2) during calendar year 2015 for any reason other than cause. Stock options expire, at the latest, ten years from the grant date.

 

     Option Awards     Stock Awards  
Name   Number of
Securities
Underlying
Unexercised
Options
(#)
(1)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
(1)
Unexercisable
    Option
Exercise
Price
($)
(1)
    Option
Expiration
Date
    Number of
Shares or
Units of
Stock That
Have  Not
Vested
(#)
(1)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
(2)
    Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have  Not
Vested
(#)
(1)(3)
    Equity
Incentive
Plan
Awards:
Market /
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have  Not
Vested
(#)
(2)
 

Gregory H. Boyce

                47,255 (4)      365,754   
                68,896 (5)      533,255   
            86,602 (6)      1,488,112       
            101,027 (7)      781,949       
    27,501 (8)        21.6646        3/1/2015           
    91,734 (9)        39.8143        1/3/2016           
    120,314 (10)        34.9553        1/3/2017           
    77,761 (11)        62.7200        1/2/2018           
    186,154 (12)        26.8400        1/5/2019           
    99,412 (13)        47.8700        1/4/2020           
    82,731 (14)        64.5200        1/3/2021           
    104,127 (15)      52,063 (15)      36.2700        1/3/2022           
    81,320 (16)      162,641 (16)      25.8400        1/2/2023           
            412,402 (17)      19.5400        1/2/2024                                   

Total

    871,054        627,106            187,629        2,270,061        116,151        899,009   

Glenn Kellow

                11,306 (18)      87,508   
                33,727 (5)      261,045   
            110,803 (19)      857,615       
    19,771 (20)      39,541 (20)      18.0500        9/16/2023           
            201,884 (17)      19.5400        1/2/2024                                   

Total

    19,771        241,425                        110,803        857,615        45,033        348,553   

 

56    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

EXECUTIVE COMPENSATION (continued)

 

 

 

     Option Awards     Stock Awards  
Name   Number of
Securities
Underlying
Unexercised
Options
(#)
(1)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
(1)
Unexercisable
    Option
Exercise
Price
($)
(1)
    Option
Expiration
Date
    Number of
Shares or
Units of
Stock That
Have  Not
Vested
(#)
(1)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
(2)
    Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have  Not
Vested
(#)
(1)(3)
    Equity
Incentive
Plan
Awards:
Market /
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have  Not
Vested
(#)
(2)
 

Michael C. Crews

                12,723 (4)      98,476   
                16,864 (5)      130,527   
            41,356 (21)      320,095       
    12,579 (22)        79.2800        7/14/2018           
    8,979 (12)        26.8400        1/5/2019           
    11,681 (13)        47.8700        1/4/2020           
    15,429 (14)        64.5200        1/3/2021           
    20,273 (15)      10,136 (15)      36.2700        1/3/2022           
    21,895 (16)      43,790 (16)      25.8400        1/2/2023           
            100,942 (17)      19.5400        1/2/2024                                   

Total

    90,836        154,868            41,356        320,095        29,587        229,003   

Charles F. Meintjes

                14,844 (4)      114,893   
                15,458 (5)      119,645   
            13,785 (21)      106,696       
            18,457 (23)      142,857       
            35,080 (24)      271,519       
    5,383 (18)        64.5200        1/3/2021           
    6,807 (18)      3,404 (18)      36.2700        1/3/2022                                   

Total

    12,190        3,404                        67,322        521,072        30,302        234,538   

Kemal Williamson

                13,494 (4)      104,444   
                14,053 (5)      108,770   
    24,572 (9)        39.8143        1/3/2016           
    8,564 (10)        34.9553        1/3/2017           
    15,751 (11)        62.7200        1/2/2018           
    21,549 (12)        26.8400        1/5/2019           
    16,354 (13)        47.8700        1/4/2020           
    12,760 (14)        64.5200        1/3/2021           
    7,991 (15)      3,995 (15)      36.2700        1/3/2022           
    23,222 (16)      46,444 (16)      25.8400        1/2/2023           
            84,118 (17)      19.5400        1/2/2024                                   

Total

    130,763        134,557                                      27,547        213,214   
(1) 

The numbers of options/shares/units and the exercise prices of options have been adjusted, where applicable, to reflect our 2-for-1 stock splits in March 2005 and February 2006 and the spin-off of Patriot Coal Corporation on October 31, 2007.

 

(2) 

The market value was calculated based on the closing market price per share of our Common Stock on the last trading day of 2014 ($7.74 per share).

 

(3) 

The number of performance units disclosed is based on the assumption that threshold performance goals will be achieved.

 

PEABODY ENERGY CORPORATION    57


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EXECUTIVE COMPENSATION (continued)

 

 

 

(4) 

The performance units were granted on January 2, 2013, and vest over a three-year performance period (December 31, 2015). Payout is subject to the achievement of our three-year TSR performance relative to the applicable peer group and the S&P 500 Index (excluding financial services companies).

 

(5) 

The performance units were granted on January 2, 2014, and vest over a three-year performance period (December 31, 2016). Payout is subject to the achievement of the following goals: (i) our three-year TSR performance relative to the applicable peer group and the S&P 500 Index (excluding financial services companies) and (ii) a three-year ROMA target.

 

(6) 

The phantom units granted under Mr. Boyce’s employment agreement vested on October 14, 2009, and will be paid out to Mr. Boyce upon termination of his employment with us. Market value of the phantom units is based on certain “make whole payments” that are payable upon his termination of employment, as discussed on page 48.

 

(7) 

The restricted stock units vested as to 50% on January 22, 2015 (on the date that Mr. Kellow was appointed President and CEO-elect), and will vest as to the remaining 50% on the date of the appointment of Mr. Boyce’s successor as Chairman.

 

(8) 

The options were granted on March 1, 2005 and vested in three equal annual installments beginning March 1, 2006.

 

(9) 

The options were granted on January 3, 2006 and vested in three equal annual installments beginning January 3, 2007.

 

(10) 

The options were granted on January 3, 2007 and vested in three equal annual installments beginning January 3, 2008.

 

(11) 

The options were granted on January 2, 2008 and vested in three equal annual installments beginning January 2, 2009.

 

(12) 

The options were granted on January 5, 2009 and vested in three equal annual installments beginning January 5, 2010.

 

(13) 

The options were granted on January 4, 2010 and vested in three equal annual installments beginning January 4, 2011.

 

(14) 

The options were granted on January 3, 2011 and vested in three equal annual installments beginning January 3, 2012.

 

(15) 

The options were granted on January 3, 2012 and will vest in three equal annual installments beginning January 3, 2013.

 

(16) 

The options were granted on January 2, 2013 and will vest in three equal annual installments beginning January 2, 2014.

 

(17) 

The options were granted on January 2, 2014 and will vest in three equal annual installments beginning January 2, 2015.

 

(18) 

The performance units were granted on September 16, 2013, and fully vest subject to the achievement of performance measures on December 31, 2015. Payout is subject to the achievement of our three-year TSR performance relative to the applicable peer group and the S&P 500 Index (excluding financial services companies).

 

(19) 

The performance-based restricted stock units were granted on September 16, 2013 under Mr. Kellow’s employment agreement. 50% of these units vest on September 16, 2018, contingent upon our TSR exceeding 20% for 20 consecutive trading days prior to September 16, 2017. The remaining 50% vest on September 16, 2018, contingent upon our TSR exceeding 40% for 20 consecutive trading days prior to September 16, 2018.

 

(20) 

The options were granted on September 16, 2013 and will vest in three equal annual installments beginning September 16, 2014.

 

(21) 

The restricted shares were granted on January 3, 2012 and will vest on the third anniversary of the grant date (January 3, 2015).

 

(22) 

The options were granted on July 14, 2008 and vested on July 14, 2012.

 

(23) 

The restricted shares were granted on January 2, 2013 and will vest in three equal annual installments beginning January 2, 2014.

 

(24) 

The restricted shares were granted on January 2, 2014 and will vest in three equal annual installments beginning January 2, 2015.

 

58    PEABODY ENERGY CORPORATION


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

EXECUTIVE COMPENSATION (continued)

 

 

 

2014 Option Exercises and Stock Vested

The following table sets forth detail about stock awards that vested during 2014 for each of the NEOs. The stock awards comprised performance unit awards granted in 2012 and restricted stock awards granted in 2013. There were no stock option exercises in 2014.

 

Name

   Stock Awards(1)(2)  
   Number
of Shares
Acquired
on Vesting
(#)
    

Value
Realized
on Vesting

($)(3)(4)

 

Gregory H. Boyce

     19,357         118,467   

Glenn L. Kellow

               

Michael C. Crews

     3,769         23,065   

Charles F. Meintjes

     10,495         79,177   

Kemal Williamson

     1,485         9,091   
(1) 

Includes the following number of shares of Common Stock delivered in February 2015 in connection with the payout of the performance unit awards that were granted in 2012 and that vested on December 31, 2014 for Mr. Boyce, 19,357; Mr. Crews, 3,769; Mr. Meintjes, 1,266; and Mr. Williamson, 1,485.

 

(2) 

Includes 9,229 shares of Common Stock delivered to Mr. Meintjes in connection with lapse of restrictions on restricted shares that vested during 2014.

 

(3) 

Grant date fair value of the 2012 performance unit awards was $4.3 million, of which $0.2 million was realized upon vesting at 18.75% of target. If the 2012 performance unit awards had been paid out at target based on the average closing price per share of our Common Stock for the four-week period ended December 31, 2014 ($7.98), $1.2 million of realized value would have been distributed to the NEOs listed above.

 

(4) 

A detailed explanation of the value realized due to the payout of performance unit awards granted in 2012 is included in the Peabody Relative Performance for Performance Period Ended December 31, 2014 and Resulting Performance Unit Awards to NEOs table on page 60.

Performance Unit Program

In February 2015, the NEOs received payouts under the terms of performance unit awards granted in 2012 that vested on December 31, 2014. The value realized is shown in the “Stock Awards” column in the above table. These payouts were consistent with our stated executive compensation philosophy to create a clear link to shareholder value and to base compensation, in part, on relative external performance. Specifically, the percentage of these performance units earned was based on (a) our TSR over the three-year performance period beginning January 3, 2012 and ended December 31, 2014, relative to the TSR of the coal comparator group and the S&P 500 Index (excluding financial services companies), and (b) our Return on Capital over the same period. The relative TSR and Return on Capital (“ROC”) metrics each had a 50% weighting.

Over the three-year performance period, our TSR of negative 76.9% was at the 66th percentile of the coal comparator group and was at the 1st percentile of the S&P 500 Index (excluding financial services companies).

The payouts reflect our performance against the relative TSR and ROC metrics and our stock price decline during the three-year performance period.

 

PEABODY ENERGY CORPORATION    59


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2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

EXECUTIVE COMPENSATION (continued)

 

 

 

Peabody Relative Performance for Performance Period Ended December 31, 2014 and

Resulting Performance Unit Award Payouts to NEOs

The following table compares our TSR for the three-year period ended December 31, 2014 to the performance of the coal comparator group and to the performance of the S&P 500 Index (excluding financial services companies), as well as our performance against the ROC metric. Based on our relative performance, the NEOs earned the following performance units under the program:

 

Name   Performance
Period
    Peabody
Percentile
Ranking
Among Coal
Comparator
Group—TSR
    Peabody
Ranking
Among
Coal
Comparator
Group
    Peabody
Percentile
Ranking
Among  Index
Companies—
TSR
(1)
    Peabody
Ranking
Among
Index
Companies
(1)
    Percent of
Award
Earned for
TSR
    Percent
of
Award
Earned
for
ROC
Targets
   

Total

Payout
as a %
of
Target

    Target
Award
Units
(#)
    Actual
Award
Shares
(#)
(2)
   

Actual

Award
Value
($)
(3)

 

Gregory H. Boyce(4)

    2012—2014        65.6     3 of 7        0.6     392 of 395        150.00     0.0     18.75     79,176        19,357        118,467   

Glenn L. Kellow(5)

                                                                            

Michael C. Crews(6)

    2012—2014        65.6     3 of 7        0.6     392 of 395        150.00     0.0     18.75     15,415        3,769        23,065   

Charles F. Meintjes(7)

    2012—2014        65.6     3 of 7        0.6     392 of 395        150.00     0.0     18.75     5,176        1,266        7,745   

Kemal Williamson(8)

    2012—2014        65.6     3 of 7        0.6     392 of 395        150.00     0.0     18.75     6,076        1,485        9,091   
(1) 

The index is designed to track the performance of companies included in the S&P 500 (excluding financial services companies).

 

(2) 

The actual number of shares delivered in respect of earned performance units was calculated by dividing the actual award value (per footnote 3) by the market closing price per share of our Common Stock on the settlement date, February 3, 2015 ($6.12).

 

(3) 

The value of the awards was calculated based on the average closing price per share of our Common Stock for the four-week period ended December 31, 2014 ($7.98), multiplied by the total payout as a percentage of target.

 

(4) 

Grant date fair value at target was $3,222,067.

 

(5) 

Based upon the date he was hired, Mr. Kellow was not eligible to participate in the performance unit program for the performance period ended December 31, 2014.

 

(6) 

Grant date fair value at target was $627,391.

 

(7) 

Grant date fair value at target was $210,663.

 

(8) 

Grant date fair value at target was $247,263.

2014 Pension Benefits

Our Retirement Plan for Salaried Employees, or pension plan, is a qualified “defined benefit” pension plan. The pension plan provides a monthly annuity to eligible salaried employees when they retire. An employee must have at least five years of service to be vested in his or her benefit under the pension plan. A full benefit is available to a retiree at age 62. A retiree can begin receiving a benefit as early as age 55; however, a 4% reduction factor applies for each year a retiree receives a benefit prior to age 62. All participants in the plan at December 31, 2000 were vested regardless of years of service.

We announced in February 1999 that the pension plan would be phased out beginning January 1, 2001. Certain transition benefits were introduced based on the age and service of affected employees at December 31, 2000. Each of the participants in the pension plan has had his or her pension benefits frozen. In all cases, final average earnings for retirement purposes are capped at December 31, 2000 levels.

A participant’s retirement benefit under the pension plan is equal to the sum of (1) 1.112% of the highest average monthly earnings over 60 consecutive months up to the “covered compensation limit” multiplied by the employee’s years of service, not to exceed 35 years, and (2) 1.5% of the average monthly earnings over 60 consecutive months over the “covered compensation limit” multiplied by the employee’s years of service, not to exceed 35 years. Under the pension plan, “earnings” include compensation earned as base salary and up to five annual incentive awards.

 

60    PEABODY ENERGY CORPORATION


Table of Contents
2015 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT   

EXECUTIVE COMPENSATION (continued)

 

 

 

Listed below is the actuarial present value of the current accumulated pension benefit under the pension plan as of December 31, 2014 for the NEOs. Due to the phase out of the pension plan in 2001, Mr. Crews and Mr. Williamson are the only NEOs who a