UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                        Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

☐	Preliminary Proxy Statement

 

☐	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

☒	Definitive Proxy Statement

 

☐	Definitive Additional Materials

 

☐	Soliciting Material Pursuant to §240.14a-12

ScanSource, Inc.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

☒		No fee required.
☐		Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
		(1)		Title of each class of securities to which transaction applies:
		(2)		Aggregate number of securities to which transaction applies:
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
		(4)		Proposed maximum aggregate value of transaction:
		(5)		Total fee paid:
☐		Fee paid previously with preliminary materials.
☐		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1)		Amount previously paid:
		(2)		Form, Schedule or Registration Statement No.
		(3)		Filing party:
		(4)		Date Filed:

 

 

 

Letter from our Chairman and CEO

 

Fellow Shareholders:

Thank you for your continued investment in ScanSource. On behalf of ScanSource’s Board of Directors, it is my pleasure to invite you to participate in the upcoming 2022 Annual Meeting of Shareholders and encourage you to review the attached Notice of Annual Meeting of Shareholders and Proxy Statement and vote using the attached proxy card.

I want to take this opportunity to remind you of some of the important changes and updates at ScanSource this past year:

Our Performance in Fiscal 2021: Our talented employees have made excellent progress on our strategic plan to lead as a “hybrid distributor” connecting devices to the cloud and accelerating growth for our customers and suppliers across hardware, software, connectivity and cloud. We enable partners to deliver solutions for their customers to address changing end-user buying and consumption patterns. For fiscal year 2021, despite the impact of a worldwide pandemic, net sales increased 3.4% to $3.2 billion, or a 5.5% year-over-year increase on an organic basis. Fiscal year 2021 GAAP operating income increased to $61.5 million, and non-GAAP operating income increased to $93.1 million, up 18.0% year-over-year. On a GAAP basis, net income for fiscal year 2021 totaled $45.4 million, or $1.78 per diluted share. Non-GAAP net income totaled $69.9 million, or $2.74 per diluted share. As we reflect on fiscal 2021, we are confident that these results signify a positive outlook for the long-term success of ScanSource.

COVID-19 and Return to Office: The ongoing COVID-19 global pandemic continues to present unique challenges, and we have prioritized the health and safety of our employees and business partners. Although all of our offices in the United States are now open, the vast majority of our employees continue to work from home regularly. We have encouraged our teams to plan team collaboration days in the office to facilitate innovation and shared experiences. As we plan to grow our workforce in FY 2022, we will create engagement opportunities in person at our offices to educate our new hires on our company values and culture. We are monitoring the evolving pandemic situation and have implemented risk mitigation actions in accordance with applicable government and health laws and regulations. As an example, in Brazil, the laws are different and our office based employees are still working remote. However, worldwide, our distribution facilities and employees have been working in the warehouses every day and achieving excellent customer satisfaction scores. Despite the ongoing challenges resulting from the pandemic, our employees are committed to providing the highest level of customer service our partners have grown to expect from ScanSource.

Shareholder Engagement Efforts: Engagement with our shareholders is a key focus for ScanSource management and an important part of our Board’s governance commitment. Our recent engagement efforts focused on establishing relationships, expanding dialogue to cover strategy and governance topics and collecting shareholder feedback. This dialogue helped us to better understand shareholders’ views on a variety of relevant issues, including company strategy, industry trends and growth opportunities, board diversity and refreshment, executive compensation and environmental, social and governance (ESG) practices. This dialogue led in part to several of the governance-related proposals included in the attached proxy statement.

Diversity & Inclusion: In fiscal 2021, we continued to expand our D&I efforts and focused on four main areas: (i) fostering continued awareness of D&I issues and providing education opportunities for our workforce; (ii) launching a Partner Diversity Program intended to help diverse customers, many of whom have struggled during the pandemic, become more successful; (iii) conducting a review of our workforce recruitment strategies and interviewing tactics to ensure a more open/inclusive talent selection approach; and (iv) introducing employee resource groups to assist with networking, mentorship and development.

Board of Directors Refresh: We strive to achieve an appropriate mix of tenure and expertise on our Board that provides a balance of fresh perspectives and institutional knowledge. Our Board continued to grow during 2021, and this growth has brought with it additional, valuable experience and perspectives to ScanSource. In October 2020, we increased the size of the Board to nine members and appointed Frank E. Emory as a new Board member. Frank has over three decades of legal and executive leadership experience. His perspectives as a legal expert and executive in the Health Care industry – as well as his many years of public service and deep community involvement – bring valuable insight to the Board and our organization. In August 2021, the Board was increased to 10 members as we welcomed Charles A.

 

(“Charlie”) Mathis to the Board. Charlie brings decades of experience in finance, strategic M&A, and capital markets to the Board, including 13 years as Chief Financial Officer for multiple publicly traded companies. Charlie previously served as ScanSource’s Chief Financial Officer from 2012-2016 and his deep knowledge of our business and markets, especially our recurring revenue opportunities, his financial acumen, and experience creating shareholder value will serve ScanSource extremely well.

John P. (“Jack”) Reilly, who has served as a director of ScanSource since 2001, is retiring from the Board when his current term of office expires effective at the 2022 Annual Meeting. Jack’s contributions to our Board greatly influenced ScanSource’s growth and achievement. The Board would like to thank Jack for his 20 years of insightful guidance and exceptional service to the Board.

Ongoing Commitment to Corporate Social Responsibility and Sustainability: ScanSource continues to be committed to being a good corporate citizen and being an agent of positive change in our local communities. In 2021, our ESG Task Force was integral in the identification of our most important ESG topics, gathering data necessary to understand our environmental impact, moving forward our D&I agenda, and developing our ESG roadmap for the future, which contains items like understanding the impact of climate change on our strategy and integrating our ESG program into our supply chain activities. Last year our Board approved new ESG-related policies including a Business Partner Code of Conduct, a Human Rights Policy, and an Environmental Stewardship Policy. These policies are consistent with, and are an extension of, our existing Business Ethics and Code of Conduct and reflect the Company’s commitment to sustainability, diversity and accountability.

The Board remains deeply committed to a sound governance structure that promotes the best interests of our shareholders. To that end, the Board examines emerging corporate governance trends and best practices. We have corporate governance guidelines to help ensure that the Board is independent from management and appropriately performs its function as the overseer of management, and that the interests of the Board and management align with the interests of our shareholders. We believe our current leadership structure and corporate governance guidelines ensure effective independent Board leadership and oversight of management. During fiscal 2021, our directors met six times, including five times in executive sessions without the Chief Executive Officer or other members of management present. The Board also usually meets with the senior management team at each in-person meeting held at the Company’s headquarters. We have strong independent director leadership with Peter Browning serving as our Lead Independent Director and with all of the Board Committees being comprised solely of, and chaired by, independent directors.

Best regards,

 

 

Michael L. Baur

Chairman of the Board, Chief Executive Officer and President

 

Notice of Annual Meeting of Shareholders

 

January 27, 2022

9:00 a.m., Eastern Standard Time

The Annual Meeting of Shareholders of ScanSource, Inc. will be held at our principal executive offices, located at 6 Logue Court, Greenville, South Carolina 29615 on Thursday, January 27, 2022, at 9:00 a.m., Eastern Standard Time, for the following purposes:

 

1)	To elect nine members to the Board of Directors;

2)	To approve a proposal to amend the Company’s Amended and Restated Articles of Incorporation (the “Articles”) and Amended and Restated Bylaws (the “Bylaws”) to require that directors be elected by a majority of votes cast in uncontested elections;

3)	To approve a proposal to amend the Articles to eliminate the supermajority voting provisions applicable to the Company by default under the South Carolina Business Corporation Act;

4)	To approve the ScanSource, Inc. 2021 Omnibus Incentive Compensation Plan;

5)	To hold an advisory vote to approve the compensation of our Named Executive Officers (as defined in the Proxy Statement);

6)	To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2022; and

7)	To transact such other business as may properly come before the Annual Meeting or any adjournments thereof.

Only shareholders whose names appear of record on our books at the close of business on November 29, 2021 will be entitled to notice of and to vote at the Annual Meeting or at any adjournments thereof.

You are cordially invited to attend the Annual Meeting in person, but if you are unable to do so, please vote by signing and returning your proxy card or by voting via telephone or online. You are entitled to revoke your proxy at any time before it is exercised, and if you attend the Annual Meeting you may also revoke your proxy by voting in person. Voting online, by telephone, by written proxy or voting instruction card will ensure your representation at the Annual Meeting regardless of whether you attend in person.

We continue to monitor developments regarding the coronavirus (COVID-19) pandemic. In the interest of the health and well-being of our shareholders, to the extent permitted by South Carolina law, we are planning for the possibility that the 2022 Annual Meeting may be held solely by means of remote communication, which includes the possibility of a virtual meeting. If we make this change, we will announce the decision to do so in advance, and details on how to participate, including details on how to inspect a list of shareholders of record, will be posted on our website and filed with the U.S. Securities and Exchange Commission as proxy materials.

By Order of the Board of Directors,

 

Michael L. Baur

Chairman, Chief Executive Officer and President

December 7, 2021

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 27, 2022. The Company’s 2022 Notice of Annual Meeting and Proxy Statement, 2021 Annual Report and other proxy materials are available under the “Investors” tab on our website at www.scansource.com.

 

Proxy Summary

 

 

Table of Contents

 

 

 

Information Concerning Solicitation and Voting

 

 

This Proxy Statement is first being mailed on or about December 7, 2021 to shareholders of ScanSource, Inc. in connection with the solicitation by our Board of Directors (the “Board”) of proxies to be voted at the 2022 Annual Meeting of Shareholders to be held on Thursday, January 27, 2022, at 9:00 a.m., Eastern Standard Time, at our principal executive offices, located at 6 Logue Court, Greenville, South Carolina 29615, and any adjournments thereof. The Proxy Statement contains information relating to the proposals to be voted upon at the meeting, the voting process, our Board, the compensation of our “Named Executive Officers” (“NEOs”), and certain other information.

The solicitation of proxies is being made by our directors and employees, and the cost of soliciting proxies will be borne by the Company. Copies of solicitation materials may be furnished to brokers, custodians, nominees and other fiduciaries for forwarding to beneficial owners of shares of our common stock, and the Company will reimburse the normal handling charges for such forwarding services. Solicitation of proxies may be made by mail, in person, by telephone or by other electronic means, and by our directors, executive officers, and other employees, who will receive no additional compensation for their services.

As used in this Proxy Statement, the terms “ScanSource,” the “Company,” “we,” “us,” and “our” refer to ScanSource, Inc. and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only ScanSource, Inc. The term “common stock” means shares of our common stock, no par value per share.

We continue to monitor developments regarding the coronavirus (COVID-19) pandemic. In the interest of the health and well-being of our shareholders, to the extent permitted by South Carolina law, we are planning for the possibility that the 2022 Annual Meeting may be held solely by means of remote communication, which includes the possibility of a virtual meeting. If we make this change, we will announce the decision to do so in advance, and details on how to participate, including details on how to inspect a list of shareholders of record, will be posted on our website and filed with the U.S. Securities and Exchange Commission (the “SEC”) as proxy materials.

PROPOSALS TO BE CONSIDERED AND VOTE REQUIRED

The following proposals are expected to be voted upon at the 2022 Annual Meeting:

 

◾

The election of the nine individuals named in this Proxy Statement to serve as members of our Board for a one-year term, each to serve until the 2023 Annual Meeting of Shareholders and until their successor is duly elected and qualified;

◾

The approval of amendments to our Amended and Restated Articles of Incorporation (our “Articles”) and Amended and Restated Bylaws (“Bylaws”) to require that directors be elected by a majority of votes cast in uncontested elections;

◾

The approval of amendments to our Articles to eliminate the supermajority voting provisions applicable to the Company by default under the South Carolina Business Corporation Act (the “SCBCA”);

◾

The approval of the ScanSource, Inc. 2021 Omnibus Incentive Compensation Plan (the “2021 Plan”);

◾

An advisory vote to approve the compensation of our NEOs; and

◾

The ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2022.

Only shareholders of record on November 29, 2021 (the “record date”) will be entitled to vote at the 2022 Annual Meeting, and each share of common stock will be entitled to one vote. At the close of business on the record date, there were 25,651,250 shares of our common stock outstanding and entitled to vote at the 2022 Annual Meeting.

All shares of our common stock represented by valid proxies received pursuant to this solicitation, and not revoked before they are exercised, will be voted in the manner specified. If no specification is made, properly executed and returned proxies will be voted (i) “FOR” the director nominees named in this Proxy Statement, (ii) “FOR” the proposal to amend the Articles and Bylaws to implement a majority voting standard for uncontested director elections; (iii) “FOR” the proposal to amend the Articles to eliminate the supermajority voting provisions applicable to the Company by default under the SCBCA, (iv) “FOR” approval of the 2021 Plan; (v) “FOR” approval, on an advisory basis, of the compensation of our NEOs; and (vi) “FOR” ratification, on an advisory basis, of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2022. Management is not aware of any matters, other than those specified herein, that will be presented for consideration at the 2022 Annual Meeting. If

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				1

Proposals to be Considered and Vote Required

 

 

other matters are properly presented for consideration at the 2022 Annual Meeting, the proxies named on the proxy card will have the discretion to vote on those matters for you.

Our Bylaws provide that the presence in person or by proxy of the holders of a majority of the outstanding shares of common stock entitled to vote at the 2022 Annual Meeting is necessary to constitute a quorum at the 2022 Annual Meeting and at any adjournments thereof. Signed proxies that withhold authority to vote for directors or reflect abstentions or broker non-votes (as described below) will be counted for purposes of determining if a quorum is present at the 2022 Annual Meeting. If a quorum is not present, the shareholders holding a majority of the shares at the meeting, in person or by proxy, have the power to adjourn the meeting; however, if the reconvened meeting is more than 120 days from the date of the original meeting, then we must establish a new record date. At any reconvened meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally scheduled.

Brokers that are members of certain securities exchanges and that hold shares of our common stock in “street name” on behalf of beneficial owners have authority to vote on certain “discretionary” items when they have not received instructions from beneficial owners. Under applicable securities exchange rules, our proposal to ratify the appointment of the independent registered public accounting firm is considered a discretionary item. However, proposal numbers one, two, three, four, and five in this Proxy Statement are considered “non-discretionary” items and brokers cannot vote on these items without instructions, and a “broker non-vote” occurs when brokers do not receive instructions.

Assuming the existence of a quorum at the 2022 Annual Meeting:

 

◾

The nine nominees receiving the greatest number of the votes cast will be elected as directors. Withheld votes and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on the outcome of the vote on this proposal. However, if a director does not receive a greater number of votes “FOR” his or her election than votes “WITHHELD” from such election, our Corporate Governance Guidelines provide that the director must tender his or her resignation to the Board for its consideration.

◾

The proposal to amend our Articles and Bylaws to implement a majority voting standard for uncontested director elections will be approved if the proposal receives the affirmative vote of at least two-thirds of the votes entitled to be cast on the amendment. Abstentions and broker non-votes, if any, are treated as votes “AGAINST” the proposal.

◾

The proposal to amend our Articles to eliminate the supermajority voting requirements applicable to the Company by default under the SCBCA will be approved if the proposal receives the affirmative vote of at least two-thirds of the votes entitled to be cast on the amendment. Abstentions and broker non-votes, if any, are treated as votes “AGAINST” the proposal.

◾

The proposal to approve the 2021 Plan will be approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Abstentions and broker non-votes, if any, will not be treated as votes cast, and therefore will have no effect on the outcome of the vote on this proposal.

◾

The compensation of our NEOs will be approved, on an advisory basis, if the votes cast in favor of the proposal exceed the votes cast against the proposal. Abstentions and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on the outcome of the vote on this proposal. Because your vote is advisory, it will not be binding on the Company, our Board or our Compensation Committee. However, the Board and the Compensation Committee will consider the outcome of the vote when making future compensation decisions for our executive officers.

◾

The ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending June 30, 2022 will be approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Abstentions will not be treated as votes cast, and therefore will have no effect on the outcome of the vote on this proposal. If your shares are held in street name and you do not provide voting instructions to your broker, your broker has discretionary authority to vote your shares with respect to this proposal.

 

2				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

How to Vote

 

 

HOW TO VOTE

Each shareholder is entitled to one vote for each share of common stock on all matters presented at the 2022 Annual Meeting. Shareholders do not have the right to cumulate their votes for the election of directors. Shares may be voted by the following procedures:

 

		Voting In-Person. Shares held directly in your name as the shareholder of record may be voted in person at the 2022 Annual Meeting. If you choose to vote in person at the 2022 Annual Meeting, please bring your proxy card and proof of personal identification. Shares held in street name may be voted in person by you only if you obtain a legal proxy from the shareholder of record giving you the right to vote the shares. If you need directions to the 2022 Annual Meeting, please contact Investor Relations at (864) 286-4892.
		Voting via the Internet. Shares may be voted via the internet. Your voting instructions will be accepted until 11:59 p.m., Eastern Standard Time, on January 26, 2022. Have your proxy card in hand when you access the website and follow the instructions given.
		Voting via Telephone. Shares may be voted via any touch-tone telephone by following the instructions on your proxy card. Your voting instructions will be accepted until 11:59 p.m., Eastern Standard Time, on January 26, 2022. Have your proxy card in hand when you call and follow the instructions given.
		Voting via Mail. Shares may be voted via mail by marking, signing and dating your proxy card and returning it in the postage-paid envelope found in your proxy package.

Even if you currently plan to attend the 2022 Annual Meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the meeting. Submitting your proxy via the internet, mobile device, telephone or mail does not affect your right to vote in person at the 2022 Annual Meeting.

VOTING OF PROXIES

By giving your proxy, you grant the right to vote your shares to Michael Baur, our Chief Executive Officer, and Matthew Dean, our Senior Executive Vice President, Chief Legal Officer and Corporate Secretary. If you return a signed, but unmarked proxy card, your shares will be voted (i) FOR the election of each of the director nominees named herein, (ii) FOR approval of the amendments to our Articles and Bylaws implementing a majority voting standard for uncontested director elections, (iii) FOR approval of the amendments to our Articles to eliminate the supermajority voting requirements applicable to the Company by default under the SCBCA, (iv) FOR approval of the 2021 Plan, (v) FOR approval, on an advisory basis, of the compensation of our NEOs, and (vi) FOR ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for fiscal year 2022. Management is not aware of any matters, other than those specified herein, that will be presented for action at the 2022 Annual Meeting. If other matters are properly presented at the 2022 Annual Meeting for consideration, the agents named on the proxy card will have the discretion to vote on those matters for you.

If you are a registered shareholder (meaning a shareholder who holds share certificates issued in his or her name and therefore appears on the share register) and have executed a proxy, your proxy may be revoked at any time prior to such proxy being exercised. Such right of revocation is not limited by or subject to compliance with any formal procedure, but may be accomplished by (i) voting again via the internet, any mobile device or telephone, (ii) requesting, completing and returning a second proxy card bearing a later date, (iii) giving written notice to the Corporate Secretary of the Company, or (iv) by voting in person at the 2022 Annual Meeting.

If your shares are held in the name of a broker, bank or other nominee, you should follow the voting instructions you receive from the holder of record to revoke or change your vote.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				3

COVID-19 Logistics

 

 

COVID-19 LOGISTICS

We intend to hold our Annual Meeting in person, but we continue to monitor developments regarding the COVID-19 pandemic. In the interest of the health and well-being of our shareholders, to the extent permitted by South Carolina law, we are planning for the possibility that the 2022 Annual Meeting may be held solely by means of remote communication, which includes the possibility of a virtual meeting. If we make this change, we will announce the decision to do so in advance, and details on how to participate, including details on how to inspect a list of shareholders of record, will be posted on our website and filed with the SEC as proxy materials.

We are implementing measures to reduce the risk of COVID-19, however, we cannot guarantee your safety due to the nature of the virus. In making your own decision regarding whether to attend the Annual Meeting in person, we advise you to take into account the current health environment, the risks to your personal health and the health of others if you were to attend, and the advice of health authorities to use social distancing. Shareholders who attend or attempt to attend this year’s Annual Meeting will be deemed to have understood, accepted, and assumed all associated risk with attending the event in person during the ongoing COVID-19 pandemic. We will not be held liable for harm to any attendee, including any shareholder attendee, due to any of the foregoing.

In light of the ongoing COVID-19 pandemic and consistent with the guidelines set forth by health experts, we may require all shareholders to practice “social distancing.” In addition, all attendees may be required to wear a mask while in the Company’s building and during the Annual Meeting. If you do not have a mask, we may provide one to you. Moreover, face-to-face interaction with members of management or the Board before and/or after the meeting may be necessarily limited by social distancing requirements and may be further restricted, or prohibited, out of an abundance of caution in the judgement of management and/or the Board.

In order to protect the health and safety of all attendees, we reserve the right to refuse entry or require removal of any person, including a shareholder, from the premises or Annual Meeting area should that person refuse to follow the safeguards described above or should they exhibit cold or flu-like symptoms, or symptoms commonly associated with COVID-19. We request that anyone who exhibits these types of symptoms or has been in contact with someone that has exhibited such symptoms within 14 days of the Annual Meeting not attempt to attend the Annual Meeting.

Regardless of whether or not you attend the Annual Meeting, we strongly encourage you to vote your shares by proxy via the internet, mobile device, telephone or mail prior to the Annual Meeting.

 

4				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Corporate Governance

 

 

BOARD OF DIRECTORS

Director Independence

In accordance with the listing standards of The NASDAQ Stock Market (“NASDAQ”) and our Corporate Governance Guidelines (the “Guidelines”), our Board consists of a majority of independent directors. The Board has determined that all members of the Board, other than Mr. Baur, meet the requirements for being “independent” as defined in the SEC rules and regulations and NASDAQ listing standards.

The Board maintains an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. Each committee of the Board is comprised only of independent directors.

In addition, under our Guidelines, executive officers are prohibited from serving as a director of another company that concurrently employs a director of the Company.

Board Leadership Structure

The Board does not have a set policy on whether or not the Chief Executive Officer (“CEO”) and the Chairman of the Board should be separate. Mr. Baur, who is also the CEO and President of the Company, serves as Chairman of the Board, and Mr. Browning serves as Lead Independent Director of the Board. Mr. Baur was appointed as Chairman upon the retirement of our former Chairman, Mr. Fischer. Mr. Browning was appointed as the Lead Independent Director at that same time.

The Board reviews the Company’s board leadership structure annually. As part of this process, the Board considered the structures used by peer companies, alternative structures and the effectiveness of the Company’s current structure. The Board believes that the change to having Mr. Baur serve as Chairman is important because it reflects the Board’s belief that the CEO and President can use his experience and performance at the Company to function as the Company’s overall leader, while the Lead Independent Director provides independent leadership to the directors and serves as an intermediary between the independent directors and the Chairman. The resulting structure sends a message to our employees, customers and shareholders that we believe in having strong, unifying leadership at the highest levels of management. At the same time, having a Lead Independent Director with a well-defined role provides an appropriate level of independent oversight and an effective channel for communications when needed.

Our Guidelines set forth the role of the Lead Independent Director, who must satisfy our independence standards. The Lead Independent Director has the following duties, among others:

 

◾

presiding at meetings of Board in the absence of, or upon the request of, the Chairman;

◾

presiding over all executive meetings of non-employee and independent directors;

◾

serving as a liaison and supplemental channel of communication between the Chairman and the independent directors;

◾

reviewing Board agendas and recommending matters in collaboration with the Chairman; and

◾

if requested by major shareholders, being available for consultation and direct communication.

Board and Committee Meetings in Fiscal 2021

The Board met a total of 6 times during the 2021 fiscal year. Committees of the Board met a total of 16 times during the 2021 fiscal year. All of our directors attended at least 75% of Board and committee meetings that occurred during their tenure as a director during the 2021 fiscal year. We expect all Board members to attend annual meetings. All of our directors serving at the time attended the 2021 Annual Meeting.

Board’s Role in Risk Oversight

The Board as a whole actively oversees the risk management of the Company. Risks — the specific financial, operational, business and strategic risks that we face, whether internal or external — are identified by the Board and management together, and then each risk is assigned to either the full Board or a Board committee for oversight in accordance with its charter. Certain strategic and business risks, such as those relating to our products, markets and capital investments, are overseen by the entire Board. The full Board oversees the Company’s risk identification, risk assessment and management practices for strategic enterprise risks facing the company. In addition, each of the other committees oversees risks relevant to its scope of review. The Audit Committee oversees management of market and operational

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				5

Board of Directors

 

 

risks that could have a financial impact, or impact financial reporting, such as those relating to internal controls or liquidity. The Nominating and Corporate Governance Committee manages the risks associated with governance issues, such as the independence of the Board. The Compensation Committee is responsible for managing the risks relating to our executive compensation plans and policies and, in conjunction with the Board, key executive succession. Management regularly reports to the Board or relevant committee on actions that we are taking to manage these risks. In addition, our Board committees annually evaluate compliance with their respective charters, ensuring that the committees are exercising proper oversight.

Information Security and Cybersecurity

Information security and cybersecurity are critical components of our risk management program and are vital to maintaining our proprietary information and the trust of our customers and employees. Our information security program includes policies and procedures, prevention and detection mechanisms, incident response, business continuity planning and employee compliance and security awareness training. We also engage with third-party information security experts to assess our defense mechanisms and have a cyber risk insurance policy in place that provides coverage for security incident response expenses, certain losses due to network security failures, investigation expenses, privacy liability and certain third-party liability. We are not aware of having experienced any material information security breaches in the past three years.

Given the importance of information security and privacy to our stakeholders, the Audit Committee receives regular, semi-annual reports from senior management assessing our program for managing information security risks, including data privacy and data protection risks, and relays this information to the Board.

Director Education

The Company and each Board member are members of the National Association of Corporate Directors (“NACD”). As members of NACD and through other external director education service providers, the Company and each Board member have access to various programs, materials, reports, and research teams.

Corporate Governance Guidelines

The Board has established Guidelines that address various governance matters, including the role, function, size and composition of the Board, Board tenure, service on other public-company boards, conflict of interest issues, executive sessions of non-management directors, shareholder engagement, review of committee charters and the Board self-evaluation process. Copies of the Guidelines and certain other policies adopted by the Board are available on the “Investors” page of our website, www.scansource.com, under the “Corporate Governance” tab.

GENERAL BOARD FUNCTIONS

The Guidelines set forth general functions of the Board, including holding regular scheduled meetings and special meetings where appropriate, periodically reviewing management’s performance and our organizational structure, regularly reviewing management talent development and succession planning for our NEOs, reviewing and approving corporate strategy, determining compensation for our NEOs through the Compensation Committee and approving awards of equity-based compensation, overseeing our accounting and financial-reporting process and audits of our financial statements through the Audit Committee, identifying potential candidates for Board membership and reviewing Board succession planning.

DIRECTOR RESIGNATION POLICY

The Guidelines provide that a director will tender his or her resignation if, in an uncontested election, the director fails to receive a greater number of votes “FOR” election than votes “WITHHELD” from such election. The Board, on recommendation from the Nominating and Corporate Governance Committee, will then determine whether to accept the director’s resignation. Note that subject to the approval of the majority voting standard set forth in Proposal 2, our Guidelines will be amended to make conforming changes to our current director resignation policy. See Proposal 2 for further discussion regarding the updated director resignation policy in our Guidelines.

RETENTION OF INDEPENDENT ADVISORS

The Guidelines provide that the Board may retain independent advisors when appropriate.

SUCCESSION PLANNING

Our Board engages in an active succession planning process. On an annual basis, with the assistance of our CEO, it reviews the potential in-house candidates for each of the critical senior management positions and identifies areas of

 

6				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Board of Directors

 

 

growth for those candidates that will best enable them to fill any need that we might have. Where there is not a satisfactory in-house candidate for a position, the Board considers whether outside candidates are likely to be available in a timely manner and whether other alternatives need to be considered. The Nominating and Corporate Governance Committee also regularly reviews Board succession planning and identifies potential candidates for Board membership, with the objective that all new, non-CEO candidates will be independent.

BOARD TENURE

The Board is elected annually and is not classified. The Board does not have a mandatory retirement age or term limits for directors. We believe our shareholders benefit from continuity of directors. To ensure the Board continues to generate new ideas and operate effectively, the Nominating and Corporate Governance Committee evaluates individual Board member performance and takes steps as necessary regarding continuing director tenure. The Nominating and Corporate Governance Committee considers each director’s age and length of tenure when considering Board composition and seeks to maintain a balance of experience and continuity, along with fresh perspectives.

COMPOSITION OF BOARD

The size of the Board may be increased or decreased by resolution of the Board. In August 2021, the Board decided to expand the size of the Board to ten members. The Board appointed Charles A. Mathis to serve as a new member of the Board. The Board currently consists of ten members. In August 2021, John P. Reilly, who has served on the Board since 2001, notified the Board that he plans to retire from the Board when his current term of office expires at the 2022 Annual Meeting. The Board expects that the Board will be decreased in size back to nine members at that time.

The Guidelines provide that a majority of the Board will at all times be independent. Through the Nominating and Corporate Governance Committee, the Board will identify potential candidates for Board membership with the objective being that all new, non-management candidates will be independent. The Nominating and Corporate Governance Committee will confirm the independence of the non-management directors on an annual basis. The Board has determined that Directors Browning, Emory, Grainger, Mathis, Ramoneda, Reilly, Rodek, Temple and Whitchurch meet the requirements for being “independent” as defined in the NASDAQ listing standards. Mr. Baur is the only management member of the Board.

BOARD DIVERSITY

The Nominating and Corporate Governance Committee regularly reviews the diversity of skills, expertise, background and other characteristics of existing and potential director candidates in deciding on nominations for election to the Board by our shareholders or for appointment to the Board. The Nominating and Corporate Governance Committee recognizes the benefits associated with a diverse board and takes diversity considerations into account when identifying candidates. The Nominating and Corporate Governance Committee seeks director nominees that would complement and enhance the effectiveness of the existing Board with respect to skills, knowledge, perspectives, experience, background and other characteristics. Furthermore, we are committed to the value of inclusion, and the Board believes it is important to consider diversity of race, ethnicity, gender, age, education, cultural background, and professional experiences.

SERVICE ON OTHER PUBLIC COMPANY BOARDS

A director may serve on only four public boards of directors (including the Company’s Board) and no more than three public company audit committees. The CEO may serve on only two public boards of directors (including the Company’s Board). All members of the Board, including the CEO, are compliant with the Guidelines regarding service on boards and audit committees of other public companies.

EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORS

Pursuant to the Guidelines, the non-management directors must meet regularly as a Board and in committees in executive session, without the participation of the CEO or other members of the Company’s management. Our non-management directors met five times in executive session during fiscal 2021 Board meetings and five times in executive session during fiscal 2021 committee meetings.

DIRECTOR EVALUATIONS AND REVIEWS

In accordance with the Guidelines, the Board and the Nominating and Corporate Governance Committee conduct annual performance reviews of the Board and its committees. As a part of the evaluation process, the Board and each of the committees meet and discuss self-assessments and corporate governance matters.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				7

Board of Directors

 

 

CLAW-BACK POLICY

The Company’s claw-back policy applies to certain officers of the Company (a “Covered Officer”), which include all executive officers of the Company (as determined from time to time by the Board or the Compensation Committee), and such other employees who are participants in the Company’s equity incentive plans and cash incentive plans if the Board or the Compensation Committee deems them subject to the policy. Under the policy, if a Covered Officer receives an award under the applicable plan based on financial statements that subsequently are restated in a way that would decrease the amount of the award to which such person otherwise was entitled and the restatement is based in whole or in part on the misconduct of the Covered Officer, the Covered Officer is required to refund to the Company the difference between what he or she received and what he or she should have received. In addition, this policy requires the recoupment of any compensation to the extent otherwise mandated by applicable laws.

ANTI-PLEDGING POLICY

Under the Company’s anti-pledging policy, officers, directors and employees are prohibited from holding Company securities in margin accounts or pledging Company securities as collateral for a loan. All executive officers and directors are in compliance with this policy.

ANTI-HEDGING POLICY

The Board has adopted an anti-hedging policy that covers employees, officers and directors of the Company. Under the Company’s anti-hedging policy, employees, officers and directors are prohibited from hedging transactions. All executive officers and directors are in compliance with this policy.

Shareholder Engagement

Engagement with our shareholders remains a key focus for ScanSource and an important part of our Board’s governance commitment. Our recent engagement efforts focused on establishing relationships, expanding dialogue to cover strategy and governance topics and collecting shareholder feedback. We pursue multiple avenues for shareholder engagement, including:

 

◾

holding video and teleconference meetings with our shareholders;

◾

participating in investor conferences;

◾

building relationships with sell-side analysts interested in the ScanSource ecosystem; and

◾

issuing periodic reports on our activities.

Over the past year, we reached out to shareholders representing over 70% of shares outstanding. We held engagement calls with some of our largest shareholders, which represent nearly 40% of shares outstanding. During these conversations, we heard from shareholders regarding our Board composition, corporate governance policies and executive compensation practices, as well as our policies on corporate social and environmental (E&S) responsibility. These engagements continue to provide us with valuable feedback that allows our Board to better understand our shareholders’ priorities and perspectives and to incorporate them into our deliberations and decision making.

Partly as a result of shareholder feedback received over the past year, the Company determined to propose amendments to eliminate the supermajority voting requirements applicable to the Company and require that directors be elected by a majority of votes cast in uncontested elections. In addition, the Company implemented other governance improvements in the form of updated corporate governance guidelines, board refreshment activities and board committee restructuring.

 

8				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Committees of the Board

 

 

COMMITTEES OF THE BOARD

The Board has standing Audit, Compensation, and Nominating and Corporate Governance Committees, each of which has a written charter. Copies of the charters for the Board committees, as well as our Guidelines, are available on the “Investors” page of our website, www.scansource.com, under the “Corporate Governance” tab. The following table reflects the membership of each of the Board’s committees and the Chairman of the Board:

 

		BOARD OF DIRECTORS		AUDIT COMMITTEE		COMPENSATION COMMITTEE		NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Michael L. Baur		Chair
Peter C. Browning								Chair
Frank E. Emory, Jr.
Michael J. Grainger
Charles A. Mathis
Dorothy F. Ramoneda
John P. Reilly
Jeffrey R. Rodek
Elizabeth O. Temple						Chair
Charles R. Whitchurch				Chair

Audit Committee

The Board has a standing Audit Committee. The Audit Committee currently is composed of Chair Whitchurch and Directors Browning, Emory, Grainger, Mathis, Ramoneda, Reilly, Rodek and Temple. The functions of the Audit Committee include selecting the independent auditor, reviewing the scope of the annual audit undertaken by our independent auditor and the progress and results of its work, overseeing the quality, adequacy and effectiveness of our data security, privacy, technology and information security policies, procedures and internal controls, reviewing our financial statements and our internal accounting and auditing procedures and overseeing our internal audit function. The Audit Committee met four times during the 2021 fiscal year. Each member of the Audit Committee meets the definition of independence for audit committee members as set forth in the NASDAQ listing standards and Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has determined that Chair Whitchurch and Directors Browning, Grainger, Mathis, Reilly, Rodek and Temple each meets the requirements of an “audit committee financial expert” as defined in SEC rules and regulations.

Compensation Committee

The Compensation Committee is currently composed of Chair Temple and Directors Browning, Emory, Grainger, Mathis, Ramoneda, Reilly, Rodek and Whitchurch. The functions of the Compensation Committee include reviewing and approving executive compensation policies and practices, reviewing salaries and bonuses for our NEOs, overseeing our equity-based plans, overseeing compensation risk assessment and considering such other matters as may from time to time be referred to the Compensation Committee by the Board. The Compensation Committee met five times during the 2021 fiscal year. Each member of the Compensation Committee meets the independence requirements for compensation committee members as set forth in the NASDAQ listing standards, and the Exchange Act. See “Executive Compensation — Compensation Discussion and Analysis” for a further discussion of the Compensation Committee’s processes and procedures for the consideration and determination of executive compensation.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee is currently composed of Chair Browning and Directors Emory, Grainger, Mathis, Ramoneda, Reilly, Rodek, Temple and Whitchurch. The functions of the Nominating and Corporate Governance Committee include oversight and responsibility for (i) identifying individuals qualified to serve on our Board and recommending that the Board select a slate of director nominees for election at each annual meeting of our shareholders (ii) assisting our Board in fulfilling its oversight responsibilities under the NASDAQ listing standards, our

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				9

Committees of the Board

 

 

Articles and Bylaws and South Carolina law and (iii) implementing our programs for complying with the rules and regulations of the SEC and NASDAQ (in conjunction with the Audit Committee, where necessary or appropriate) as well as other NASDAQ rulemaking initiatives pertaining to corporate governance considerations. Each member of the Nominating and Corporate Governance Committee meets the independence requirements as set forth in the NASDAQ listing standards. The Nominating and Corporate Governance Committee held one committee meeting in the 2021 fiscal year. The Nominating and Corporate Governance Committee was created by combining the former Nominating Committee and the former Governance Committee in May 2021. Prior to that combination, the former Nominating Committee met three times in the 2021 fiscal year and the former Governance Committee met three times in the 2021 fiscal year.

CANDIDATES FOR THE BOARD

The Nominating and Corporate Governance Committee will identify and screen potential nominees for directors, including nominees recommended by shareholders, and recommend nominees to the Board. See “Shareholder Proposals” for a discussion of the Company’s policies for shareholder nominees. The Nominating and Corporate Governance Committee has not adopted specific objective requirements for service on the Board. Instead, the Nominating and Corporate Governance Committee will consider various factors in determining whether to recommend to the Board potential new Board members, or the continued service of existing members, including the nominee’s experience and skills and whether such skills or experience are particularly relevant to us; whether the nominee would be an independent director under NASDAQ listing standards and applicable law; and in the case of existing members, the nominee’s contributions as a member of the Board during his or her prior service. In addition, in determining whether to recommend a director nominee, the committee members will consider and discuss diversity, among other factors, with a view toward the needs of the Board as a whole. Generally, the Board considers such factors as race, age, gender, national origin and other factors as part of the consideration with regard to diversity. The Nominating and Corporate Governance Committee strives to nominate directors with a variety of complementary skills so that the Board, as a whole, will possess the appropriate talent, skills and expertise to oversee our business. The Nominating and Corporate Governance Committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the committee’s goal of creating a Board that best serves the needs of the Company and the interests of our shareholders.

Board Skills

The following matrix provides information regarding the current members of our Board, including certain types of knowledge, skills, experiences and attributes possessed by one or more of our directors which our Board believes are relevant to our business and industry and demographic information. The matrix does not encompass all of the knowledge, skills, experiences or attributes of our directors, and the fact that a particular knowledge, skill, experience or attribute with respect to any of our directors is not marked does not mean the director in question is unable to contribute to the decision-making process in that area. The type and degree of knowledge, skill and experience listed below may vary among the members of the Board.

 

 

10				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Candidates for the Board

 

 

Michael L. Baur

Peter C. Browning

Frank E. Emory, Jr.

Michael J. Grainger

Charles A. Mathis

Dorothy F. Ramoneda

John P. Reilly

Jeffrey R. Rodek

Elizabeth O. Temple

Charles R. Whitchurch

Knowledge Skills and Experience

Audit & Internal Controls

Board Governance

CEO – Current or Former

Compensation & Benefits

Distribution & Channel Industry

International Business

Investor Relations

IT & Security

Operations

Public Co. Board (not SCSC)

Public Company Executive Role

Risk Management

Strategy & Acquisitions/Divestitures

Tax & Treasury

Board Diversity

The Nominating and Corporate Governance Committee recognizes the benefits associated with a diverse board and takes diversity considerations into account when identifying candidates.

The table below provides certain highlights of the composition of our board members and nominees. Each of the categories listed in the below table has the meaning as it is used in Nasdaq Rule 5605(f).

 

Board Diversity Matrix (As of November 15, 2021)
Total Number of Directors		10
		Female				Male				Non-Binary				Did Not Disclose Gender
Part I: Gender Identity
Directors			2				8				—				—
Part II: Demographic Background
African American or Black			—				1				—				—
Asian			—				—				—				—
Hispanic or Latinx			—				—				—				—
Native Hawaiian or Pacific Islander			—				—				—				—
White			2				7				—				—
Two or More Races or Ethnicities			—				—				—				—
LGBTQ+			—				—				—				—
Did not Disclose Demographic Background			—				—				—				—

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				11

Communications with the Board

 

 

COMMUNICATIONS WITH THE BOARD

Our Board recognizes that creating long-term value for shareholders will require consideration of concerns of shareholders and other stakeholders in the industry and communities in which the Company operates. Shareholders and other interested persons may send written communications to the Board, the Chairman of the Board or the Lead Independent Director (as applicable), or to one or more independent directors by directing such communication to our Corporate Secretary, Matthew Dean, by mail at our principal executive offices, or by e-mail to matt.dean@scansource.com. All written communications will be compiled by the Corporate Secretary and promptly submitted to the individual directors being addressed or to the chair of the committee whose areas of responsibility include the specific topic addressed by such communication, or, in all other cases, to the Chairman of the Board.

 

12				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Environmental, Social, and Corporate Governance

 

 

We are committed to being a good corporate citizen and being an agent of positive change in our local communities. Through our philanthropic pursuits and our focus on integrating environmental, social and governance (“ESG”) principles in our daily operations, we strive to create better places for our employees and neighbors to work and live. Operating in a responsible manner, valuing our employees, being good stewards of the environmental resources we utilize in our operations, and serving the communities we operate in form the basis of our ESG philosophy.

Last year our Board approved new ESG-related policies including a Business Partner Code of Conduct, a Human Rights Policy, and an Environmental Stewardship Policy. These policies are consistent with, and are an extension of, our existing Business Ethics and Code of Conduct and reflect the Company’s commitment to sustainability, diversity and accountability. The policies can be found in the Corporate Governance section of our website.

COVID-19

The ongoing COVID-19 global pandemic continues to present unique challenges, and we have prioritized the health and safety of our employees and business partners. Although all of our offices in the United States are now open, the vast majority of our employees continue to work from home regularly. On any given day, approximately twenty percent of our employees are in the office. We continue to take measures to ensure our teams feel secure in their jobs with the flexibility and resources they need to stay safe and healthy. The ability to have a hybrid work schedule is increasingly an important employee recruiting and retention issue. We continue to monitor the evolving pandemic situation and have implemented risk mitigation actions in accordance with applicable government and health laws and regulations.

Despite the ongoing challenges resulting from the pandemic, our employees are committed to providing the highest level of customer service our partners have grown to expect from us in order to achieve positive results.

Environmental

In calendar year 2021, the Company performed its first-ever ESG prioritization assessment. A prioritization assessment is an exercise that helped us identify and prioritize the most important ESG issues to the Company and our key stakeholders like investors, customers, employees, the community and suppliers. The issues we identified, including diversity and inclusion (D&I), supply chain resilience, business ethics, employee engagement, data security and health and safety, represent the foundation of our ESG program going forward. We also calculated our Scope 1 and Scope 2 greenhouse gas (GHG) emissions for the first time and commit to calculating our emissions in subsequent years. Given the impact of COVID on the global economy, especially with regards to issues like supply chain interruptions and the near elimination of business travel in 2020, calculating GHG emissions going forward will be important in helping us to understand our true emissions baseline in order to set a reduction target.

As a distributor of technology and not a manufacturer, ScanSource is not an emissions-intensive business. However, we believe we must do our part to reduce global GHG emissions and have taken the first step to understand our environmental impact with an eye towards understanding our roadmap to become carbon neutral in the future. Given our operations, a majority of our emissions likely come from our supply chain, also called Scope 3 emissions. We are undertaking the process of understanding the most likely sources of our GHG emissions in the supply chain and will report on our progress over time.

Supplier diversity was identified as a key topic for our business and as a result we are examining our recently developed supplier code of conduct and existing policies and procedures to better understand our risk areas as well as opportunities to choose suppliers with lower environmental impact whenever possible.

In 2020, the Company formed an ESG Task Force comprised of a select group of cross-functional team members. This group is tasked with providing guidance, strategic awareness and counsel on the direction of the Company’s ESG initiatives as well as day-to-day programs and driving progress toward the attainment of our goals. In 2021 this group was integral in the identification of our most important ESG topics, gathering data necessary to understand our environmental impact, moving forward our D&I agenda, and developing our ESG roadmap for the future, which contains items like understanding our supply chain emissions, the impact of climate change on our strategy and integrating our ESG program into our supply chain activities. This group is also advancing ScanSource’s annual ESG report which will be developed using foundational parts of the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) frameworks.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				13

Environmental, Social, and Corporate Governance

 

 

Diversity & Inclusion

Last year we announced the creation of a comprehensive D&I program and the appointment of a Chief Diversity Officer (“CDO”). ScanSource was built on the foundation of seven core values, one being the commitment to an environment that respects and values the diverse backgrounds, interests and talents of the Company’s employees. ScanSource’s dedicated D&I program reaffirms this commitment. A key component of this program is the creation of an Advisory Council, which is an employee-led group focused on sharing insights, ideas, and opinions from employees as to how to most effectively implement diversity and inclusion strategies within the Company. Our CDO:

 

◾

Provides oversight to this group and additionally develops programs, training, and events that support and cultivate a diverse and inclusive workplace;

◾

Supports talent acquisition and recruitment efforts in support of the company’s D&I program; and

◾

Communicates with our partner and supplier communities to listen and gain feedback, helping to ensure the company is serving as a good partner in regards to its D&I efforts.

In 2021, our D&I efforts focused on four main areas:

 

◾

Fostering continued awareness of D&I issues and providing education opportunities for our workforce

◾

Celebrated various cultural milestones during the year

◾

Offered new D&I educational opportunities to all of our employees

◾

Created an internal vehicle to consistently communicate relevant D&I information

 

◾

Launched a Partner Diversity Program intended to help diverse customers, many of whom have struggled during the pandemic, become more successful

◾

Communicated the program launch to the business

◾

Tracked partnerships and shared successes

 

◾

Conducted a review of our workforce recruitment strategies and interviewing tactics

◾

Building new recruitment relationships with a focus on diversity, including a renewed focus on historically black colleges and universities (“HBCUs”) and 2-year colleges

◾

Introduced a more open/inclusive talent selection approach

 

◾

Introduction of Employee Resource Groups

◾

Established groups to assist with networking, mentorship and development

◾

Focused on creating opportunities for many employees to contribute

In 2022, our D&I efforts will focus on:

 

◾

Sustainability & Growth

◾

Continue to promote current initiatives

◾

Encourage additional participation and involvement at all levels of our Company

 

◾

Awareness & Education

◾

Provide further educational opportunities to all employees

◾

Develop mentoring / coaching programs, with a focus on diverse talent

 

◾

Partner Diversity: Vendor Partnerships

◾

Identify applicable vendor base

◾

Develop program to broaden opportunities for diverse vendors

 

◾

Workforce Representation

◾

Review workforce metrics, determine areas of opportunity and establish goals

◾

Continue efforts with HBCUs and 2-year colleges

◾

Make intentional efforts to improve diverse representation at all levels

Corporate Governance Updates

Partly as a result of shareholder feedback received over the past year, the Company determined to propose amendments to eliminate the supermajority voting requirements applicable to the Company and require that directors be elected by a majority of votes cast in uncontested elections. In addition, the Company implemented other governance improvements in the form of updated corporate governance guidelines, board refreshment activities and board committee restructuring.

 

14				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Environmental, Social, and Corporate Governance

 

 

Charitable Activities

Shortly after our founding in 1992, we formed the ScanSource Charitable Foundation to support our commitment to giving back to our communities where we have operations through investments of time, talent, and resources. Our philanthropic efforts support the following areas of focus for giving back: community, education, environment, welfare of children, and workforce development. Last year we donated approximately $285,553 to over 50 non-profit organizations. Since our founding in 1992, ScanSource has invested over $15 million focused on community enrichment, education, environment, leadership development, recruiting, welfare of children, and workforce development. Our employees and executives also generously devote their time to serve as volunteers in the community and local schools, colleges and universities. These efforts positively impact our business, as we increase community support, provide our employees with greater opportunities for leadership development and training, and improve the job satisfaction of our employees.

We will continue to evolve our ESG program in a manner that is beneficial to the Company and our stakeholders.

ScanSource publishes an ESG report that is periodically updated and, while it is available under the “Investor” page of our website at www.scansource.com, under the “Corporate Governance” tab, the ESG report is not being incorporated by reference into this proxy statement.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				15

PROPOSAL NUMBER 1 - Election of Directors

 

 

The Company intends to nominate each of the individuals named below to serve as directors on our Board until their successor is duly elected and qualified at the 2023 Annual Meeting of Shareholders or, if earlier, his or her death, resignation or removal. Each of the nominees is currently a director of the Company. Mr. Reilly is not standing for reelection, and his term will end following the conclusion of the 2022 Annual Meeting. The Board thanks Mr. Reilly for his many years of valuable leadership and service to both the Company and his fellow directors.

Each of the proposed nominees has consented to stand for election as a member of our Board. We believe that each of our director nominees has served our shareholders’ interests well during his or her tenure as a director and will continue to do so. We believe that the Company and our shareholders benefit from the wide variety of industry and professional experience that characterizes the members of our Board.

The following sets forth certain information regarding the proposed nominees, including each director’s specific experience, qualifications, attributes and skills that led our Board to conclude that each nominee is well-qualified to serve as a member of the Board.

INFORMATION REGARDING NOMINEES FOR DIRECTOR

 

Michael L. Baur     AGE 64   DIRECTOR SINCE December 1995   COMMITTEES None				Experience Michael L. Baur is our Chairman, Chief Executive Officer and President. Mr. Baur has served as our President or CEO since our inception, as a director since December 1995, and as Chairman of the Board since February 2019. Mr. Baur has been employed with the Company since its inception in December 1992.   Qualifications Mr. Baur has served the Company since its inception and has developed a deep institutional knowledge and perspective regarding the Company’s strengths, challenges and opportunities. Mr. Baur has more than 30 years of experience in the IT industry, having served in various leadership and senior management roles in the technology and distribution industries before joining ScanSource. Mr. Baur brings strong leadership, entrepreneurial, business building and development skills and experience to the Board.

 

16				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Information Regarding Nominees for Director

 

 

Peter C. Browning     AGE 80   DIRECTOR SINCE June 2014   COMMITTEES Lead Independent Director and Chair of Nominating and Corporate Governance Committee and serves on all committees				Experience Peter C. Browning has served as a director of the Company since June 2014 and as Lead Independent Director since February 2019. He has extensive experience in business, serving as an executive officer of numerous public companies, including Continental Can Company, National Gypsum Company and Sonoco Products Company. He also has served on more than 14 public-company boards, including Acuity Brands from 2001 to 2021, Wachovia from 2002 to 2008, Nucor Corporation from 1999 to 2015, Lowe’s Companies from 1997 to 2014, EnPro Industries, Inc. from 2001 to 2015, and The Phoenix Companies from 1988 to 1999 and from 2000 to 2009, and in a variety of board leadership roles, including serving as non-executive chair, lead director and chair of audit, compensation and governance/nominating committees. Mr. Browning currently serves on the board of GMS, Inc. He also serves as lead independent director of the board of Equilar, a private company that is a leading provider of corporate data.   Qualifications Mr. Browning is a well-known authority on board governance and his knowledge and experience in that area are invaluable to our Board. He was the Dean of the McColl Graduate School of Business at Queens University of Charlotte from 2002 to 2005 and has served as the Managing Partner of Peter Browning Partners, a board advisory consulting firm, since 2009. Mr. Browning was selected for the “2011 and 2012 NACD Director 100 List” (a list of the most influential people in corporate governance in the boardroom). He co-authored a book on governance guidance, titled The Directors Manual: A Framework for Board Governance, which offers practical advice on leading an organization’s board.
Frank E. Emory, Jr.     AGE 64   DIRECTOR SINCE     October 2020   COMMITTEES Serves on all committees				Experience Frank E. Emory, Jr. has served as a director of the Company since October 2020. Mr. Emory has served as Executive Vice President and Chief Administrative Officer of Novant Health since 2019. From June 2001 to December 2018, he served as a partner with Hunton Andrews Kurth LLP, an international law firm.   Qualifications As a former partner of Hunton Andrews Kurth LLP, a former Chair of EDPNC, Inc., and executive of Novant Health (including serving as its Chief Administrative Officer), as well as service on numerous non-profit boards, Mr. Emory brings considerable experience overseeing legal, government relations, risk management, corporate audit, compliance, human resources and diversity, inclusion and health equity teams to the Board.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				17

Information Regarding Nominees for Director

 

 

Michael J. Grainger     AGE 69   DIRECTOR SINCE October 2004   COMMITTEES Serves on all committees				Experience Michael J. Grainger has served as a director of the Company since October 2004. Mr. Grainger served as President and Chief Operating Officer of Ingram Micro, Inc., a technology distributor, from January 2001 to April 2004. From May 1996 to July 2001, he served as Executive Vice President and Chief Financial Officer of Ingram Micro, and from July 1990 to October 1996 as Vice President and Controller of Ingram Industries, Inc. Mr. Grainger currently serves on the board of directors of Ingram Industries, Inc., a multinational diversified private company.   Qualifications As a former executive of Ingram Micro (including serving as its Chief Financial Officer), Mr. Grainger brings extensive knowledge of our industry and our competitive environment to the Board. He also brings extensive accounting and financial skills important in the understanding and oversight of our financial reporting, enterprise and operational risk management and corporate finance, tax and treasury matters.
Charles A. Mathis     AGE 61   DIRECTOR SINCE August 2021   COMMITTEES Serves on all committees				Experience Charles A. Mathis served as executive vice president and chief financial officer for Science Applications International Corporation (“SAIC”), a U.S. government IT services provider, from 2016 to 2021. Prior to joining SAIC, Mr. Mathis served as chief financial officer at the Company, from 2012 to 2016. Prior to joining the Company, Mr. Mathis was chief financial officer from 2008 to 2012 for Force Protection Inc., a global defense company. He also served as the chief financial officer for Fort Worth-based EFW, Inc., the U.S.-based subsidiary of the Israeli defense contractor, Elbit Systems, from 2006 to 2008.   Qualifications As a former executive at SAIC, a Fortune 500 company (including serving as its Chief Financial Officer), Mr. Mathis has extensive experience in mergers and acquisitions, finance and accounting, financial controls, and U.S. government contracting and compliance. Mr. Mathis also brings an understanding of our Company and business, previously serving as Chief Financial Officer.

 

18				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Information Regarding Nominees for Director

 

 

Dorothy F. Ramoneda       AGE 62   DIRECTOR SINCE November 2019   COMMITTEES Serves on all committees				Experience Dorothy F. Ramoneda has served as a director of the Company since November 2019. Ms. Ramoneda has been in the role of Executive Vice President and Chief Information Officer of First-Citizens Bank since January 2014. She also has served as Chief Information Officer and Vice President of Information Technology and Telecommunications at Progress Energy.   Qualifications Ms. Ramoneda has extensive leadership experience serving as the Chief Information Officer of a Fortune 500 Company and in multiple industries. Ms. Ramoneda started her career at Arthur Anderson doing system integration, business process outsourcing and practice management. Over Ms. Ramoneda’s career, she has provided leadership for the continued development of innovative, robust, and secure information technology environments, giving her an understanding of the challenges and issues in our industry and the industries of many of our vendors and customers.
Jeffrey R. Rodek     AGE 68   DIRECTOR SINCE May 2020   COMMITTEES Serves on all committees				Experience Jeffrey R. Rodek has served as a director of the Company since May 2020. Mr. Rodek has served as an Executive Network Advisor and Limited Partner of Tensility Venture Partners, a venture capital firm investing in early-stage AI startups, since October 2017, as well as Executive Advisor and member of the Leadership Council for Pathr.ai Inc. since September 2021. From July 2007 to May 2018, Mr. Rodek served as a Senior Lecturer at the Fisher College of Business at The Ohio State University. Prior to that, Mr. Rodek served as Senior Advisor and Executive Partner at Accretive, LLC from July 2007 to December 2009; as Executive Chairman, Chairman and Chief Executive Officer of Hyperion Solutions Corporation from October 1999 to April 2007; and as President and Chief Operating Officer of Ingram Micro Corporation from 1995 to 1999.   Qualifications Mr. Rodek has over 40 years of business and leadership experience spanning across multiple industries. Over Mr. Rodek’s career, he has driven performance growth and improved corporate governance strategies in the logistics, enterprise software and technology solutions industries, giving him a keen understanding of the challenges and issues present in our industry.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				19

Information Regarding Nominees for Director

 

 

Elizabeth O. Temple     AGE 56   DIRECTOR SINCE     September 2017   COMMITTEES Chair of Compensation Committee and serves on all committees				Experience Elizabeth O. Temple has served as a director of the Company since September 2017. Ms. Temple has served as the Chair and Chief Executive Officer of Womble Bond Dickinson (US) LLP since January 1, 2016. She has been a practicing corporate and securities attorney at the firm since 1989. Prior to serving as Chair and Chief Executive Officer, Ms. Temple served in a number of leadership roles at the firm over the past decade and has been a partner at the firm since 1997.   Qualifications Ms. Temple has extensive leadership experience serving as the Chief Executive Officer of a Global Top 100 law firm. Over Ms. Temple’s legal career, she has counseled public and private companies on their highest strategic priorities, giving her an understanding of the challenges and issues in the Company’s industry and the industries of many of its vendors and customers. Her background as a legal advisor to public companies and boards provides the Board with additional expertise in the areas of risk management, corporate governance, acquisitions and securities regulation.
Charles R. Whitchurch     AGE 75   DIRECTOR SINCE     February 2009   COMMITTEES Chair of Audit Committee and serves on all committees				Experience Charles R. Whitchurch has served as a director of the Company since February 2009. Mr. Whitchurch served as the Chief Financial Officer of Zebra Technologies Corporation from September 1991 to June 2008. Mr. Whitchurch previously served on the boards of directors of SPSS, Inc., a publicly-held provider of predictive analytic software, from October 2003 to October 2009, Landmark Aviation, a privately-held operator of fixed-base aviation operations throughout the United States and Europe, from October 2008 to October 2012, Tricor Braun Holdings, a privately-held distributor of rigid packaging materials, from July 2010 to November 2016, and Ashworth College, a provider of nationally accredited on-line education, from June 2010 to December 2019. On all boards, he served as Chairman of the Audit Committee.   Qualifications Mr. Whitchurch’s executive career brings in-depth knowledge of business operations and strategy and broad experience related to financial and corporate governance matters through his tenure serving on the boards of directors of public companies, including serving as the chairman of audit committees. With over three decades of service as a Chief Financial Officer, more than half of which was with a public company, Mr. Whitchurch has a deep understanding of the complex accounting issues often faced by public companies.

The Board of Directors unanimously recommends that shareholders vote “FOR” each of the nominees listed above.

 

20				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Information Regarding Non-Continuing Directors

 

 

INFORMATION REGARDING NON-CONTINUING DIRECTORS

 

John P. Reilly     AGE 73   DIRECTOR SINCE June 2001   COMMITTEES Serves on all committees				Experience John P. Reilly has served as a director of the Company since June 2001. Mr. Reilly served as a partner of Ares Management, LLC, a global alternative asset manager, until June 2016. Ares acquired Keltic Financial Services, LLC in 2014, where Mr. Reilly was President and CEO from 1999 to June 2014. Prior to that, from 1977 to 1999, he held senior management positions in the Leveraged Buy-Out, Leasing, Corporate Finance and Private Banking divisions at Citibank, N.A. Mr. Reilly also serves on the Board of Directors of Chimera Investment Corporation, a public real estate investment trust.   Qualifications Mr. Reilly brings to the Board extensive financial skills important in the understanding and oversight of our financial reporting, enterprise and operational risk management and corporate finance matters. His long career in the financial services industry, including serving as Chief Executive Officer for a finance company, also provides Mr. Reilly with financial management expertise which he brings to our Board.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				21

2021 Director Compensation Table

 

 

2021 DIRECTOR COMPENSATION TABLE

The following table provides information regarding the compensation paid to each of our non-employee directors for the fiscal year ended June 30, 2021:

 

Name		Fees Earned or Paid in Cash ($)				Stock Awards ($)(1)				Total ($)
Peter C. Browning			85,000				130,804				215,804
Frank E. Emory, Jr.			42,500				162,888	(2)			205,388
Michael J. Grainger			45,000				130,804				175,804
Charles A. Mathis(3)			—				—				—
Dorothy F. Ramoneda			42,500				130,804				173,304
John P. Reilly			45,000				130,804				175,804
Jeffrey R. Rodek			42,500				130,804				173,304
Elizabeth O. Temple			45,000				130,804				175,804
Charles R. Whitchurch			55,000				130,804				185,804

 

(1)

Amounts shown are the aggregate grant date fair value of restricted stock awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. For a discussion of the assumptions made in such valuation, see Note 12 to our audited financial statements for the fiscal year ended June 30, 2021, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. Each then-serving non-employee director received a restricted stock award on November 19, 2020 for 5,300 shares that vested in June 2021.

(2)	Stock Awards for Mr. Emory includes a pro-rated new hire grant when Mr. Emory was appointed a director of the Company in 2020.

(3)	Mr. Mathis was appointed as a director of the Company effective August 19, 2021.

Cash Retainers for Fiscal 2021

Directors who are not our employees are paid an annual retainer of $85,000. An additional annual retainer of $70,000 is paid, as applicable, to a non-executive Chairman or Lead Independent Director of the Board. An additional annual retainer of $25,000 is paid to the chair of the Audit Committee, and an additional annual retainer of $15,000 is paid to the chair of the Compensation Committee. An additional annual retainer of $5,000 was paid to the chairs of the Nominating Committee and Governance Committee serving at such time. Annual service for this purpose relates to the approximate 12-month periods between annual meetings of our shareholders. All directors are reimbursed for expenses incurred in connection with the performance of their services as directors as well as the cost of any director education. As of January 1, 2019, directors may elect to receive any portion of their cash fees in shares. In connection with the expense reduction plan effective July 1, 2020, our directors elected to forego their annual cash retainer fees through December 31, 2020. In August 2021, given the combination of the Nominating Committee and the Governance Committee, the director compensation plan was revised to provide for an annual retainer of $15,000 for the chair of the Nominating and Corporate Governance Committee.

Equity Retainers for Fiscal 2021

Our non-employee directors receive an annual equity retainer under the ScanSource, Inc. 2013 Long-Term Incentive Plan (the “2013 Plan”). In addition, non-employee directors also may be eligible to receive other awards under our 2013 Plan. As of January 1, 2019, each non-employee director can elect to receive the award in restricted stock awards or restricted stock units and can elect to defer his or her equity award under the deferred compensation plan.

The number of shares subject to a director’s annual equity award was determined by dividing $130,000 by the equity award value per share on the grant date. The equity award value means the closing price of the common stock on the grant date. The date of grant of the annual equity awards for our non-employee directors takes place at the same time as the annual equity awards for our employees.

A person who first becomes a non-employee director on a date other than a regularly scheduled annual meeting of shareholders will receive a restricted stock award for a pro-rated number of shares of common stock. Restricted stock may not be transferred or sold until it has vested.

 

22				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

2021 Director Compensation Table

 

 

Restricted stock granted to directors under the 2013 Plan will vest in full on the day that is six months after the date of grant, or upon the earlier occurrence of (i) the director’s termination of service as a director by reason of death, disability or retirement or (ii) a change in control of the Company. If a director terminates service for any other reason, he or she will forfeit all of his or her right, title and interest in and to the unvested restricted stock as of the date of termination, unless the Board or the Compensation Committee determines otherwise.

Stock Ownership and Retention Policy

Under the equity ownership policy, directors are expected to hold five times their annual Board cash retainer in Company securities. The policy also incorporates a retention requirement by requiring such persons to retain 50% of the net shares resulting from the vesting of certain awards until the required ownership under the policy is met. As of the end of the 2021 fiscal year, all directors were in compliance with this policy.

CODE OF CONDUCT

Our Code of Conduct applies to all of our executive officers, including our CEO and our Chief Financial Officer (“CFO”), directors and employees. We have posted the Code of Conduct on the “Investors” page of our website, www.scansource.com, under the “Corporate Governance” tab. We will provide a copy of the Code of Conduct upon request to any person without charge. Such requests may be transmitted by regular mail in the care of the Corporate Secretary.

We will post on our website, www.scansource.com, under the “Corporate Governance” tab, or will disclose on a Form 8-K filed with the SEC, any amendments to, or waivers from, any provision of the Code of Conduct that applies to our CEO and our CFO, or persons performing similar functions, and that relate to (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us, (iii) compliance with applicable governmental laws, rules and regulations, (iv) the prompt internal reporting of violations of the Code of Conduct to an appropriate person or persons identified in the Code of Conduct, or (v) accountability for adherence to the Code of Conduct. Any waiver granted to an executive officer or a director may only be granted by the Board and will be disclosed, along with the reasons therefor, on a Form 8-K filed with the SEC. No waivers were sought or granted in fiscal 2021.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended June 30, 2021, directors Browning, Emory, Grainger, Ramoneda, Reilly, Rodek, Temple and Whitchurch served on the Compensation Committee. No member of the Compensation Committee was an officer or employee of the Company or any of its subsidiaries during fiscal 2021, or at any time prior thereto. During fiscal 2020, no member of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K under the Exchange Act, and no executive officers served on the compensation committee (or equivalent) or the board of directors of another entity whose executive officer(s) served on our Board or Compensation Committee.

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

The Audit Committee reviews all related party transactions (as defined by Item 404 of Regulation S-K) in accordance with NASDAQ listing standards. In addition, the charter of the Audit Committee requires the Audit Committee to review a summary of any director’s or officer’s related-party transactions and potential conflicts of interest on a yearly basis. The charter also requires the Audit Committee to review our conflict of interest policy (which is part of our Code of Conduct) and compliance with that policy on an annual basis.

We are not aware of any related-party transaction since the beginning of fiscal 2021 required to be reported under our policy or applicable SEC rules for which our policies and procedures did not require review or for which such policies and procedures were not followed.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				23

Certain Relationships and Related-Party Transactions

 

 

There are no family relationships among the executive officers and directors, and there are no arrangements or understandings between any independent director or any other person pursuant to which that independent director was selected as a director.

RECOMMENDATION OF BOARD OF DIRECTORS

The Board of Directors unanimously recommends that shareholders vote “FOR” each of the nominees previously listed in this Proxy Statement.

 

24				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

PROPOSAL NUMBER 2 - Amendments to the Amended and Restated Articles of Incorporation and Amended and Restated Bylaws to Adopt a Majority Voting Standard in Uncontested Director Elections

 

 

BACKGROUND OF THE PROPOSAL

The South Carolina Business Corporation Act (“SCBCA”) provides that, unless otherwise provided in the articles of incorporation, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Currently, our Articles are silent with regard to the voting standards in director elections and, as a result, default to the plurality voting standard in accordance with the SCBCA. Section 2.07 of our Bylaws provides that our directors are elected by a plurality of the votes cast on the election of directors. Under this “plurality voting” standard, the nominees who receive the largest number of affirmative votes (although not necessarily a majority of the votes cast) are elected to the Board, up to the maximum number of directors to be elected. Under a majority voting standard in uncontested director elections, in order to be elected, a majority of the votes cast on the proposal for a nominee’s election must be in favor of the nominee’s election.

While our Guidelines currently provide for a director resignation policy for directors who do not receive a majority of votes cast for their election, in light of corporate governance trends and stakeholder feedback, our Board is proposing these amendments to adopt a majority voting standard. Our Board believes that generally requiring directors to be elected by a majority of votes cast both ensures that only director nominees with broad acceptability among our voting shareholders will be elected to serve as members of our Board and enhances the accountability of each elected director to our shareholders. Our Board also considers feedback from our stakeholders who have asked that we consider a majority voting standard because majority voting, in their view, better enables shareholders to hold boards and members of management accountable to shareholders.

After careful consideration, our Board decided to further strengthen our approach to corporate governance and, upon the recommendation of the Nominating and Corporate Governance Committee, unanimously approved, subject to shareholder approval, amendments to our Articles and Bylaws to implement a majority voting standard in uncontested elections (the “Majority Voting Amendments”). The Majority Voting Amendments change the voting standard applicable to the election of directors in uncontested elections from a plurality of the votes cast to a majority of the votes cast. In contested elections, directors will continue to be elected by a plurality of the votes cast.

The proposed provision in our Articles providing for majority voting in uncontested elections is set forth below in a new paragraph under a new Section 4(c):

 

4.

OPTIONAL PROVISIONS. The optional provisions which the corporation elects to include in the articles of incorporation are as follows:

c. Majority Voting. The election of any individual to serve as a Director shall require the affirmative vote of the holders of at least a majority of the votes cast on the election of directors; provided, that if the number of director nominees to be considered at the vote exceeds the number of directors to be elected, each Director shall be elected by a vote of the plurality of the shares represented in person or by proxy and entitled to vote on the election of Directors. For purposes of this provision, a majority of votes cast shall mean that the number of votes cast “for” a Director’s election exceeds the number of votes cast “against” that Director’s election (with “abstentions” and “broker non votes” not counted as a vote cast either “for” or “against” that Director’s election). In the event that a director nominee fails to receive an affirmative majority of the votes cast in an election where the number of nominees is less than or equal to the number of Directors to be elected, and as a result is required to tender his or her resignation under any director resignation policy of the Company, the Board of Directors, within its powers, may take any appropriate action as permitted by the Act and these Articles of Incorporation, including requiring and/or accepting such resignation, decreasing the number of directors or filling a vacancy.

The proposed revised Section 2.07 of our Bylaws is as follows:

Section 2.07. Voting. Except as may otherwise be required by the Act or the Corporation’s Articles of Incorporation, each shareholder entitled to vote at any meeting of shareholders shall be entitled to one vote for each share held by such shareholder whichthat has voting power upon the matter in question. In elections of Directors, those candidates receiving the greater number of votes cast (although not necessarily a majority of votes cast) at the meeting shall be elected. Any other corporate action shall be authorized by a majority of the votes cast at the meeting The vote of the holders of a majority of the votes cast shall decide any question brought before such meeting, unless otherwise provided by the Act, the Corporation’s Articles of Incorporation, or these Bylaws.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				25

Background of the Proposal

 

 

If Proposal 2 is approved, majority voting in uncontested director elections would commence at the 2023 Annual Meeting of Shareholders. If Proposal 2 is not approved by our shareholders, such amendments will not be implemented, our plurality voting standard for uncontested elections will continue in place, and our Articles and Bylaws would remain in their current form, subject to any other approved amendments. The adoption of this Proposal 2 is not contingent on the approval of any other management proposal described in this Proxy Statement.

The Board has also approved, subject to shareholder approval of the Majority Voting Amendments, conforming changes to our Guidelines. In the event that a director nominee fails to receive an affirmative majority of the votes cast in an election where the number of nominees is less than or equal to the number of directors to be elected, such director would be expected to tender his or her irrevocable resignation to the Nominating and Corporate Governance Committee. Upon receiving a director’s resignation and considering the recommendation of the Nomination and Corporate Governance Committee, our Board may take any appropriate action as permitted by the SCBCA and our Articles, including requiring and/or accepting such resignation, decreasing the number of directors or filling a vacancy.

RECOMMENDATION OF BOARD OF DIRECTORS

The Board of Directors unanimously recommends that shareholders vote “FOR” the proposal to amend the Company’s Articles and Bylaws to implement a majority voting standard in uncontested director elections.

 

26				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

PROPOSAL NUMBER 3 - Amendments to the Amended and Restated Articles of Incorporation to Eliminate Supermajority Voting Provisions Applicable to the Company Under the South Carolina Business Corporation Act

 

 

BACKGROUND OF THE PROPOSAL

The SCBCA provides that, unless otherwise provided in the articles of incorporation, amendments to the articles of incorporation and certain business transactions, including (i) any plan of merger or share exchange and (ii) any sale, lease, exchange or other disposal of all, or substantially all, of the property of the corporation, otherwise than in the usual and regular course of business, require supermajority shareholder approval of two-thirds of the votes cast on such action (collectively, the “Supermajority Voting Requirements”). Currently, our Articles default to the Supermajority Voting Requirements set forth in the SCBCA.

As part of their ongoing review of our corporate governance, our Board and Nominating and Corporate Governance Committee have considered the advantages and disadvantages of retaining the Supermajority Voting Requirements, as well as advice from outside experts and advisors regarding matters of corporate governance. Our stakeholders have argued that supermajority provisions could limit the Board’s accountability to shareholders and discourage shareholder participation in corporate governance. After considering stakeholder concerns and current best practices in corporate governance, our Board has determined a majority voting standard is in the best interests of the Company and our shareholders.

Upon the recommendation of the Nominating and Corporate Governance Committee, the Board has determined that it is in the best interests of the Company and our shareholders and unanimously approved and declared advisable the amendments to the Articles to eliminate the Supermajority Voting Requirements and replace them with a requirement that such matters be approved by a majority of the voting power of our issued and outstanding common stock.

The proposed provision in our Articles providing for majority voting for these matters is set forth below in a new paragraph under a new Section 4(c):

 

4.

OPTIONAL PROVISIONS. The optional provisions which the corporation elects to include in the articles of incorporation are as follows:

 

(c)

Except as otherwise expressly provided in these Articles of Incorporation:

 

(i)

any plan of merger or share exchange;

 

(ii)

any sale, lease, exchange or other disposal of all, or substantially all, of the property of the corporation, otherwise than in the usual and regular course of business; or

 

(iii)

any amendment to these Articles of Incorporation,

 

shall require the approval of at least a majority of votes entitled to be cast on such action, notwithstanding the voting standards set forth in Section 33-10-103, Section 33-11-103 or Section 33-12-102 of the Act.

If Proposal 3 is approved, the proposed amendments to the Articles would become effective upon filing of restated Articles of Incorporation with the Secretary of State of South Carolina, which we would file promptly following the 2022 Annual Meeting of Shareholders if our shareholders approve the amendments. If Proposal 3 is not approved by our shareholders, such amendments will not be implemented and the corresponding voting requirements will remain in place. The adoption of this Proposal 3 is not contingent on the approval of any other management proposal described in this Proxy Statement.

RECOMMENDATION OF BOARD OF DIRECTORS

The Board of Directors unanimously recommends that shareholders vote “FOR” the proposal to amend the Company’s Articles to eliminate the supermajority voting provisions applicable to the Company under the SCBCA.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				27

PROPOSAL NUMBER 4 - Approval of ScanSource, Inc. 2021 Omnibus Incentive Compensation Plan

 

 

BACKGROUND OF THE PROPOSAL

On November 12, 2021 (the “Effective Date”), upon the recommendation of the Nominating and Corporate Governance Committee, our Board unanimously approved the ScanSource, Inc. 2021 Omnibus Incentive Compensation Plan (the “2021 Plan”), subject to approval of the 2021 Plan by our shareholders at the 2022 Annual Meeting. Awards, other than restricted stock, may be granted under the 2021 Plan on and after the Effective Date; but, no such awards may be exercised, vested, paid or otherwise settled, or any shares of common stock issued, unless and until our shareholders approve the 2021 Plan. Restricted stock may only be granted if and after our shareholders approve the 2021 Plan.

If our shareholders approve the 2021 Plan, the 2021 Plan will replace the ScanSource, Inc. 2013 Long-Term Incentive Plan (as amended, the “2013 Plan”), and no further awards will be granted under the 2013 Plan on or after the Effective Date. The terms and conditions of awards granted previously under the 2013 Plan will not be affected by the adoption or approval of the 2021 Plan, and the 2013 Plan will remain effective with respect to awards granted under the 2013 Plan prior to shareholder approval of the 2021 Plan. No new grants will be made under the 2013 Plan after our shareholders approve the 2021 Plan. If our shareholders do not approve the 2021 Plan, the 2013 Plan will remain in effect pursuant to its terms. Note that if the 2021 plan is approved by our shareholders, the 1,600,000 new shares available under the 2021 Plan will be reduced on a one-for-one basis by the number of shares subject to awards granted under the 2013 plan, between October 31, 2021 (date of the equity overhang information below) and approval of the 2021 plan by our shareholders.

As of October 31, 2021, 531,731 shares of our common stock were available for awards under our 2013 plan. If the 2021 plan is approved by our stockholders, no further awards will be made under the 2013 Plan and those remaining shares will not be available for future awards. Historical equity awards outstanding as of October 31, 2021 include:

 

◾

833,686 full value awards, including restricted stock units and performance stock units; and

◾

1,195,248 stock options with a weighted average exercise price of $31.86 and a weighted average remaining term of 6.56 years

In assessing the appropriate terms of the 2021 Plan, the Nominating and Corporate Governance Committee considered, among other items, the existing terms of the 2013 Plan, our compensation philosophy and practices, as well as feedback from our shareholders and other stakeholders. The Board believes that awards tied to our common stock and Company performance promote the long-term success of the Company and views the 2021 Plan as an essential element of the Company’s overall compensation program.

The Board believes that the 2021 Plan:

 

◾

assists the Company in attracting, retaining and motivating our employees, officers, directors and consultants;

◾

provides equitable and competitive compensation opportunities;

◾

recognizes individual contributions; and

◾

rewards goal achievement and aligns the interests of the participants with those of our shareholders.

The following summary of the material terms of the 2021 Plan is qualified in its entirety by reference to the complete text of the 2021 Plan, which is attached hereto as Appendix A.

Historical Burn Rate and Potential Economic Dilution Analysis

We are committed to managing the use of our equity incentives prudently to balance the benefits equity compensation brings to our compensation programs against the dilution it causes our shareholders. As part of our analysis when considering the number of shares to be included in the 2021 Plan, we considered our equity plans’ “burn rate,” calculated as (i) the number of shares subject to equity awards granted under the 2013 Plan for the three years ending June 30, 2021, divided by (ii) the weighted average number of shares outstanding for that period. Our average burn rate for the three years ending June 30, 2021 was 2.04%. The total potential dilution resulting from issuing all shares authorized under our equity plans as of October 31, 2021 (including the 1,600,000 additional shares that would be available if shareholders approve the 2021 Plan) would be approximately 14.21%. We believe that our burn rate and potential dilution amounts are reasonable for our industry and market conditions. During this three-year period, we have

 

28				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Background of the Proposal

 

 

sought to provide equity compensation to our employees and non-employee directors who we believe are important to our organization in furthering our business strategy. In addition, since that time we have made multiple leadership appointments and promotions to advance our strategy. We made equity grants from the 2013 Plan in connection with each of these new hires and promotions, including our employment of new members of the senior leadership team.

Expected Duration

We expect that the shares available under the 2021 Plan for future awards, if the 2021 Plan is approved by our shareholders, will be sufficient for currently-anticipated awards for the next three years. Expectations regarding future share usage could be impacted by a number of factors such as: (i) the future performance of our stock price; (ii) hiring and promotion activity at the executive level; (iii) the rate at which shares are returned to the 2021 Plan reserve upon awards’ expiration, forfeiture or cash settlement without the issuance of the underlying shares; (iv) factors involved in acquiring other companies; and (v) other factors. While we believe that the assumptions used are reasonable, future share usage may differ from current expectations.

SUMMARY OF 2021 OMNIBUS INCENTIVE COMPENSATION PLAN

Eligibility

Employees and consultants of ScanSource and its affiliates are eligible to receive awards under the 2021 Plan, including all five of our executive officers and approximately 2,200 other employees and consultants. Non-employee directors (currently ten) are also eligible to receive awards under the 2021 Plan. Incentive stock options (“ISOs”), however, may only be granted to employees of the Company and its corporate subsidiaries.

Administration

We will bear all expenses of the 2021 Plan and our Compensation Committee will administer the plan. The Compensation Committee has the authority to grant awards to such eligible persons and upon such terms and conditions (not inconsistent with the provisions of the 2021 Plan) as it may consider appropriate. Among the Compensation Committee’s powers is the authority to (i) determine the form, amount and other terms and conditions of awards; (ii) clarify, construe or resolve any ambiguity in any provision of the 2021 Plan or any award agreement; (iii) amend the terms of outstanding awards, subject to the grantee’s consent in certain cases and the 2021 Plan’s prohibitions against repricing of awards without shareholder approval; and (iv) adopt such rules, forms, instruments and guidelines for administering the 2021 Plan as the Compensation Committee deems necessary or proper. The Compensation Committee may delegate any or all of its administrative authority to one or more of our officers, except with respect to awards to non-employee directors and executive officers, including executive officers who are subject to Section 16 of the Exchange Act. Based on service, performance and/or other factors or criteria, the Compensation Committee may, after grant of the award, accelerate the vesting of all or any part of the award. Notwithstanding the foregoing, any exercise of discretion regarding awards for non-employee directors must be approved by our Board.

Share Counting Provisions

Shares of common stock covered by an award shall only be counted as used to the extent actually used. A share of common stock issued in connection with an award under the 2021 Plan shall reduce the total number of shares of common stock available for issuance under the 2021 Plan by one; provided, however, that, upon settlement of a stock appreciation right (“SAR”), the total number of shares available for issuance under the 2021 Plan shall be reduced by the number of shares underlying the portion of the SAR that is exercised. If any award under the 2021 Plan or any award under the 2013 Plan that is outstanding after the shareholders approve the 2021 Plan terminates without the delivery of shares of common stock, whether by lapse, forfeiture, cancellation or otherwise, the shares of common stock subject to such award, to the extent of any such termination, shall again be available for grant under the 2021 Plan. Notwithstanding the foregoing, upon the exercise of any such award granted in tandem with any other awards, such related awards shall be cancelled to the extent of the number of shares of common stock as to which the award is exercised, and such number of shares shall no longer be available for awards under the 2021 Plan. If any shares subject to an award granted under the 2021 Plan or any award granted under the 2013 Plan that is outstanding after the shareholders approve the 2021 Plan are withheld or applied as payment in connection with the exercise of such award or the withholding or payment of taxes related thereto or separately surrendered by the participant for any such purpose, such returned shares of common stock will be treated as having been delivered for purposes of determining

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				29

Summary of 2021 Omnibus Incentive Compensation Plan

 

 

the maximum number of shares remaining available for grant under the 2021 Plan and shall not be treated as available for grant under the 2021 Plan. The number of shares available for issuance under the 2021 Plan may not be increased through the purchase of shares on the open market with the proceeds obtained from the exercise of any options or purchase rights granted under the 2021 Plan or any options or other purchase rights granted under the 2013 Plan. Notwithstanding the foregoing, however, in the case of any substitute award granted in assumption of or in substitution for an entity award issued by an acquired entity, shares delivered or deliverable in connection with such substitute award shall not be counted against the number of shares reserved under the 2021 Plan (to the extent permitted by applicable stock exchange rules), and available shares of stock under a shareholder-approved plan of an acquired entity (as appropriately adjusted to reflect the transaction) also may be used for awards under the 2021 Plan, and shall not reduce the number of shares otherwise available under the 2021 Plan (subject to applicable stock exchange requirements).

If a dividend or other distribution (whether in cash, shares or other property) (excluding ordinary dividends or distributions), recapitalization, forward or reverse stock split, subdivision, consolidation or reduction of capital, reorganization, merger, consolidation, scheme of arrangement, split-up, spin-off or combination involving us or the repurchase or exchange of shares of our common stock or other securities, or other rights to purchase shares of our securities or other similar transaction or event, affects our shares of common stock such that the Compensation Committee determines that an adjustment is appropriate in order to prevent dilution or enlargement of the benefits (or potential benefits) provided to grantees under the 2021 Plan, the Compensation Committee shall make an equitable change or adjustment as it deems appropriate in the number and kind of securities that may be issued pursuant to awards under the 2021 Plan, the per individual limits on the awards that can be granted in any calendar year and any outstanding awards and the related exercise prices (as defined below) relating to any such awards, if any.

Share Limits

Under the terms of the 2021 Plan, the maximum number of shares of common stock reserved for delivery in settlement of awards shall be an aggregate of 1,600,000 shares of our common stock, (i) plus that number of shares of our common stock subject to awards granted under the 2013 Plan which become available in accordance with the provisions of the 2021 Plan after our shareholders approve the 2021 Plan and (ii) reduced on a one-for-one basis by shares of our common stock subject to awards granted under the 2013 Plan between October 31, 2021 and the date that our shareholders approve the plan. However, the total number of shares of common stock that may be delivered pursuant to the exercise of ISOs granted under the 2021 Plan may not exceed 1,600,000 shares.

Generally, no grantee (other than a non-employee director) may be granted in a single calendar year awards under the 2021 Plan denoted in shares with respect to more than 500,000 shares (twice that limit for awards granted in the year in which the grantee (other than a non-employee director) first commences employment or service). The maximum potential value of awards under the 2021 Plan denoted in dollars that may be granted in a single calendar year to any grantee (other than a non-employee director) may not exceed $7,000,000 (twice that limit for awards granted to a grantee (other than a non-employee director) in the year in which the grantee first commences employment or service). A non-employee director may not be granted awards under the 2021 Plan in a single calendar year that, taken together with any cash fees paid for the director’s service as a director during the year, exceeds $1,250,000 in total value (calculating the value of such awards based on the grant date fair value for financial accounting purposes.

Types of Awards

The 2021 Plan permits the grant of any or all of the following types of awards to grantees:

 

◾

stock options, including non-qualified options and ISOs;

◾

SARs;

◾

restricted stock;

◾

deferred stock and restricted stock units;

◾

performance units and performance shares;

◾

dividend equivalents; and

◾

other stock-based awards.

Generally, awards under the 2021 Plan are granted for no consideration other than prior and/or future services. Awards granted under the 2021 Plan may, in the discretion of the Compensation Committee, be granted alone or in addition to,

 

30				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Summary of 2021 Omnibus Incentive Compensation Plan

 

 

in tandem with or in substitution for, any other award under the 2021 Plan or any other plan of ours; provided, however, that if a SAR is granted in tandem with an ISO, the SAR and ISO must have the same grant date and term, and the exercise price of the SAR may not be less than the exercise price of the related ISO. The material terms of each award will be set forth in a written or electronic award agreement between the grantee and the Company. The agreements will specify when the award may become vested, exercisable or payable. No right or interest of a participant in any award will be subject to any lien, obligation or liability of the participant. The laws of the State of South Carolina govern the 2021 Plan. The 2021 Plan is unfunded, and we will not segregate any assets for grants of awards under the 2021 Plan. The 2021 Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Other than awards excluded from the minimum vesting requirement as set forth herein, no award may be granted under the 2021 Plan that will be eligible to vest earlier than 12 months after the date of grant and/or have a performance period of less than 12 months. Notwithstanding the foregoing, awards that result in the issuance of an aggregate of up to 5% of the shares of our common stock available under the 2021 Plan may be granted without regard to such minimum vesting requirements. The foregoing restrictions do not limit the Compensation Committee’s authority to accelerate, or provide for the acceleration of, the vesting of all or any part of any award granted under the 2021 Plan.

Stock Options and SARs

The Compensation Committee is authorized to grant SARs and stock options (including ISOs except that an ISO may only be granted to an employee of ours or one of our parent or subsidiary corporations). A stock option allows a grantee to purchase a specified number of our shares at a predetermined price per share (the “Option Exercise Price”) during a fixed period measured from the date of grant. A SAR entitles the grantee to receive the excess of the fair market value of a specified number of shares on the date of exercise over a predetermined exercise price per share (the “SAR Exercise Price”). The Option Exercise Price or SAR Exercise Price will be determined by the Compensation Committee and set forth in the award agreement, but neither may be less than the fair market value of a share on the grant date (110 percent of the fair market value in case of certain ISOs or SARs granted in tandem with certain ISOs). The term of each option or SAR is determined by the Compensation Committee and set forth in the award agreement, except that the term may not exceed 10 years (five years in case of certain ISOs or SARs granted in tandem with certain ISOs). Options may be exercised by payment of the purchase price through one or more of the following means: payment in cash (including personal check or wire transfer), or, with the approval of the Compensation Committee, by delivering shares of common stock previously owned by the grantee, by the withholding of shares of common stock to be acquired upon the exercise of such option or by delivering restricted shares of common stock. The Compensation Committee may also permit a grantee to pay the Option Exercise Price through the sale of shares acquired upon exercise of the option through a broker-dealer to whom the grantee has delivered irrevocable instructions to deliver sales proceeds sufficient to pay the purchase price to us. In the case of ISOs, the aggregate fair market value (determined as of the date of grant) of common stock with respect to which an ISO may become exercisable for the first time during any calendar year cannot exceed $100,000; and if this limitation is exceeded, the ISOs which cause the limitation to be exceeded will be treated as nonqualified options. No participant may be granted SARs in tandem with ISOs, which are first exercisable in any calendar year for shares of Company stock having an aggregate fair market value (determined as of the date of grant) that exceeds $100,000.

Restricted Shares

The Compensation Committee may award restricted shares consisting of shares of common stock which remain subject to a risk of forfeiture and may not be disposed of by grantees until certain restrictions established by the Compensation Committee lapse. The vesting conditions may be service-based (i.e., requiring continuous service for a specified period) or performance-based (i.e., requiring achievement of certain specified performance objectives) or both. Unless the award agreement eliminates such rights, a grantee receiving restricted shares will have the right to vote the restricted shares and to receive any dividends payable on such restricted shares if and at the time the restricted shares vest (such dividends to either be deemed reinvested into additional restricted shares subject to the same terms as the restricted shares to which such dividends relate or accumulated and paid in cash when the restricted shares vest). Upon termination of the grantee’s affiliation with us during the restriction period (or, if applicable, upon the failure to satisfy the specified performance objectives during the restriction period), the restricted shares will be forfeited as provided in the award agreement.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				31

Summary of 2021 Omnibus Incentive Compensation Plan

 

 

Restricted Stock Units and Deferred Stock

The Compensation Committee may also grant restricted stock unit awards and/or deferred stock awards. A deferred stock award is the grant of a right to receive a specified number of our shares of common stock at the end of specified deferral periods or upon the occurrence of a specified event. A restricted stock unit award is the grant of a right to receive a specified number of our shares of common stock upon lapse of a specified forfeiture condition (such as completion of a specified period of service or achievement of certain specified performance objectives). If the service condition and/or specified performance objectives are not satisfied during the restriction period, the award will lapse without the issuance of the shares underlying such award.

Restricted stock units and deferred stock awards carry no voting or other rights associated with stock ownership. Unless the agreement eliminates such rights, however, a grantee receiving restricted stock units or deferred stock will receive dividend equivalents with respect to restricted stock units or deferred stock, and such dividend equivalents will either be deemed to be reinvested in additional shares of restricted stock units or deferred stock subject to the same terms as the shares of restricted stock or deferred stock to which such dividend equivalents relate or accumulated and paid in cash only if the related restricted stock units or deferred stock becomes vested and payable.

Performance Units

The Compensation Committee may grant performance units, which entitle a grantee to cash or shares of common stock conditioned upon the fulfillment of certain performance conditions and other restrictions as specified by the Compensation Committee and reflected in the award agreement. The Compensation Committee will determine the terms and conditions of such awards, including performance and other restrictions placed on these awards, which will be reflected in the award agreement.

Performance Shares

The Compensation Committee may grant performance shares, which entitle a grantee to a certain number of shares of common stock, conditioned upon the fulfillment of certain performance conditions and other restrictions as specified by the Compensation Committee and reflected in the award agreement. The Compensation Committee will determine the terms and conditions of such awards, including performance and other restrictions placed on these awards, which will be reflected in the award agreement.

Dividend Equivalents

The Compensation Committee is authorized to grant dividend equivalents, which provide a grantee the right to receive payment equal to the dividends paid on a specified number of our shares. Dividend equivalents may be paid directly to grantees upon vesting or may be deferred for later delivery under the 2021 Plan. If deferred, such dividend equivalents may be credited with interest or may be deemed to be invested in our shares, other awards or in other property. No dividend equivalents may be granted in conjunction with any grant of stock options or SARs.

Other Stock-Based Awards

In order to enable us to respond to material developments in the area of taxes and other legislation and regulations and interpretations thereof, and to trends in executive compensation practices, the 2021 Plan also authorizes the Compensation Committee to grant awards that are valued in whole or in part by reference to or otherwise based on shares of our common stock. The Compensation Committee determines the terms and conditions of such awards, including consideration paid for awards granted as share purchase rights and whether awards are paid in shares or cash.

Performance-Based Awards

The Compensation Committee may require satisfaction of pre-established performance goals, consisting of one or more business criteria and a targeted performance level with respect to such criteria, as a condition to awards being granted or becoming exercisable or payable under the 2021 Plan, or as a condition to accelerating the timing of such events. Any applicable performance measure may be applied on a pre- or post-tax basis. An award that is intended to become exercisable, vested or payable on the achievement of performance conditions means that the award will not become exercisable, vested or payable solely on mere continued employment or service. However, such an award, in addition to performance conditions, may be subject to continued employment or service by the participant. Notwithstanding the foregoing, the vesting, exercise or payment of an award (other than a performance-based award) can be conditioned on mere continued employment or service.

 

32				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Summary of 2021 Omnibus Incentive Compensation Plan

 

 

Settlement of Awards

Awards generally may be settled in cash, shares of our common stock, other awards or other property, in the discretion of the Compensation Committee to the extent permitted by the terms of the 2021 Plan.

Change of Control

If there is a merger or consolidation of ScanSource, Inc. with or into another corporation or a sale of substantially all of our shares or assets (a “Corporate Transaction”) that results in a Change in Control (as defined in the 2021 Plan), and the outstanding awards are not assumed by the surviving company (or its parent company) or replaced with economically equivalent awards granted by the surviving company (or its parent company), the Compensation Committee will cancel any outstanding awards that are not vested and nonforfeitable as of the consummation of such Corporate Transaction (unless the Compensation Committee accelerates the vesting of any such awards) and with respect to any vested and nonforfeitable awards, the Compensation Committee shall either (i) allow all grantees to exercise options and SARs within a reasonable period prior to the consummation of the Corporate Transaction and cancel any outstanding options or SARs that remain unexercised upon consummation of the Corporate Transaction and/or (ii) cancel any or all of such outstanding awards (including options and SARs) in exchange for a payment (in cash, or in securities or other property) in an amount equal to the amount that the grantee would have received (net of the exercise price with respect to any options or SARs) if the vested awards were settled or distributed or such vested options and SARs were exercised immediately prior to the consummation of the Corporate Transaction. If an exercise price of the option or SAR exceeds the fair market value of our shares and the option or SAR is not assumed or replaced by the surviving company (or its parent company), such options and SARs will be cancelled without any payment to the grantee. If any other award is not vested immediately prior to the consummation of the Corporate Transaction, such award will be cancelled without any payment to the grantee. Additionally, outstanding time-based awards that are not assumed by the surviving company (or its parent company) or replaced with economically equivalent awards granted by the surviving company (or its parent company) shall vest and become non-forfeitable upon a Change in Control; outstanding time-based awards that are assumed by the surviving company (or its parent company) or replaced with economically equivalent awards granted by the surviving company (or its parent company) shall vest and become non-forfeitable upon the grantee’s retirement, death, disability, or termination without cause, in each case within two years after the Change in Control. Outstanding performance-based awards that are not assumed by the surviving company (or its parent company) or replaced with economically equivalent awards granted by the surviving company (or its parent company) shall be prorated and vest at target; outstanding performance-based awards that are assumed by the surviving company (or its parent company) or replaced with economically equivalent awards granted by the surviving company (or its parent company) shall be converted into time-based awards and will become vested and non-forfeitable upon the grantee’s retirement, death, disability, or termination without cause, in each case within two years after the Change in Control. The foregoing actions are subject to compliance with Section 409A of the Code.

Amendment to, and Termination of, the 2021 Plan

The 2021 Plan may be amended, suspended or terminated by our Board without further shareholder approval, unless such shareholder approval of any such amendment is required by law or regulation or under the rules of any stock exchange or automated quotation system on which our shares of common stock are then listed or quoted. An amendment will be contingent on approval of our shareholders if the amendment would (i) increase the benefits accruing to participants under the 2021 Plan, including without limitation, any amendment to the 2021 Plan or any agreement to permit a repricing or decrease in the exercise price of any outstanding awards, (ii) increase the aggregate number of shares of common stock that may be issued under the 2021 Plan, or (iii) modify the requirements as to eligibility for participation in the 2021 Plan. In addition, subject to the terms of the 2021 Plan, no amendment or termination of the 2021 Plan may materially and adversely affect the right of a grantee under any outstanding award granted under the 2021 Plan without the participant’s consent.

Unless earlier terminated by our Board, the 2021 Plan will terminate when no shares of common stock remain reserved and available for issuance and no other awards remain outstanding or, if earlier, on the tenth anniversary of the adoption of the 2021 Plan by our Board.

Shareholder Rights

No grantee shall have any rights as a shareholder of the Company until such award is settled by the issuance of common stock, other than awards for which certain voting and dividend rights or dividend equivalents may be granted.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				33

Summary of 2021 Omnibus Incentive Compensation Plan

 

 

Transferability

Generally, an award is non-transferable except by will or the laws of descent and distribution, and during the lifetime of the grantee to whom the award is granted, the award may only be exercised by, or payable to, the grantee. However, the Compensation Committee may provide that awards other than ISOs or a corresponding SAR that is related to an ISO may be transferred by a grantee to any permitted transferee (as defined in the 2021 Plan). Any such transfer will be permitted only if (i) the grantee does not receive any consideration for the transfer, (ii) the Compensation Committee expressly approves the transfer and (iii) the transfer is on such terms and conditions as are appropriate for the permitted transferee. The holder of the transferred award will be bound by the same terms and conditions that governed the award during the period that it was held by the grantee, except that such transferee may only transfer the award by will or the laws of descent and distribution.

No Repricing

Notwithstanding any other provision of the 2021 Plan, no option or SAR may be amended to reduce the exercise or grant price nor cancelled in exchange for other options or SARs with a lower exercise or grant price or shares or cash, without shareholder approval.

Compliance with Applicable Law

No award shall be exercisable, vested or payable except in compliance with all applicable federal and state laws and regulations (including, without limitation, tax and securities laws), any listing agreement with any stock exchange to which our Company is a party, and the rules of all domestic stock exchanges on which our Company’s shares may be listed.

No Employment Rights

Awards do not confer upon any individual any right to continue in the employ or service of our Company or any affiliate or subsidiary.

Recoupment of Awards

The 2021 Plan provides that awards granted under the 2021 Plan are subject to any recoupment policy that we may have in place or any obligation that we may have regarding the clawback of “incentive-based compensation” under the Exchange Act or under any applicable rules and regulations promulgated by the SEC or other applicable law or the primary stock exchange on which our shares are listed.

Miscellaneous

Each grantee in the 2021 Plan remains subject to the securities trading policies adopted by our Company from time to time with respect to the exercise of options or SARs or the sale of shares of Company stock acquired pursuant to awards granted under the 2021 Plan. A grantee shall forfeit any and all rights under an award upon notice of termination by the Company or any affiliate for “Cause” as such term is defined in the 2021 Plan. Award agreements shall contain such other terms and conditions as the Compensation Committee may determine in its sole discretion (to the extent not inconsistent the 2021 Plan).

NEW PLAN BENEFITS

The benefits that will be awarded or paid under the 2021 Plan are currently not determinable. The awards granted under the 2021 Plan will depend on the administrator’s actions and the fair market value of shares at various future dates and the administrator has not determined future awards or who might receive them. As a result, it is not possible to determine the benefits that executive officers and other employees and non-employee directors and consultants will receive if the 2021 Plan is approved by the shareholders.

U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a brief summary of certain of the U.S. federal income tax consequences of certain transactions under the 2021 Plan based on the law in effect as of the date of this Proxy Statement. This summary, which is presented for the

 

34				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

U.S. Federal Income Tax Consequences

 

 

information of shareholders considering how to vote on this proposal, is not intended to be exhaustive. It does not describe federal taxes other than income taxes (such as Medicare and Social Security taxes) or foreign, state, or local tax consequences. Nor does it describe tax consequences based on particular circumstances. Each grantee in the 2021 Plan should refer to the text of the plan set forth in Appendix A and consult with his or her own tax advisor as to specific questions relating to tax consequences of participation in the plan.

Nonqualified Stock Options. The grant of a nonqualified stock option will not be a taxable event. The optionee generally will recognize ordinary income upon exercise of the option, in an amount equal to the excess of the fair market value of the shares received at the time of exercise (including option shares withheld by us to satisfy tax withholding obligations) over the exercise price of the option, and generally the Company will be allowed a deduction in this amount, subject to any limitations under Section 162(m) of the Internal Revenue Code of 1986 (as amended, the “IRC”) or any other tax rule. Upon disposition of the shares received upon exercise, the optionee will recognize long-term or short-term capital gain or loss, depending upon the length of time he or she held such shares. The amount of long-term or short-term capital gain or loss recognized by the optionee upon disposition of the shares will be an amount equal to the difference between the amount realized on the disposition and the optionee’s basis in the shares (which basis is ordinarily the fair market value of the shares on the date the option was exercised).

ISOs. Neither the grant nor the exercise of an ISO will be a taxable event for regular tax purposes, except that the alternative minimum tax may apply to the exercise. The optionee will recognize long-term capital gain or loss on a disposition of shares acquired upon exercise of the option provided the optionee does not dispose of such shares within two years from the date the option was granted or within one year after the shares were transferred to the optionee. For purposes of determining such gain or loss, the optionee’s basis in such shares will, in general, be the exercise price of such option. If the optionee satisfies both of the holding periods described above, then the Company will not be allowed a deduction by reason of the exercise of the option. If the optionee disposes of the shares acquired upon exercise before satisfying both of the holding period requirements discussed above (a “disqualifying disposition”), his or her gain recognized on the disqualifying disposition will be taxed as ordinary income to the extent of the difference between the fair market value of the shares on the date of exercise (or, if less, the amount realized upon the disposition of the shares) and the exercise price of such option, and the Company will generally be entitled to a deduction in this amount, subject to any limitations under Section 162(m) of the IRC or any other tax rule. The gain (if any) in excess of the amount recognized as ordinary income on a disqualifying disposition will be taxed as a long-term or short-term capital gain, depending upon the length of time the recipient held the shares.

SARs. The grant of a SAR will not be a taxable event. The recipient of a SAR generally will recognize ordinary income upon exercise of the SAR, in an amount equal to the excess of the fair market value of the exercised shares at the time of exercise (including shares withheld by us to satisfy tax withholding obligations) over the exercise or base price of the SAR, and generally the Company will be allowed a deduction in this amount, subject to any limitations under Section 162(m) of the IRC or any other tax rule. Upon disposition of any shares received upon exercise, the recipient will recognize long-term or short-term capital gain or loss, depending upon the length of time he or she held such shares. The amount of long-term or short-term capital gain or loss recognized by the recipient upon disposition of the shares will be an amount equal to the difference between the amount realized on the disposition and the recipient’s basis in the shares (which basis is ordinarily the fair market value of the shares on the date the SAR was exercised).

Restricted Shares. The grant of restricted stock will not be a taxable event until the award vests, unless the participant timely files an election under Section 83(b) of the IRC to be taxed at the time of grant. If the recipient makes such an election, he or she will recognize ordinary income equal to the fair market value of the shares at the time of purchase or grant less the amount paid for such shares (if any). Any gain or loss recognized upon any later disposition of the shares generally will be a capital gain or loss, and any dividends paid after the date of grant will be taxed as dividend income. If the recipient does not make an 83(b) election, the recipient will upon vesting recognize ordinary income equal to the fair market value of the shares at the time of vesting less the amount paid for such shares (if any), and any dividends that accrue and become vested similarly will be taxed as ordinary wage income. Any gain or loss recognized upon any later disposition of the shares generally will be a capital gain or loss. The Company will generally be allowed a deduction for the compensation income recognized by the recipient, subject to any limitations under Section 162(m) or any other tax rule.

Restricted Stock Units, Deferred Stock, Performance Units and Performance Based Awards. The grant of an award of restricted stock units (including deferred stock, performance-based awards, or performance units) will not be a taxable

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				35

U.S. Federal Income Tax Consequences

 

 

event. The recipient of the award generally will recognize ordinary compensation income in an amount equal to the fair market value of the shares of common stock received (or the amount of any cash payment made in lieu of shares or upon the vesting and payment of any dividend equivalents), and generally the Company will be entitled to a deduction in this amount, subject to any limitations under Section 162(m) of the IRC or any other tax rule. A recipient’s basis for determining gain or loss on a subsequent disposition of these shares of common stock will be the amount the recipient must include in income with respect to the shares. Any gain or loss recognized on a disposition of the shares of common stock generally will be short-term or long-term capital gain or loss, depending on the length of time the recipient holds the shares. A recipient who makes a proper election to defer the settlement of restricted stock units will not recognize income with respect to the restricted stock units, and the Company will not be entitled to a corresponding deduction, until the end of the deferral period. At the end of the deferral period, the recipient will recognize ordinary compensation income, and the Company will be entitled to a corresponding deduction, subject to any limitations under Section 162(m) of the IRC or any other tax rule, equal to the fair market value of the shares of common stock issued at that time (or the amount of any cash payment made in lieu of shares or upon the vesting and payment of any dividend equivalents).

Other Stock-Based Awards. In the case of an award of restricted stock units, performance awards, dividend equivalent rights, or other stock-based, the recipient will generally recognize ordinary income in an amount equal to the fair market value of any shares received on the date of payment or delivery, provided that the award is exempt from or complies with Section 409A of the IRC.

 

36				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Equity Compensation Plan Information

 

 

Because future awards under the 2021 Plan will be granted in the discretion of the Compensation Committee, the type, number of recipients and other terms of such awards cannot be determined at this time. The following table provides information about the common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of June 30, 2021:

 

Plan Category		(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		(b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(3)		(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity Compensation Plans Approved by Shareholders
2013 Long-Term Incentive Plan		1,744,380(1)		$21.99		879,660
2002 Long-Term Incentive Plan		29,086(2)		$34.12		—
Equity Compensation Plans Not Approved by Shareholders		—		—		—
TOTAL:		1,773,466		$22.19		879,660

 

(1)

ScanSource, Inc. 2013 Long-Term Incentive Plan (“2013 Plan”). At June 30, 2021, approximately 879,660 shares remain available for issuance under the 2013 Plan, which allows for grants of ISOs, non-qualified stock options, SARs, performance awards, restricted stock awards, restricted stock units, deferred stock units, dividend equivalent awards and other stock-based awards. Includes restricted stock outstanding, including restricted stock awards, restricted stock units, performance restricted stock awards and performance restricted stock units. Amount includes 537,983 restricted shares outstanding in the form of restricted stock units and performance units.

(2)	ScanSource, Inc. 2002 Long-Term Incentive Plan, as amended. At June 30, 2021, there were no restricted stock units or performance units outstanding under the ScanSource, Inc. 2002 Long-Term Incentive Plan.

(3)	The weighted-average exercise price does not reflect the shares that will be issued upon the payment of outstanding awards of restricted stock, which have no exercise price.

RECOMMENDATION OF BOARD OF DIRECTORS

The Board of Directors unanimously recommends that shareholders vote “FOR” the approval of the ScanSource, Inc. 2021 Omnibus Incentive Compensation Plan.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				37

PROPOSAL NUMBER 5 - Advisory Vote on Executive Compensation

 

 

BACKGROUND OF THE PROPOSAL

As required by Section 14A of the Exchange Act, we are providing our shareholders with the opportunity at the 2022 Annual Meeting to vote on a non-binding advisory resolution, commonly known as a “Say-on-Pay” proposal, approving the compensation of our NEOs. The Company holds this non-binding advisory vote annually. There have been no material changes to our compensation policies this year. This vote is not intended to address any specific item of compensation or the compensation of any specific NEO, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. A discussion of these items is found in the Compensation Discussion and Analysis section of this Proxy Statement.

EXECUTIVE COMPENSATION

The Compensation Committee has overseen the development of a compensation program designed to attract, retain and motivate executives who enable us to achieve our strategic and financial goals. The Compensation Discussion and Analysis and the executive compensation tables regarding NEO compensation, together with the accompanying narrative disclosure, illustrate the trends in compensation and application of our compensation philosophies and practices for the years presented. Highlights of our compensation program include the following:

 

◾

Variable cash incentives are payable to NEOs to encourage the achievement of various pre-determined performance metrics, business growth opportunities, management goals and profitability of business units, all of which focus our NEOs on performance goals intended to enhance shareholder value.

◾

Awards of long-term equity incentives, in the form of stock options and restricted stock awards, directly align the interests of our NEOs and shareholders.

◾

Linking the personal financial interests of our NEOs to the Company’s long-term performance discourages excessive risk-taking and encourages behavior that supports sustainable shareholder value creation.

◾

The Board’s adoption of policies covering stock ownership and retention, incentive compensation recoupment, and anti-pledging and anti-hedging for executive officers mitigates risk in connection with our executive compensation program.

The Compensation Committee believes that our executive compensation program achieves an appropriate balance between fixed compensation and variable incentive compensation, pays for performance and promotes an alignment between the interests of our NEOs and our shareholders. Accordingly, we are asking our shareholders at the 2022 Annual Meeting to vote “FOR” the non-binding advisory resolution approving the compensation of our NEOs, including in the Compensation Discussion and Analysis, compensation tables and narrative discussion below.

EFFECT OF RESOLUTION

Because your vote is advisory, it will not be binding upon the Company, the Compensation Committee or the Board. However, the Compensation Committee and the Board value the opinions of our shareholders and will take the outcome of the vote into account when considering future executive compensation arrangements.

RECOMMENDATION OF BOARD OF DIRECTORS

The Board of Directors believes that our executive compensation program aligns our NEOs’ compensation with the long-term interests of our shareholders. Our program is guided by the philosophy that total executive compensation should vary based on achievement of goals and objectives, both individual and corporate, and should be focused on long-term strategies to build shareholder value. The Board believes that our philosophy and practices have resulted in executive compensation decisions that are aligned with shareholder interests and that have benefited and will benefit the Company over time.

For the reasons stated above, we recommend a vote “FOR” the following advisory resolution at our 2022 Annual Meeting:

“RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed in the Proxy Statement for our 2022 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, Named Executive Officer compensation tables and related narrative discussion, is hereby APPROVED.”

 

38				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

PROPOSAL NUMBER 6 -

Ratification of Appointment of Independent Auditors

 

 

The Audit Committee has appointed the firm of Grant Thornton LLP (“Grant Thornton”), an independent registered public accounting firm, as independent auditor to make an examination of our accounts for fiscal 2022, which appointment has been ratified by the Board. See the “Audit Committee Report” below for more information. Shareholder ratification of the selection of Grant Thornton as our independent registered public accounting firm is not required by law but is being presented in the discretion of the Board of Directors. If the shareholders do not ratify this appointment, other independent registered public accounting firms will be considered by the Audit Committee. A representative of Grant Thornton is expected to attend the 2022 Annual Meeting and will have the opportunity to make a statement and be available to respond to appropriate questions.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

As reflected in the table below, we incurred fees in fiscal 2021 and 2020 for services performed by Grant Thornton related to such periods.

 

		Year Ended June 30, 2021				Year Ended June 30, 2020
Audit Fees		$	1,722,195			$	1,853,810
Tax Fees		$	182,960			$	90,300
Total Fees		$	1,904,885			$	1,944,110

In the above table, in accordance with applicable SEC rules:

 

◾

“Audit Fees” are fees for professional services for the audit of the consolidated financial statements included in our Form 10-K, the audit of internal control over financial reporting, the review of financial statements included in our Form 10-Qs, and services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements; and

◾

“Tax Fees” are fees for professional services related to foreign tax compliance, tax advice and tax planning.

AUDIT COMMITTEE’S PRE-APPROVAL POLICIES AND PROCEDURES

It is the policy of the Audit Committee to pre-approve all audit and permitted non-audit services proposed to be performed by our independent auditor. All audit and permitted non-audit services performed in fiscal 2021 were pre-approved by the Audit Committee. The process for such pre-approval is typically as follows: Audit Committee pre-approval is sought at one of the Audit Committee’s regularly scheduled meetings following the presentation of information at such meeting detailing the particular services proposed to be performed. The authority to pre-approve non-audit services may be delegated by the Audit Committee, pursuant to guidelines approved by the Audit Committee, to one or more members of the Audit Committee. None of the services described above were approved by the Audit Committee pursuant to the exception provided by the Exchange Act rules.

The Audit Committee has reviewed the non-audit services provided by Grant Thornton and has determined that the provision of such services is compatible with maintaining Grant Thornton’s independence for the period of time during which it has served as our independent auditor.

RECOMMENDATION OF BOARD OF DIRECTORS

The Board of Directors unanimously recommends that shareholders vote “FOR” the ratification of the appointment of Grant Thornton as our independent registered public accounting firm for the fiscal year ending June 30, 2022.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				39

Executive Compensation

 

 

EXECUTIVE OFFICERS

The following sets forth certain information regarding our current executive officers:

 

Name		Experience and Qualifications		Age
Michael L. Baur		Michael L. Baur is our Chairman, Chief Executive Officer and President. Mr. Baur has served as our President or CEO since our inception in December 1992, as a director since December 1995, and as Chairman of the Board since February 2019.		64
Matthew S. Dean		Matthew S. Dean joined the Company in January 2018 and serves as Senior Executive Vice President, Chief Legal Officer and Corporate Secretary. Matt is responsible for all legal aspects of the Company, including providing legal counsel to the Board of Directors, CEO, and other global senior leadership. With more than 20 years of corporate legal and strategy experience, Matt previously served as Vice President, General Counsel, and Secretary for Vertiv Inc. (formerly Emerson Network Power), a global manufacturer and provider of equipment and services for data centers from 2011 through 2017.		52
John Eldh		John Eldh joined the Company as Senior Executive Vice President, Chief Revenue Officer in October 2019 and has served as an executive officer since November 2020. Prior to joining the Company, Mr. Eldh served as Senior Vice President of the Global Partner Organization at CA Technologies, a leading provider of application development, management, and security solutions, from September 2014 to November 2018. Prior to that Mr. Eldh served in various leadership capacities at Symantec Corporation, a cybersecurity and identity protection company, from January 2005 to August 2014.		54
Rachel Hayden		Rachel Hayden joined the Company as Senior Executive Vice President, Chief Information Officer in June 2021. Prior to joining the Company, Ms. Hayden served as Chief Information Officer of Just Born, Inc., a family-owned confectionary company, from 2016 to 2021. Prior to that, Ms. Hayden served five years with Berry Global, a manufacturer of innovative packaging and engineered products, in various leadership roles, including Senior Director of IT, Global Business Systems.		45
Stephen T. Jones		Stephen T. Jones has served as our Senior Executive Vice President, Chief Financial Officer since December 2020. Prior to joining the Company, Mr. Jones served as the International Chief Financial Officer of Blackbaud, Inc., a leading cloud software company, from 2016 to 2020. Prior to that, Mr. Jones served in finance and management positions at Lexmark International, an imaging solutions and technologies company, from 2000 until 2016.		50

 

40				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Compensation Discussion and Analysis

 

 

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis outlines our executive compensation program for our NEOs listed below. The CD&A provides information about our compensation objectives and practices for our NEOs and explains how the Compensation Committee of the Board of Directors arrived at the compensation decisions for fiscal 2021.

 

Name		Title
Michael L. Baur		Chairman, Chief Executive Officer and President
Matthew S. Dean		Senior Executive Vice President, Chief Legal Officer and Corporate Secretary
John Eldh		Senior Executive Vice President and Chief Revenue Officer
Rachel Hayden		Senior Executive Vice President and Chief Information Officer
Stephen T. Jones		Senior Executive Vice President and Chief Financial Officer
Gerald Lyons		Former Senior Executive Vice President and Chief Financial Officer

Executive Summary

2021 Business Highlights

Our talented team of sales, marketing, services and development professionals have continued to make progress on our strategic plan of offering hybrid distribution solutions that allow our channel partners to meet the technology demands of end-user customers. We are enabling our sales partners to accelerate their transformation to the digital world of opportunity. Our hybrid distribution model delivered strong results in fiscal year 2021 as a result of increased sales volumes and decreased costs. For fiscal year 2021, net sales increased 3.4% to $3.2 billion, or a 5.5% year-over-year increase on an organic basis. Fiscal year 2021 GAAP operating income increased to $61.5 million, and non-GAAP operating income increased to $93.1 million, up 18.0% year-over-year. On a GAAP basis, net income for fiscal year 2021 totaled $45.4 million, or $1.78 per diluted share. Non-GAAP net income totaled $69.9 million, or $2.74 per diluted share. For more information on our non-GAAP measures and reconciliations to GAAP measures, see “Non-GAAP Financial Information” beginning on page 31 of our Annual Report on Form 10-K filed on August 24, 2021.

COVID-19 and the pandemic related containment measures have had an impact on our business, suppliers’ businesses and sales partners’ businesses. The negative impacts to net sales from the pandemic, including declines in customer demand and supply chain disruptions, were most pronounced during the fourth quarter of fiscal year 2020, and recovered throughout fiscal year 2021. We have also experienced increased employee related healthcare and prevention costs. While we are unable to predict the ultimate impact that COVID-19 will have on our business, certain technologies have benefited from the widespread adoption of work-from-home, such as unified communication solutions (UCaaS) and other collaboration solutions and associated peripherals, as well as the accelerated shift to digitize and automate processes. In July 2020, we initiated a $30 million expense reduction plan designed to better align the cost structure for our wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic. The expense reduction plan included salary reductions for our executive team through December 31, 2020 and elimination of cash retainers for the Board through December 31, 2020, along with other cost saving measures. During the fiscal year ended June 30, 2021, we recognized approximately $9.3 million for restructuring and other charges, largely for severance and employee benefits for employees who left the Company as part of this plan.

Fiscal 2021 Pay Mix

The Compensation Committee strives to provide our NEOs with a compensation package that balances short-term and long-term compensation. We believe that our current executive compensation program, consisting of a mix of base salary, retirement contributions, annual performance-based cash incentive awards and both performance-based and service-based grants of equity, (i) provides a predictable and transparent structure for executive compensation, (ii) provides a significant percentage of a NEO’s compensation through variable performance-based vehicles and (iii) attracts, retains and motivates our NEOs.

Our executive compensation program emphasizes performance-based pay. The elements of compensation and the general mix of compensation among the various elements remained largely unchanged from the previous year, except, for fiscal 2021, to update the mix of equity awards to the NEOs to reintroduce stock options in place of performance-based restricted stock. In fiscal 2022, the Compensation Committee determined to reintroduce performance-based

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				41

Compensation Discussion and Analysis

 

 

restricted stock into the mix of equity awards. In addition, our fiscal 2021 cash incentive plan was updated to provide for two six-month measurement periods and updated metrics for performance, considering the ongoing uncertainty in the market.

Our financial performance during fiscal 2021 is reflected in the compensation of each of our NEOs for fiscal 2021, particularly with respect to payouts pursuant to our annual cash incentive program. Our cash incentive opportunity is designed so that, if our financial results, as measured by certain non-GAAP operating income and revenue numbers, reflect an increase in the financial performance of the Company, then our executives should realize a greater cash incentive. In addition, individual performance also is taken into account by the Compensation Committee. Awards are also capped at 200% of each executive’s target bonus regardless of our financial performance.

For fiscal year 2021, the cash incentives paid to our CEO increased from fiscal 2020 and fiscal 2019 based on (i) our financial performance and (ii) the Compensation Committee’s pre-established Management Incentive Plan (“MIP”) operating targets for the cash incentive opportunity. The value of the equity awarded to our CEO also increased in fiscal 2021, following a review by the Compensation Committee of realizable value of existing equity awards, a review of the CEO’s compensation against the market and in light of the extraordinary efforts of the CEO during our transformation and period of economic uncertainty. We believe this result is appropriately aligned with the Company’s fiscal 2021 financial performance.

In addition, the total compensation of our CEO generally has increased or decreased during the past five fiscal years as our non-GAAP operating results have increased or decreased. We believe this correlation between the Company’s performance and pay appropriately motivates and rewards our CEO and is beneficial to our shareholders.

In addition, we believe that it is important to link each of our NEO’s compensation and personal financial interests with long-term shareholder value creation. Accordingly, 56% of our CEO’s total compensation, 55% of Mr. Jones’ total compensation, 44% of Mr. Dean’s total compensation, and 49% of Mr. Eldh’s total compensation for fiscal 2021 was in the form of long-term equity incentives. For fiscal 2021, variable performance-based compensation in the form of cash and long-term equity incentives constituted 86% of our CEO’s total compensation, 79% of Mr. Jones’ total compensation, 71% of Mr. Dean’s total compensation, and 83% of Mr. Eldh’s total compensation. (each as reported in the Summary Compensation Table). Ms. Hayden did not join the Company until June 2021.

Greater detail regarding the compensation of our NEOs can be found within the 2021 Summary Compensation Table.

Consideration of Results of Shareholder Advisory Votes in Executive Compensation

The Compensation Committee monitors the results of the “Say-on-Pay” vote and considers those results along with the objectives listed below in determining compensation policies. A substantial majority (82.7%) of our shareholders voting at the 2021 Annual Meeting approved the compensation described in our 2020 proxy statement. The Compensation Committee interpreted this vote result as a strong indication of support for our fiscal 2021 compensation program. We have conducted a variety of shareholder engagement activities this year, including investor conferences and direct meetings with many of our top shareholders. These engagements have focused on deepening the dialogue with our current shareholder base about our business strategy and performance, culture, governance, executive compensation practices, and ESG efforts. Our Lead Independent Director has participated in several of these dialogues, demonstrating accountability with our shareholders and our commitment to strong governance practices. As further discussed in the Shareholder Engagement section on page 8 of this proxy statement, shareholder engagement activities continue to inform our decision-making process.

Fiscal 2022 Pay Mix Changes

As mentioned, in fiscal 2022, the Compensation Committee reintroduced performance-based restricted stock to replace stock options in the pay mix (a 50/50 split of time-vested restricted stock units (RSUs) and performance-based RSUs). These performance-based restricted stock awards included the following changes from the performance-based awards granted in previous years: (i) elimination of a single performance metric, as performance metrics will include non-GAAP earnings per share metric and adjusted return on invested capital (ROIC) as compared to weighted average cost of capital (WACC), (ii) introduce a modifier based on relative total shareholder return, (iii) provide for a three-year performance period and (iv) minimize overlapping performance conditions with our short-term incentives. In addition, for fiscal 2022 awards, the Compensation Committee determined to change the vesting period for time-based restricted stock awards from three years to four years. These changes were designed to more accurately reflect the overall health of the Company and more closely associate executive pay with company performance.

 

42				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Compensation Discussion and Analysis

 

 

Objectives of the Compensation Program

Our executive compensation program is designed to attract, retain and motivate executives through achieving the following three objectives:

 

◾

Pay-for-Performance

◾

Align Interests of Executives with Shareholders

◾

Retain Talented Leadership

Pay-for-Performance

The guiding principle of our compensation philosophy is that pay should be linked to performance and that the interests of executives and shareholders should be aligned. Our compensation program is designed to provide significant performance-based compensation through our cash incentive plan, and a large portion of the compensation is in the form of equity awards. As a result, a significant portion of our NEOs’ compensation is directly contingent on our operating results and/or aligned with shareholder interests.

Align Interests of Named Executive Officers and Shareholders

The following compensation policies and practices are designed to align the interests of our NEOs and our shareholders:

 

ScanSource Does
		Require significant stock ownership.		We have adopted minimum ownership guidelines for our CEO. He is required to retain 50% of the net shares resulting from vesting or exercises of equity awards until he owns Company common stock in an amount equal to three times his base salary.
		Mandate a claw-back policy tied to a compensation program.		We maintain a “claw-back policy,” which would allow us to recover certain incentive compensation based on financial results in the event those results were restated due at least partially to the recipient’s misconduct.
		Seek our shareholders’ input on executive compensation.		We value our shareholders’ input on our executive compensation, and we seek an annual non-binding vote on our executive compensation policies.
		Prohibit pledging of our securities by our Named Executive Officers or Board of Directors.		We have a policy that prohibits officers and directors from pledging Company securities in margin accounts or as collateral for a loan.
		Prohibit hedging of our securities by our Named Executive Officers or Board of Directors.		We have a policy that prohibits employees (including the NEOs) and directors from trading in options, warrants, puts, calls or similar instruments in connection with our securities, or selling our securities “short.”
		Require a “double trigger” for cash severance benefits upon a change in control.		Our employment arrangements with our NEOs provide cash severance only upon a “double trigger.”
		Not provide golden parachute tax gross ups or excessive perquisites.		We do not provide excise tax gross-ups for severance benefits received by our NEOs under their employment arrangements. We only provide limited perquisites to our NEOs.

Retain Talented Leadership

We operate in a marketplace characterized by significant competition for talented executives. Our executive compensation program is designed to enable us to attract, motivate, reward and retain the management talent necessary to achieve both long-term and short-term corporate objectives and enhance shareholder value. We also aim to establish executive compensation levels that correlate directly to the NEO’s level of responsibility, with the

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				43

Compensation Discussion and Analysis

 

 

compensation of our NEOs being tied both to our performance as a whole and to individual performance. To do this effectively, our philosophy is that our compensation program must provide our NEOs with a total compensation package that is reasonable in relation to our performance, and sufficiently competitive with the packages offered by similarly sized companies within or outside our industry.

Material Elements of Our Compensation Programs

In determining the compensation of our NEOs, the Compensation Committee uses the following specific compensation elements, which it believes support our compensation objectives.

 

						Compensation Objectives
Compensation Element				Description		Reward Performance		Attract and Retain		Align with Shareholders
Base Salary				Fixed level of compensation
Annual Variable Cash Incentive   Awards				Performance-based cash incentives reward Company and individual performance
Time-Vesting Restricted Stock or   Restricted Stock Units				Long-term equity award, with three-year vesting (four years for awards granted in fiscal 2022)
Performance- and Time-Vesting   Restricted Stock or Restricted   Stock Units				Rewards Company performance; three-year vesting, in addition to performance criteria
Stock Options				Rewards Company performance above a threshold
Health, Welfare & Retirement Plans				401(k) Savings Plan Employee Stock Purchase Plan Deferred Compensation Plan Executive Severance Plan
CEO Stock Ownership Guidelines,   Anti-Hedging Policy, Anti-Pledging   Policy and Claw-Back Policy				Compensation risk mitigators

The Compensation Committee determines the amounts of each element and the aggregate compensation for our NEOs without using any specific formula or attempting to satisfy any specific ratio for compensation among our NEOs; however, the differences in the aggregate compensation between our CEO and the other NEOs are intended to reflect the individual responsibilities with respect to their respective positions, experience in the applicable role, experience in our industry, and market compensation data for peer companies. In determining compensation for our NEOs, the Compensation Committee considers the amount of compensation they receive in cash versus equity, along with the status of outstanding equity awards. A portion of certain of our NEOs’ compensation is in the form of stock options, which are valued at the time of grant using the Black-Scholes model, despite that this form of compensation may never result in value for those NEOs. As a result, there can be a significant difference between what is reported as those NEOs’ total compensation for a given year and what they actually receive.

The Compensation Committee views the components of compensation as related, but distinct, and therefore regularly reevaluates the appropriate mix of elements, including the appropriate targets for incentive awards. The Compensation Committee also relies on the independent expertise compiled from the general knowledge, experience and good judgment of its members, both with regard to competitive compensation levels and the relative success that our Company has achieved. The Compensation Committee also retains, and relies on information provided by, compensation consultants.

Base Salary

Base salary generally provides a fixed base level of compensation for our executives for the services they render during the year. The purpose of base salary is to compensate our NEOs in light of their respective roles and responsibilities over time. Base salary is essential to allow us to compete in the employment marketplace for talent and is an important

 

44				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Compensation Discussion and Analysis

 

 

component of total compensation for the NEOs. It is vital to our goal of recruiting and retaining NEOs with proven abilities. A NEO’s base salary is initially set in accordance with the terms of his or her employment agreement or letter and is reviewed annually. Increases, if any, to base salary are based generally upon a subjective assessment of overall individual performance, market trends and the Company’s performance. In evaluating the Company’s performance in fiscal 2021, the primary consideration was our financial performance for the relevant annual period, with a focus on non-GAAP operating income, technology solutions operating income and Intelisys revenue. In evaluating the Company’s performance in fiscal 2022, the focus will be on Adjusted EBITDA which we believe aligns executive and shareholder interests and which we consider to have a strong correlation with shareholder value creation.

Annual Variable Performance-Based Cash Incentive Awards

Annual variable performance-based cash incentive awards are designed to encourage the achievement of various pre-determined Company financial and operating performance goals. Given the uncertainty surrounding the economic environment at the time, in August 2020 the Compensation Committee adopted two six-month performance periods under the cash incentive plan for fiscal 2021. In addition, the performance metrics were updated to include non-GAAP operating income, technology solutions operating income and Intelisys revenue as the primary measurements of performance for cash incentive awards, because of our belief that each such measurement has a strong correlation with shareholder value. Our management emphasizes these measures in evaluating and monitoring the Company’s financial condition and operating performance. These metrics assist us in comparing our performance over various reporting periods on a consistent basis because they remove from our operating results the impact of items that do not reflect our core operating performance. The Compensation Committee has the discretion to adjust these measurements for extraordinary one-time events, or other items beyond management’s control, and to award cash incentives based on other criteria. In fiscal 2021, no such adjustments or additional awards were made under the performance-based cash incentive program.

Annual Performance-Based and Service-Based Equity Awards

The Compensation Committee annually grants equity to our NEOs, since it believes this element of our compensation program provides our NEOs with the opportunity to develop a significant ownership stake in the Company and directly aligns their interests with the long-term interests of our shareholders. In addition, equity awards serve as a retention vehicle for the NEOs because, if the applicable criteria is met, they typically vest over three years and generally are forfeited if not vested upon termination of employment. In fiscal 2022, the Compensation Committee updated the form of time-based restricted stock units to provide for vesting over four years, increasing the retention value of the award. In November 2020, against the backdrop of our continuing transformation and impact of the COVID-19 pandemic, the Compensation Committee concluded that it would be extraordinarily difficult to accurately gauge and set multi-year performance targets for performance-based equity awards. As such, and to keep the Company focused on operating efficiently and safely, the Compensation Committee approved a change in the mix of equity, replacing performance-based restricted stock unit grants with stock options for fiscal 2021 for our NEOs. The Compensation Committee replaced performance-based restricted stock with stock options, as opposed to other forms or mixes of incentive compensation, because of the long-term nature of options and their direct alignment with share price appreciation. This shift in the mix of equity was intended to apply to fiscal 2021 only and, in fiscal 2022, the Compensation Committee once again eliminated stock options and reintroduced performance-based equity awards into the compensation mix.

In approving long-term equity incentives, the Compensation Committee focuses on our overall performance, the value of the proposed award, the amount and value of awards granted in prior years, and the overall compensation package of the NEO with the ultimate goal of aligning the interests of the executives with our shareholders’ interests and motivating and retaining critical leadership through the use of equity. The Compensation Committee also believes that linking the personal financial interests of our NEOs to our long-term performance discourages excessive risk taking and supports sustainable shareholder value creation.

We have historically granted annual equity awards to the NEOs at the November meeting of the Compensation Committee to align the timing more closely to the annual performance evaluations of those officers. In fiscal 2022, the annual performance of our officers was completed in August and the annual equity award grant date was also moved to that time. The equity award policy provides that the grant date will be the third trading date following the meeting at which the awards are approved, provided that the Company is in an open trading window, and otherwise on the first trading day of the next open window. Equity awards may also be made by the Compensation Committee from time to time to incentivize and reward certain performance and to provide additional retention value. See the “Long-Term Equity Incentives” section of this Compensation Discussion and Analysis for more information.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				45

Compensation Discussion and Analysis

 

 

The Compensation Committee’s policy is to set the exercise price of stock option awards by using the closing price of our stock on the date of the grant. The Compensation Committee also determines the number of shares of a value-based restricted stock unit award by using the closing price of our stock on the grant date.

Process for Determining Named Executive Officer Compensation

Role of the Compensation Committee

The Compensation Committee is responsible for reviewing, approving, and monitoring compensation policies and programs that are consistent with our business strategy and aligned with shareholders’ interests. Specifically, the Compensation Committee is responsible for:

 

◾

reviewing and approving the corporate goals and objectives relevant to the compensation of the CEO and other NEOs;

◾

negotiating the employment agreement of the CEO;

◾

reviewing and approving any employment letters or contracts and severance plans of all other NEOs;

◾

reviewing and approving annual incentive awards to NEOs; and

◾

reviewing and approving equity-based compensation plans and grants of equity awards under such plans and the Board-approved policies or guidelines applicable to them.

The Compensation Committee meets several times each year to review and approve executive compensation programs and performance and, if necessary, recommend approval to the Board.

Role of Management

The Compensation Committee regularly meets with the CEO to receive reports and recommendations regarding the compensation of our NEOs other than the CEO. In particular, the CEO recommends to the Compensation Committee annual base salaries, annual incentive awards and long-term or performance equity grants for the NEOs other than himself. The Compensation Committee then evaluates each NEO, including the CEO, sets performance criteria for annual cash incentive awards, and makes long-term equity grants, if any. At the beginning of each fiscal year and as necessary throughout the year, MIP targets for certain financial measures are established following consultation with management with consideration for adjustments for one-time expenses or longer-term investments that are planned. As part of its evaluation process, the Compensation Committee considers our performance and consistency, the NEO’s individual performance over the prior year, changes in responsibilities and future potential as well as data available from compensation surveys and compensation consultants. Although the Compensation Committee considers the CEO’s recommendations, the final decisions regarding base salary, annual incentive awards and equity awards of the NEOs are made by the Compensation Committee.

Role of Compensation Consultant

The Compensation Committee has the authority to retain independent compensation consultants to provide counsel and advice. For fiscal 2021, the Compensation Committee retained Pearl Meyer. The Compensation Committee reviewed all factors relevant to the independence of Pearl Meyer, including:

 

◾

The provision of services to the Company by the consultant other than those requested by the Compensation Committee;

◾

The amount of fees received by the consultant as a percentage of its total revenue;

◾

The policies and procedures adopted by the consultant that are designed to prevent conflicts of interest;

◾

Any business or personal relationship between a consultant and a member of the Compensation Committee;

◾

Any stock of the Company owned by a consultant; and

◾

Any business or personal relationship between a consultant and an executive officer of the Company.

As a result of such evaluation, and a certification from Pearl Meyer regarding its consultant’s independence, the Compensation Committee determined that Pearl Meyer is independent.

The Compensation Committee regularly reviews benchmarking and market surveys in order to ensure that our compensation is competitive with that of our peers. The Compensation Committee also considers analysis and benchmarking by third parties, such as ISS and Equilar, and the different peer groups each firm uses for comparative purposes in order to gain a better understanding of compensation practices and trends in the market.

 

46				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT

Compensation Discussion and Analysis

 

 

Our compensation consultants provide the Compensation Committee with general market surveys and other information related to the general market for executive compensation, including best practices and emerging trends. In addition, in fiscal 2021 Pearl Meyer provided information derived from proxy statements from peer companies and from surveys that include publicly traded and privately held technology distributors and other technology industry companies with similar revenues. The peer companies referred to for evaluation of fiscal 2021 compensation included the following:

 

Anixter International Inc.		Applied Industrial Technologies, Inc.		Benchmark Electronics, Inc.
Diebold Nixdorf, Inc.		ePlus, Inc.		Insight Enterprises, Inc.
Itron, Inc.		PC Connection, Inc.		PCM, Inc.
Plexus Corp.		TTM Technologies, Inc.		WESCO International, Inc.

The Compensation Committee reviewed compensation information from this peer group by comparable executive position and level to better understand the market for other participants in the market for all aspects of compensation. Note that PCM, Inc. was in the historical peer group but was acquired in 2019 and excluded from the fiscal 2021 analysis. Anixter International was also acquired in mid-2020 but was included in the fiscal 2021 analysis. In a review of the applicable data, the Compensation Committee sought to ensure that the overall compensation to our NEOs was competitive and within norms for the industry and other companies of similar characteristics based on the executive’s position, level and job performance.

The Compensation Committee took this evaluation into account in determining all elements of NEO compensation for fiscal 2021, including the fiscal 2021 MIP design and equity awards.

Named Executive Officer Compensation in Fiscal 2021

Base Salary

The initial base salary for each NEO was established in the NEO’s employment agreement or employment letter. All NEO employment arrangements require an annual review of base salary by the Compensation Committee, and annual upward adjustments may be made by the Compensation Committee on a discretionary basis. In deciding whether to increase a NEO’s compensation, the Compensation Committee considers company performance, the consistency of the NEO’s individual performance over the prior year, changes in the NEO’s responsibilities and the NEO’s future potential. The Compensation Committee also considers data available from benchmarking studies obtained from a range of industry and general market sources, as well as information that may be provided by its compensation consultants, including comparisons of peer companies comprised of other participants in the industry and other similar companies based on size and other objective factors.

The Compensation Committee met in August of 2020 to determine Mr. Baur’s, Mr. Dean’s and Mr. Lyons’ base salaries for fiscal 2021. The Compensation Committee did not award any base salary increases to Mr. Baur, Mr. Dean or Mr. Lyons for fiscal 2021. Mr. Jones’ base salary was set in his employment letter at $400,000 and remained the same at the time he was hired and it remained the same when he was named an executive officer in December 2020. Mr. Eldh’s base salary was set at $500,000 at the time he was named an executive officer in November 2020. Ms. Hayden’s base salary was set in her employment letter at $350,000 and it remained the same when she was named an executive officer in June 2021.

Base salaries for Mr. Baur, Mr. Jones, Mr. Dean, Mr. Eldh, Ms. Hayden, and Mr. Lyons for fiscal 2021 were as follows:

 

Named Executive Officer		Base Salary (standard)
Mr. Baur		$	875,000
Mr. Dean		$	450,000
Mr. Eldh		$	500,000
Ms. Hayden		$	350,000
Mr. Jones		$	400,000
Mr. Lyons		$	367,500	(1)

 

(1)	This represents Mr. Lyons’ annualized salary as approved by the Compensation Committee. Mr. Lyons left the Company in January 2021 and received severance benefits as set forth in the Company’s Executive Severance Plan and described below.

 

2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT				47

Compensation Discussion and Analysis

 

 

In light of the impacts of COVID-19, we implemented an expense reduction plan effective July 1, 2020 which included a temporary salary reduction for each NEO serving at such time through December 31, 2020, with a reduction of 25% for the Chairman and Chief Executive Officer, 15% for the Chief Financial Officer in office at such time, and 10% for the Chief Legal Officer.

Annual Performance-Based Cash Incentives

The principal objective of our performance-based cash incentives is to motivate and reward our NEOs for performance in achieving our business objectives based upon annual attainment of certain financial measures. The Compensation Committee created a cash incentive design for the NEOs in fiscal 2013, which we refer to as the Management Incentive Plan (“MIP”). Annual performance-based cash incentives were set based on an analysis of market data and assessing the experience of the respective individual and his or her respective role. The design provides that each NEO’s cash incentive opportunity will be expressed as a percentage of his or her base salary and earned based on non-GAAP operating results as compared to pre-established threshold and stretch goals. These incentives are meticulously designed and sufficiently rigorous to align NEO incentives with our business objectives. For fiscal 2021, Mr. Baur’s and Mr. Eldh’s cash incentive opportunity was 150% of their base salary, Mr. Jones and Mr. Lyons’ cash incentive opportunity was 100% of their base salary, and Mr. Dean’s and Ms. Hayden’s cash incentive opportunity was 60% of his or her base salary. The cash incentive opportunities for Messrs. Baur, Dean and Lyons remained at the same level as fiscal 2020. The cash incentive opportunities for Messrs. Jones, Eldh and Hayden were provided in their employment arrangements at the time of their appointment as an NEO. Each NEO has a variable factor by role or position applied as a percentage against his or her respective base salary.

Given the uncertainty surrounding the economic environment at the time, the Compensation Committee adopted two six-month performance periods under the MIP for fiscal 2021. The performance metrics for the first six-month period were set in August 2020 and include non-GAAP operating income (“SCSC OI”), technology solutions operating income (“Tech OI”) and Intelisys revenue (“Agency Revenue”). Tech OI represents non-GAAP operating income for all of our businesses, excluding the Intelisys business where we used Intelisys revenue for the MIP performance target. In January 2021, the Compensation Committee set updated targets for those same performance metrics for the second six-month period, including to remove revenues from a small, non-material part of the business in the calculation of the Intelisys revenue in the second half of the fiscal year. Each performance metric is adopted with certain adjustments to align management’s performance on focused strategic objectives. Individual performance results are also factored into the cash incentive opportunity. The Compensation Committee determined to make individual performance a specific metric (rather than a discretionary portion of the bonus) to drive individual performance and to create a stronger tie between the Company’s overall strategy with the compensation program as those individual goals are defined in a way to support the Company’s strategy. The maximum incentive award for any NEO is 200% of his or her target bonus.

For fiscal 2021, the Compensation Committee established MIP performance targets as set forth below. The payouts of the awards depend on our results in comparison to these targets, weighted as follows: SCSC OI, 30%; Tech OI, 25%; Agency Revenue, 25%; and individual performance, 20%. If performance of any measure does not meet the applicable threshold for that measure, no award will be earned for that measure. If the performance of a measure reaches the applicable threshold, the award earned for that measure will be 50% of the target. The award earned for results between the threshold and the maximum of 200% of the target is calculated using straight-line interpolation. Management uses them as measures to evaluate Company performance. The targets chosen were based on previous results and management’s expectations of future results and were set at a level that would only be achievable if the Company made improvements over previous and expected results.

 

First Half Fiscal 2021 MIP Performance Targets
Standard		SCSC OI				Tech OI				Agency Revenue*				Individual Performance				Funding % of Target
Threshold		$	27.4			$	16.2			$	30.9								50	%
Target		$	32.2			$	19.0			$	33.4				100	%			100	%
Maximum		$	35.4			$	20.9			$	35.9								200	%
Actual Results		$	39.6			$	26.0			$	33.5				100	%			155.6	%
Weights			30	%			25	%			25	%			20	%			100	%

 

*	The first half fiscal year 2021 for Agency Revenue includes revenues for the RPM business, which totaled approximately $2 million.

 

48				2022 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT