tti-defa14a_20180426.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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TETRA TECHNOLOGIES, INC.

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April 26, 2018

Dear Fellow Stockholders:

 

We seek your support at our 2018 annual meeting of stockholders and ask that you vote:

 

FOR Proposal 3, the approval, by non-binding vote, of our named executive officer compensation as disclosed in our Proxy Statement for the 2018 annual meeting of stockholders (the “Say-on-Pay Proposal”).

 

In its 2018 report, Institutional Shareholder Services Inc. (“ISS”) recommended that its clients vote against the Say-on-Pay Proposal.  The recommendations were primarily driven by a perceived “pay-for-performance misalignment.”  We respectfully disagree with ISS’s recommendation for the reasons presented herein.  As outlined in our Proxy Statement and this supplemental disclosure:

 

 

TETRA executives’ pay aligns with performance and business strategy;

 

TETRA financial results are strong compared to peers; and

 

Our Compensation Committee is responsive to best practices and stockholder input.

 

We value your support of TETRA and ask that you vote "FOR" the Say on Pay Proposal at our annual meeting.

 

 

Thomas R. Bates, Jr.,

Chairman of the Compensation Committee



EXECUTIVE SUMMARY

 

 

Pay for performance is integral to compensation philosophy at TETRA

 

Realized CEO pay in 2017 was half of target consistent with low Total Shareholder Return (“TSR”)

 

84% of target CEO pay is at risk

 

CEO pay ranks below midpoint of TETRA’s and ISS’ peers

 

Glass-Lewis supports Say on Pay proposal

 

Data shows TETRA’s performance exceeds CEO pay relative to TETRA’s and ISS’ peers

 

Industry downturn during 2014-2017 lead to low TSR

 

Significant accomplishments include:

 

Accretive acquisition in water management business (commenced in 2017 and completed in Q1 of 2018)

 

Sale of loss-generating TETRA Offshore Services division (commenced in 2017 and completed in Q2 of 2018)

 

Elimination of asset retirement obligations associated with Offshore Services (commenced in 2017 and completed in Q2 2018)

 

Strong balance sheet at TTI

 

Improved balance sheet at CCLP

 

Top quartile TSR relative to TETRA’s and ISS’ peers from 2015 to 2017

 

Top quartile EBITDA growth in 2017 relative to TETRA’s and ISS’ peers

 

Enhancement to top management team

 



FINANCIAL PERFORMANCE AND COMPENSATION PRACTICES

Compensation practices are aligned with business strategy

 

In 2015, when the long-term performance-based incentive cash awards were made, the energy industry was facing the worst downturn in history.  Oil prices fell from $115 to $26 a barrel.  Many of TETRA’s peer companies did not survive.

 

Important to TETRA’s economic health was the ability to generate cash.  The Compensation Committee (“Committee”) made Cumulative Free Cash Flow a metric for our long-term incentive (“LTI”) Cash awards (50% weight)  

 

The second metric was relative TSR (“RTSR”) (50% weight) gauging relative performance.  During the three year measurement period, many of our peers went bankrupt

 

Competitive equity grant structure including restricted share value was critical to navigating the downturn, ensuring key executives were extended material equity value to off-set lower overall pay

 

With wage reductions of approximately 20% and curtailment of certain benefits to preserve cash, time-based restricted share grants were used to drive retention value consistent with industry practice

 

NEOs have a large variable pay component of overall compensation

 

84% of CEO’s target total direct compensation is ‘at risk’

 

Structure of TETRA compensation plans is well aligned with energy peers

 

TETRA financial results are strong compared to peers

 

Strong post-downturn revenue growth trend

 

Top quartile EBITDA growth performance vs. TETRA and ISS peer groups

 

Attained 87.2% of 2017 Adjusted EBITDA target resulting in a bonus for all management employees

 

2015-2017 relative TSR at 79th percentile against TETRA peers and 66th percentile against ISS peers

 

TETRA remained free cash flow positive throughout downturn

 

Highest operating cash flow of ISS identified peers

 

 



REALTIVE DEGREE OF ALIGNMENT

 

CEO pay and TETRA TSR performance versus

ISS peer group indicates

performance significantly better than pay

for three

years ending in 2017

 

 

 

 

 

 

Note:  The chart above reflects an analysis by Pearl Meyer using the ISS reported peer group.

100%    TSR PERFORMANCE -percentile rank (3 year)   LOW  PAY  HIGH  PERFORMANCE  TTI  HIGH  PAY  LOW  PERFORMANCE    50%    0%    0%  50%  100%    CEO PAY percentile rank (3 year)    



TARGET VS. REALIZED COMPENSATION

2017 increase to CEO realized compensation driven by short-term incentive bonus payout resulting from strong Adjusted EBITDA performance and higher LTI Cash payout stemming from top quartile RTSR performance against TETRA peers.

 

 

$4,000    $3,000    $2,000    $1,000    StockOptionsRestrictedStockLong-termCashShort-termCashBaseSalaryTSR $120    $90    $60    $30    Total  Compensation  ($000)    Total  Shareholder  Return  (Indexed  to  $100)    $0  $0    Target  Realized  Target  Realized  Target  Realized  FY2015  FY2016  FY2017