Item 5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On January 25, 2021, the Compensation & Talent Committee (the "Committee") of
the Board of Directors (the "Board") of The ODP Corporation (the "Company")
approved the payout under the Company's 2020 Corporate Incentive Plan ("Annual
Bonus Plan"). The Company's Annual Bonus Plan is a cash annual incentive plan
designed to compensate the Company's executives and employees based on
achievement of annual corporate performance goals. The Annual Bonus Plan
includes threshold, target and maximum payouts tied to adjusted EBITDA and Net
Sales goals. Failure to meet threshold results in zero funding based on the
originally approved goals, whereas attainment of target performance goals
results in target payout and maximum payout is capped at 200% of target to align
with market-competitive practice among the Company's peer group and to enable
upside opportunity for performance above target and the challenging nature of
the goals. When designing the Annual Bonus Plan in February 2020, the Committee
established categories of significant, unplanned and unusual items that would be
excluded from adjusted EBITDA and Net Sales. The pre-determined adjustments were
intended to ensure that measured performance reflected the degree of management
excellence in results and was not distorted upward or downward by factors
outside management's control. The adjustment categories set forth in the Annual
Bonus Plan thereby foster "line of sight" between controllable performance and
payouts, protect against artificial inflation or deflation in payouts, and
assure fairness to both shareholders and management, and continued alignment of
their interests. For 2020, the categories of excludable items included:
merger-related expenses; impacts of unplanned acquisitions and divestitures;
impacts of change in classification from discontinued operations to continuing
operations (and vice versa); restructuring charges; impairment charges related
to goodwill, other intangible assets, and long-lived assets (non-cash);
unplanned legal expenses related to attorney fees, judgments and settlements;
and unplanned costs and benefits related to real estate strategy, including, but
not limited to lease terminations or facility closure obligations; and other
unplanned and unusual adjustments approved by the Committee.
At the meeting, the Committee reviewed the preliminary corporate performance
results for the 2020 performance measures that the Committee established in
February 2020 for adjusted EBITDA and Net Sales under the Annual Bonus Plan. The
adverse impact of the COVID-19 pandemic to Net Sales and adjusted EBITDA
resulted in the Company's performance coming in below target performance for the
Net Sales and adjusted EBITDA metrics and would have resulted in funding of the
Annual Bonus Plan at 35% of the target payout level for all employees, which
include the named executive officers. As described in the Annual Bonus Plan, the
Committee has the authority to make adjustments to ensure that compensation
appropriately reflects operating performance that is reasonably within
management's control.
During the meeting, the Committee approved adjustments to the Annual Bonus Plan
to exclude from Net Sales and adjusted EBITDA the estimated negative impact that
COVID-19 had on the Company's 2020 operations based on estimated lost sales and
estimated EBITDA shortfall. In contemplating these potential adjustments, the
Committee also carefully assessed the Company's 2020 financial performance and
strategic achievements, all of which were accomplished as the Company worked to
minimize the impact of COVID-19 on its 2020 operations. These included:
• The Company's positive fiscal year 2020 total shareholder return of 13.6%
versus the prior fiscal year return of negative 11.8% and achievement of
significant improvements to its balance sheet and cash flow;
• The Company's completion of its holding company reorganization and the
creation of a new publicly traded company, named The ODP Corporation.
This action simplifies the Company's corporate structure to better align
its assets with respective operating channels, creating more flexibility
for the future;
• The Company's initiation of the Maximize B2B restructuring plan, a
multiyear plan designed to provide fuel for growth on its integrated B2B
distribution platform, reduce retail exposure, provide operational
flexibility, and drive a variable low-cost model;
• The Company's success in streamlining its capital structure by
refinancing the existing credit facility and repaying the term loan; its
successful unwind of the Timber Note structure, retiring non-recourse
debt and generating $87M in net proceeds;
• The Company's quick implementation of creative and resilient approaches
to meeting customer needs through a combination of buy online-pick up
in-store, curbside pickup, and several home or office delivery options
during the onset of the pandemic;
• The Company's launch of a new Personal Protective Equipment business with
gross revenues of approximately $200 million in the first 9 months,
illustrating the agility of its underlying sourcing and supply chain
capabilities and our ability to create new business adjacencies; and
• The Company's continued commitment to safety, health and wellness to its
employees and customers throughout the pandemic including actions the
Company took in the early stages of the pandemic to enhance safety
protocols for employees and create a safe environment for customers.
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In light of these considerations, at the January 25, 2021 meeting, the Committee
determined to fund the Annual Bonus Plan at 74.4% of target for all eligible
participants, which includes approximately 2,200 employees and the named
executive officers, and recommended to the independent directors of the Board
the same payout for the Chief Executive Officer. The Committee's recommendation
for the CEO was approved at a meeting held on the same day. While the overall
payout remains significantly below target, the Committee believes this funding
level appropriately reflects the unique impact of the pandemic and the critical
efforts made by all participants in responding to unprecedented disruption.
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