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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 (Amendment No. )

Filed by the Registrant
o
Filed by a Party other than the Registrant
CHECK THE APPROPRIATE BOX:
o
Preliminary Proxy Statement
o
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Under Rule 14a-12


CDK Global, 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.
o
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
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Fee paid previously with preliminary materials:
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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.:
 
 
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4) Date Filed:

 

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NOTICE OF 2019 VIRTUAL ANNUAL MEETING OF STOCKHOLDERS




November 21, 2019
9:00 a.m. central time
www.virtualshareholdermeeting.com/ CDK2019

Notice is hereby given that the 2019 Virtual Annual Meeting of Stockholders of CDK Global, Inc. (the “Company,” “CDK Global,” “us,” “our” or “we”), will be held on November 21, 2019 at 9:00 a.m. central time at www.virtualshareholdermeeting.com/ CDK2019 (the “Annual Meeting”). This Annual Meeting will be a completely virtual, live, audio webcast meeting of stockholders. There will be no physical location for stockholders to attend.

The items of business are:

1. Election of nine nominees named in the proxy statement as directors, each for a term of one year;
2. An advisory vote to approve compensation of our named executive officers; and
3. Ratification of the appointment of our independent registered public accountants.

All stockholders of record of our common stock at the close of business on September 23, 2019, the record date, are entitled to notice of and to vote at the Annual Meeting and any adjournments thereof.

October 10, 2019
Hoffman Estates, Illinois


Lee J. Brunz
Executive Vice President, General Counsel and Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIAL FOR THE ANNUAL MEETING

SEC rules permit companies to furnish proxy materials to their stockholders over the internet. This expedites stockholders’ receipt of proxy materials, lowers annual meeting costs and conserves natural resources. We are therefore mailing stockholders a Notice of Internet Availability of Proxy Materials, rather than a paper copy of the proxy statement and our Annual Report on Form 10-K. The Notice of Internet Availability of Proxy Materials contains instructions on how to access our proxy materials online, vote and (if desired) obtain a paper copy of our proxy materials. This Notice of Internet Availability of Proxy Materials will first be mailed to stockholders on or about October 10, 2019.

YOUR VOTE IS IMPORTANT

Your vote is important, and we urge you to vote as promptly as possible by using the internet, by telephone, or by signing, dating and returning the proxy card mailed to you if you received a paper copy of this proxy statement.

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VOTING MATTERS

Stockholders are being asked to vote on the following matters at the Annual Meeting:

Management Proposal:
For More Information
Board
Recommendation
Vote
Required for
Approval
Effect of
Abstentions
Effect of
Broker
Non-Votes
1. Election of nine nominees named in the proxy statement as directors, each for a term of one year
Page 5
✔ FOR each director nominee
Majority of votes cast
None
None
2. An advisory vote to approve compensation of named executive officers
Page 23
✔ FOR
Majority of shares present and entitled to vote
Against
None
3. Ratification of the appointment of our independent registered public accountants
Page 58
✔ FOR
Majority of shares present and entitled to vote
Against
None

You may cast your vote in any of the following ways:




Internet
Phone
Mail
Visit www.ProxyVote.com. You will need the 16-digit number included in your proxy card, voter instruction form or notice.
Call 1-800-690-6903 or the number on your voter instruction form. You will need the 16-digit number included in your proxy card, voter instruction form or notice.
Send your completed and signed proxy card or voter instruction form to the address on your proxy card or voter instruction form.

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PROPOSAL 1: ELECTION OF DIRECTORS

Upon the recommendation of the nominating and governance committee, the CDK Global Board of Directors (the “Board”) has nominated nine directors for election at the Annual Meeting. Each nominee is currently serving as one of our directors. If you re-elect them, they will hold office until our next annual meeting of stockholders or until their successors have been elected and qualified. If any of the nominees should for any reason be unable or unwilling to serve as of the Annual Meeting, the Board may designate a substitute nominee or reduce the size of the Board. If the Board designates a substitute nominee, the proxies will be voted for the election of such other person.

The nominating and governance committee and the Board look for current and potential directors collectively to have a mix of skills, experience, qualifications, and attributes that strike the right balance between long-term understanding of our business and fresh external perspectives, and that ensure we have a well-rounded, diverse Board that functions effectively as a unit. Recognizing that the selection of qualified directors is complex and crucial to our long-term success, the Board and the nominating and governance committee have established the Board composition and refreshment processes as described beginning on page 11 of this proxy statement.

All nine of our nominees are seasoned leaders, the majority of whom are or were chief executive officers or other senior executives. Collectively, they bring to the Board a balanced mix of skills, experience, and qualifications gained during their tenure at a wide array of public companies, private companies, non-profits, and other organizations. The following graphics summarize the average age, independence, and demographic diversity of the nominees, and highlight the balanced mix of skills, experience, and qualifications of the Board as a whole. This high-level summary is not intended to be an exhaustive list of the nominees’ collective skills, experience, and qualifications, or their contributions to the Board. On the following pages we have indicated for each nominee certain of the specific skills, experience, and qualifications that led the nominating and governance committee and the Board to conclude that the nominee should continue to serve as a director.


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DIRECTOR NOMINEES

The Board and the nominating and governance committee believe that the following director nominees possess the necessary skills, experience, qualifications, and attributes to provide effective oversight of the business and quality advice and counsel to our management to ensure accountability to our stockholders:

Director
Age
Director
Since
Primary Occupation
Other
Public
Boards
         Committee(s)
 
 
 
 
 
AC
CC
NGC
Leslie A. Brun, (Chairman)
67
2014
Chairman and Chief Executive Officer of SARR Group, LLC
3
 
 
 
Willie A. Deese
64
2014
Retired Executive Vice President of Merck & Co., Inc.
3
 
Chair
 
Amy J. Hillman
54
2014
Dean of the W. P. Carey School of Business at Arizona State University
 
 
 
Chair
Brian M. Krzanich
59
2018
President and Chief Executive Officer
1
 
 
 
Stephen A. Miles
51
2014
Chief Executive Officer of The Miles Group
 
 
 
Member
Robert E. Radway
59
2014
Founder, Chairman and Chief Executive Officer of NXT Capital
 
Member
Member
 
Stephen F. Schuckenbrock
59
2016
Former Chief Executive Officer of CROSSMARK
 
Member
 
 
Frank S. Sowinski
63
2014
Former Chief Financial Officer of Dun & Bradstreet
1
Chair
 
Member
Eileen J. Voynick
65
2016
Former Chief Executive Officer of Sparta Systems
 
 
Member
 

The following pages present information regarding each director nominee, including information about each nominee’s professional experience, areas of expertise, background, and qualifications that led the Board to nominate him or her for election. The following also includes information about all public company directorships each nominee currently holds.

The Board recommends that you vote FOR the election of the following nominees:

   

   


Leslie A. Brun
Chairman and Chief Executive Officer of SARR Group, LLC
   
 
Age 67
Independent Chairman of the Board
  
  
 
Director Since
September 2014
   
 
Board Committees 
None
  
  
Other Public Boards

   


Broadridge Financial Solutions, Inc. (Chair)
Corning, Inc.
Merck & Co., Inc.
   
Director Qualification Highlights
CEO Experience
Capital Markets
Investor Relations
Enterprise Risk Management
   
BIOGRAPHY
   
Mr. Brun has been the Chairman and Chief Executive Officer of SARR Group, LLC, an investment holding company, since 2006. He is Vice Chairman and Senior Advisor of G100 Companies and a member of the Council on Foreign Relations. In addition, he was formerly Managing Director and head of investor relations at CCMP Capital Advisors, LLC, a global private equity firm. He is also the founder and Chairman Emeritus of Hamilton Lane Advisors, a provider of asset management services for which he served as Chief Executive Officer and Chairman from 1991 until 2005. From 1988 to 1991, he was Managing Director and co-founder of the investment banking group of Fidelity Bank in Philadelphia. Mr. Brun has served as a director of Broadridge Financial Solutions, Inc. (“Broadridge”), an investor communications and business process outsourcing provider, since 2007 and as Broadridge’s Chairman of the Board since 2011. He has served as a director of Merck & Co., Inc. (“Merck”), a health care company, since 2009 and lead director

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since 2016, and as a director of Corning, Inc., a materials and technology company, since July 2018. He served as a director of Hewlett Packard Enterprise Company, a technology solutions provider, from 2015 to 2018, and as a director of Automatic Data Processing, Inc. (“ADP”) from 2003 to 2015 and as ADP’s Chairman of the Board from 2007 to 2015. Mr. Brun’s investment banking and leadership experience provide him with extensive financial and management expertise, and his directorships at other public companies have given him broad experience with governance and other issues facing public companies.

Willie A. Deese
Retired Executive Vice President of Merck & Co., Inc.
   
 
Age 64
Independent Director
   
 
Director Since
September 2014
   
 
Board Committees 
Compensation (Chair)
  
  
Other Public Boards

   


Dentsply Sirona Inc.
Public Service Enterprise Group, Inc.

G1 Therapeutics, Inc.
   
Director Qualification Highlights
Operations / BPI / BPO
Strategy
Enterprise Risk Management
   
BIOGRAPHY
   
Mr. Deese has served as an independent director of Dentsply Sirona, a leading manufacturer and distributor of dental and other consumable healthcare products, since 2011, Public Service Enterprise Group, a diversified energy company, since 2015, and G1 Therapeutics, a clinical-stage biopharmaceutical company, since 2018. Mr. Deese served as an Executive Vice President of Merck from 2008 to 2016 and as President of the Merck Manufacturing Division from 2005 to 2016. Mr. Deese also served as Merck’s Senior Vice President of Global Procurement from 2004 to 2005. Prior to joining Merck, Mr. Deese served as Senior Vice President of Global Procurement and Logistics at GlaxoSmithKline and as Vice President of Purchasing, at Kaiser Permanente. In addition to his experience as a director of publicly traded companies, Mr. Deese brings to the Board substantial experience and expertise in both business transformation and strategic oversight and management of complex global operations from his roles at Merck and GlaxoSmithKline.

   


Amy J. Hillman
Dean of the W. P. Carey School of Business at Arizona State University
   
 
Age 54
Independent Director
   
 
Director Since
September 2014
   
 
Board Committees 
Nominating and Governance (Chair)
   
 
 
Other Public Boards

   


None
   
Director Qualification Highlights
Strategy
Operations/BPI/BPO
Investor Relations
   
   
   
BIOGRAPHY
   
Since 2013, Dr. Hillman has served as the Dean of the W. P. Carey School of Business at Arizona State University, where she has taught as a Professor since 2006 and as an Associate Professor from 2001 to 2006. She holds a PhD in Strategic Management and is a fellow of the Academy of Management. Dr. Hillman also serves on the non-profit boards of The Association to Advance Collegiate Schools of Business and the ASU Research Park. In addition to her management skills gained as the leader of one of the largest U.S. business schools, Dr. Hillman brings to the Board expertise in the areas of business strategy and corporate governance, on which she has taught, consulted with major corporations, and conducted research.

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Brian M. Krzanich
President and Chief Executive Officer
   
 
Age 59
Director
   
 
Director Since
November 2018
   
 
Board Committees
None
   
 
 
Other Public Boards

   



   
ams AG
   
Director Qualification Highlights
CEO Experience
Technology/Technologist
Strategy
Investor Relations
Operations / BPI / BPO
BIOGRAPHY
   
Mr. Krzanich has served as our President and Chief Executive Officer and as a member of our Board of Directors since November 7, 2018. Mr. Krzanich served as the Chief Executive Officer of Intel Corporation from 2013 to June 2018. As Chief Executive Officer, he led Intel’s corporate strategy and operations, including development of Intel’s business model and identification of emerging technologies. Mr. Krzanich joined Intel in 1982, became a corporate Vice President in 2006, and served until 2010 as Vice President and General Manager of Assembly and Test. He was Senior Vice President and General Manager of Manufacturing and Supply Chain from 2010 to 2012. He became Executive Vice President and Chief Operating Officer in 2012, responsible for global manufacturing, supply chain, human resources, and information technology. Mr. Krzanich has served as a member of the supervisory board of ams AG, a designer and manufacturer of advanced sensor solutions, since June 2019 and previously served on the board of directors of Deere & Company from 2016 to April 2018. Mr. Krzanich brings to the Board significant senior leadership, operations, technology, and global strategic experience from his more than 36 years of service with Intel.

Stephen A. Miles
Founder and Chief Executive Officer of The Miles Group
   
 
Age 51
Independent Director
   
 
Director Since
September 2014
   
 
Board Committees  
Nominating and Governance
   
 
 
Other Public Boards

   


None
   
Director Qualification Highlights
CEO Experience
CEO Succession
Strategy
   
   
   
BIOGRAPHY
   
Mr. Miles has served as the founder and Chief Executive Officer of The Miles Group, a provider of global chief executive officer and board consulting and advisory services (focused on the topics of succession, board and organizational effectiveness, and talent management), since 2012. Previously, Mr. Miles served as Vice Chairman, Leadership Advisory at Heidrick & Struggles, a global executive search and executive leadership consulting firm from 2010 to 2012 and as Managing Partner and Head, Leadership Advisory for Heidrick & Struggles from 2005 to 2010, where he was responsible for managing its global Leadership Advisory Services business. Mr. Miles specializes in chief executive officer succession and brings to the Board substantial expertise in leadership selection, succession planning and organizational effectiveness from his roles at Heidrick & Struggles and The Miles Group.

   

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Robert E. Radway
Founder; Chairman and Chief Executive Officer of NXT Capital
   
 
Age 59
Independent Director
   
 
Director Since
September 2014
   
 
Board Committees 
Audit, Compensation
   
 
 
Other Public Boards

   



   
None
   
Director Qualification Highlights
CEO Experience
Capital Markets
Strategy
BIOGRAPHY
   
Mr. Radway has served as Founder, Chairman and Chief Executive Officer of NXT Capital, a middle-market lender and asset manager with approximately $10 billion in assets under management since 2010. In August 2018, NXT Capital was acquired by ORIX Corporation USA, a wholly owned subsidiary of ORIX Corporation, a publicly traded, diversified financial services company headquartered in Tokyo, Japan. From 2001 to 2008, Mr. Radway served as Managing Director and President of Merrill Lynch Capital, the commercial finance unit of Merrill Lynch Bank USA that, prior to its sale in 2008, had owned and managed assets in excess of $30 billion and approximately 550 employees. Prior to his service with Merrill Lynch Capital, Mr. Radway held senior positions with Heller Financial, Inc., including Executive Vice President of Corporate Strategy and Development responsible for the company’s strategic planning, business development, and M&A worldwide. Mr. Radway’s roles as the chief executive of NXT Capital and as president of Merrill Lynch Capital have provided him with extensive executive management, operational, and business strategy experience. He brings to the board the ability to analyze and oversee financial reporting and performance, as well as expertise in capital markets and financing initiatives, corporate strategy, and human resource development and retention.

Stephen F. Schuckenbrock
Former Chief Executive Officer of CROSSMARK Inc.
   
 
Age 59
Independent Director
   
 
Director Since
September 2016
   
 
Board Committees
Audit
   
 
 
Other Public Boards
   

   



   
None
   
Director Qualification Highlights
Digital Marketing
Technology / Technologist
Strategy
CEO Experience
BIOGRAPHY
   
Mr. Schuckenbrock served as the Chief Executive Officer of CROSSMARK Inc., a leading provider of sales, marketing and merchandising services for manufacturers and retailers, from December 2014 to August 2019. Prior to joining CROSSMARK, he was the Chief Executive Officer of Accretive Health, and prior to that held numerous leadership positions at Dell. His career also includes management positions at EDS, IBM, PepsiCo and Frito Lay. He served as a director of Micro Focus International from February 2016 to May 2017, and has served on a number of boards, including Compuware, Staples, and AT Kearney. Mr. Schuckenbrock also serves on the advisory boards of Texas Christian University and Enactus, an international non-profit that inspires students to improve the world through entrepreneurial action. As a result of his executive positions at CROSSMARK and other technology organizations, as well as his significant board experience, Mr. Schuckenbrock provides the Board with extensive and relevant board, executive leadership, sales and marketing, and technology industry experience.

   

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Frank S. Sowinski
Former Chief Financial Officer of Dun & Bradstreet
   
 
Age 63
Independent Director
   
 
Director Since
September 2014
   
 
Board Committees  
Audit (Chair)
   
 
 
Other Public Boards

   



   
Buckeye GP LLC, general partner of Buckeye Partners, L.P.
   
Director Qualification Highlights
Digital Marketing
Technology / Technologist
Strategy
Enterprise Risk Management
BIOGRAPHY
   
Mr. Sowinski serves as the lead independent director, and as a member of the nominating and corporate governance and audit committees of Buckeye GP LLC, general partner of Buckeye Partners, L.P., a publicly-traded master limited partnership that provides mid-stream energy logistics services. Since 2006, Mr. Sowinski has served as an operating executive for MidOcean Partners, a private equity firm that identifies, invests in, and manages portfolio companies focusing on business, information, and marketing services. In his capacity as an operating executive for MidOcean Partners, Mr. Sowinski previously served as Vice Chairman of The Allant Group, Inc. a marketing services group, and also previously served as Vice Chairman of Pre-Paid Legal Services, Inc. dba LegalShield, a specialized legal service products company. In 2002, he served as Chief Financial Officer of PricewaterhouseCoopers Consulting, a global consulting firm. Previously, Mr. Sowinski spent 17 years with the Dun & Bradstreet Corporation, where he served in numerous positions including Chief Financial Officer of the Dun & Bradstreet Corporation, as well as Executive Vice President of Global Marketing and President of the D&B Operating Company. Mr. Sowinski’s numerous operating roles have provided him with broad managerial and operational expertise. In addition, his extensive experience in financial management, including his roles as Chief Financial Officer of the Dun & Bradstreet Corporation and PricewaterhouseCoopers Consulting, provide him with expertise in enterprise risk management, corporate financial management, and financial reporting.

Eileen J. Voynick 
Former Chief Executive Officer of Sparta Systems
   
 
Age 65
Independent Director
   
 
Director Since
September 2016
   
 
Board Committees
Compensation
   
 
 
Other Public Boards

   


None
   
Director Qualification Highlights
Technology / Technologist
Strategy
CEO Experience
Enterprise Risk Management
   
   
BIOGRAPHY
   
Ms. Voynick served as Chief Executive Officer of Sparta Systems, a leading provider of enterprise-quality management software solutions, from 2011 to 2018. Prior to joining Sparta Systems, she served as the Chief Operating Officer at Allscripts. Before Allscripts, she served as Executive Vice President of global sales, services, and support at Misys and served in various management positions at Oracle, SAP, Siebel Systems, Gartner, Ariba and Accenture. She served as a director at AdvancedMD from 2016 to 2018, and has served as the Chair of the Board of Trustees at Philadelphia University since 2013. She has also served as a member of the Board of Trustees and Executive Committee of Jefferson Health since 2017, and as the Chair of the Board of Trustees of Thomas Jefferson University since 2017. As a result of her executive experience with Sparta Systems, as well as her positions as a senior executive at other technology and consulting organizations, Ms. Voynick provides the Board with extensive and relevant executive leadership, software, sales and service, and technology industry experience.

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MAJORITY VOTING STANDARD

Our by-laws provide that directors are elected by a majority of votes cast unless the number of nominees exceeds the number of directors to be elected, in which case directors are elected by a plurality of votes cast. A majority of votes cast means that the number of shares voted “for” a director exceeds the number of votes cast “against” the director; abstentions are not counted either “for” or “against.” If an incumbent director in an uncontested election fails to receive a majority of votes cast for his or her election, the director is required to offer to tender his or her resignation to the Board for consideration by the nominating and governance committee. The nominating and governance committee will make a recommendation to the Board as to whether to accept or reject the resignation or to take other action. The Board is required to review and act on this recommendation within 90 days of the date of the certification of election results.

BOARD COMPOSITION AND REFRESHMENT

DIRECTOR SELECTION AND BOARD MEMBERSHIP CRITERIA

Recognizing that the selection of qualified directors is complex and crucial to our long-term success, the nominating and governance committee has established director selection and membership criteria for membership on the Board. When considering current directors for re-nomination to the Board, the nominating and governance committee assesses changes to any director’s skills, experience, qualifications, and attributes, including their independence, and takes into account the performance of each director, which is part of the committee’s annual Board evaluation process. The nominating and governance committee then recommends actions for the Board to consider and adopt as it sees fit.

The nominating and governance committee has not established specific minimum age, education, skill, experience, qualification, or attribute requirements for potential members. Instead, the nominating and governance committee reviews the composition of the Board in light of the Company’s current challenges and needs and the current challenges and needs of the Board. Based on this review, the Board then determines whether it may be appropriate to add or remove individuals after considering, among other things, the need for audit committee expertise and issues of independence, viewpoint and demographic diversity, judgment, character, reputation, age, skills, education, training, background, and experience. All potential candidates should also possess the following personal characteristics: (i) business community respect for his or her integrity, ethics, principles, insights, and analytical ability; and (ii) ability and initiative to frame insightful questions, speak out, and challenge questionable assumptions and disagree without being disagreeable. The nominating and governance committee values viewpoint and demographic diversity as a factor in selecting nominees to serve on the Board and considers the criteria noted above in selecting nominees for directors, including members with diverse demographic attributes, and members from diverse backgrounds who combine a broad spectrum of experience and expertise. The nominating and governance committee believes that the Board, as currently constituted, is well-balanced and that it fully and effectively addresses our needs.

Nominations of candidates for the Board by our stockholders for consideration at our 2019 Annual Meeting of Stockholders are subject to the deadlines and other requirements described beginning on page 61 of this proxy statement.

BOARD AND COMMITTEE SELF-ASSESSMENTS

The nominating and governance committee oversees an annual self-assessment process, whereby each director is surveyed to obtain his or her evaluation of the Board as a whole and the committees on which he or she serves. The surveys solicit ideas from the directors about, among other things, improving quality of Board and committee discussions on key matters, and identifying specific issues which should be discussed in the future. After these evaluations are complete, our general counsel summarizes the results, provides a preview for the Chairman of the Board and the Chair of each committee and then submits the summaries for discussion by the nominating and governance committee. If necessary, action plans are developed by the nominating and governance committee and recommended for discussion by the full Board.

In addition, as part of the annual self-assessment process, the nominating and governance committee facilitates structural sessions in which directors are encouraged to provide feedback on the performance of their peers. The Chairman of the Board and/or the Chair of the nominating and governance committee communicate relevant feedback to each director and take further action as they deem appropriate.

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DIRECTOR ORIENTATION AND CONTINUING EDUCATION

The nominating and governance committee oversees our orientation programs for new directors and continuing education programs for directors.

Each new director, after joining the Board, is provided with orientation regarding the Board and the Company’s operations. As part of this orientation, each new director has an opportunity to meet with members of our senior management team.

Directors are also provided with continuing education on various subjects that will assist them in discharging their duties. Such continuing education may include presentations by our management, the Board’s outside advisors or other third party experts on our business, information security and system disruption, compliance efforts, applicable legal, regulatory or other developments or other matters as the Board, or the nominating and governance committee in its oversight of the Board’s continuing education program, may deem appropriate.

BOARD AND COMMITTEE GOVERNANCE

We have robust policies and procedures for our directors and management and our commitment to good corporate governance is integral to our business. Our key governance practices are described below.

BEST PRACTICES

Board Practices

8 of 9 director nominees are independent
Diverse Board in terms of gender, ethnicity, experience, skills and tenure (44% of directors are women or ethnically diverse)
Careful director nominee evaluation and selection process
Robust director orientation and ongoing director education programs
Annual election of directors with majority voting standard and director resignation policy for uncontested elections
Annual Board, committee and director evaluations
Independent non-executive Chairman of the Board with expansive duties
Limit on outside directorships
Fully independent audit, compensation, and nominating and governance committees
Regular executive sessions of independent directors
Comprehensive Board and committee oversight of the Company’s strategy and risk management
Stock ownership requirements for directors

Stockholder Matters

Active stockholder engagement
One class of shares with each share entitled to one vote
Annual say-on-pay advisory vote
Proxy access right for stockholders (3% ownership threshold held continuously for 3 years / 2 director nominees or 20% of the Board / 20 stockholder aggregation limit)

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Other Best Practices

Stock ownership guidelines for executive officers
Anti-hedging, anti-short sale and anti-pledging policies
Clawback policy for equity and cash incentive compensation applicable to all employees
Code of Business Conduct and Ethics applicable to all employees and directors with annual acknowledgment by employees and compliance certification for directors

THE BOARD’S ROLE IN STRATEGY OVERSIGHT

A key component of the Board’s role is to provide guidance on and oversight of the Company’s strategy. In connection with these responsibilities, the Board has an obligation to keep informed about the Company’s business and strategies. This involvement enables the Board to provide guidance to management in formulating and developing plans and to exercise independently the Board’s decision-making authority on matters of importance to the Company. Acting as a full Board and through the Board’s three standing committees, the Board is directly involved in the Company’s strategic planning process.

Each year senior management convenes to review and refine the Company’s overall corporate strategy. Strategic areas of importance and specific operating priorities are identified, which, in turn inform the Company’s long-range planning. Some of the priorities will be short-term in focus; others will be based on longer time horizons. Senior management then reviews the conclusions reached with the Board at one or more meetings. These meetings involve both management presentations and input from the Board regarding the assumptions, priorities and strategies that form the basis for management’s operating plans.

At subsequent Board meetings, the Board continues to review the Company’s progress against its strategic priorities and to exercise oversight and decision-making authority regarding strategic areas of importance and associated authorizations. For example, in the summer, the Board typically reviews the Company’s overall annual performance and considers the operating budget and capital plan for the coming fiscal year. In this time period, the Board also usually finalizes specific criteria against which the Company’s performance will be evaluated. In addition, Board meetings held throughout the year target areas of the business for extended, focused Board input and discussion. These time frames are flexible, however, and the Board adjusts its meeting agendas and plans to reflect business priorities and developments.

The oversight and input provided is integral to the development and review of the Company’s strategy and operating plans. Through this rigorous and interactive process, the Board encourages the long-term success of the Company by exercising sound and independent business judgment on the strategic issues that are important to the Company’s business.

THE BOARD’S ROLE IN RISK OVERSIGHT

The Board provides oversight with respect to our enterprise risk assessment and risk management activities that are designed to identify, prioritize, assess, monitor, and mitigate the various risks we confront, including risks that are related to the execution of our operational and financial strategy, risks related to information security and system disruption, and other inherent and exogenous risks to our business, operations or prospects. The Board performs this oversight function periodically as part of its meetings and also through its three committees, each of which examines various components of enterprise risk as part of its assigned responsibilities. The committees report on risk oversight matters directly to the Board on a regular basis. Management is responsible for establishing and supervising day-to-day risk management processes and reporting to the Board and its committees as necessary.

The compensation committee oversees risks related to compensation matters. The nominating and governance committee oversees risks associated with Board structure and other governance policies and practices. The audit committee focuses on financial risks, including reviewing with management, our internal auditors, and our independent auditor our major financial risk exposures, the adequacy and effectiveness of internal control over financial reporting, and the steps management has taken to monitor and control financial risk exposures. In addition, the audit committee reviews risks related to our financial reporting, and compliance with other applicable laws, regulations, and ethical standards. The audit committee regularly receives, reviews, and discusses with management presentations and analyses on various risks we confront.

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BOARD LEADERSHIP STRUCTURE

Our corporate governance principles do not require the separation of the roles of Chairman of the Board and Chief Executive Officer because the Board believes that effective board leadership can depend on the skills and experience of, and personal interaction between, people in leadership roles. The Board is currently led by Mr. Brun, our independent non-executive Chairman of the Board. Mr. Krzanich, our President and Chief Executive Officer, serves as a member of the Board. The Board believes this leadership structure is in the best interests of our stockholders at this time. While this structure is not required, we believe that separating these positions allows our Chief Executive Officer to focus on developing and implementing our business plans and supervising our day-to-day business operations, and allows our Chairman of the Board to lead the Board in its oversight, advisory, and risk management roles.

BOARD INDEPENDENCE

The Board is currently composed of eight non-employee directors and one employee director. The Board has established that nine directors will be the number that will constitute the full Board at the time of the Annual Meeting. Under our Corporate Governance Guidelines and the NASDAQ Stock Market (“NASDAQ”) listing standards, at least a majority of our Board must be independent. The Board’s standards of director independence are consistent with the NASDAQ listing standards. Directors meeting these standards are considered to be “independent.” The Board has affirmatively determined that all directors other than Mr. Krzanich meet these standards and are, therefore, considered to be independent directors. Mr. Krzanich does not meet these standards and is, therefore, not considered to be an independent director. Based on these standards, all current members of the audit, compensation, and nominating and governance committees are independent.

CORPORATE GOVERNANCE GUIDELINES AND COMMITTEE CHARTERS

The Board has adopted Corporate Governance Guidelines. These guidelines address items such as the standards, qualifications, and responsibilities of our directors and director candidates and corporate governance policies and standards applicable to us in general. The guidelines are subject to periodic review by the Board and to modification from time to time by the Board. The guidelines together with the charters of each of the Board’s audit, compensation, and nominating and governance committees are available under “Corporate Governance” in the “Investor Relations” section of our website at cdkglobal.com.

BOARD COMMITTEES

The Board has three standing committees: audit, compensation, and nominating and governance. The table below indicates the members of each Board committee.

 
Audit
Compensation
Nominating and Governance
Willie A. Deese
 
 
Amy J. Hillman
 
 
Stephen A. Miles
 
 
Robert E. Radway
E
 
Stephen F. Schuckenbrock
 
 
Frank S. Sowinski
E
 
Eileen J. Voynick
 
 

= Committee Chair

E = Financial Expert

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AUDIT COMMITTEE
PRINCIPAL FUNCTIONS
   
 
 
Met nine times in fiscal 2019
Current Committee Members
Frank S. Sowinski (Chair)
Robert E. Radway
Stephen F. Schuckenbrock
Oversee our accounting and financial reporting processes and related internal controls, the audit of our financial statements, and other matters as mandated under applicable laws, rules, and regulations;
Appoint, compensate, retain, and oversee the work of our independent auditor (including resolution of disagreements between management and our independent auditor regarding financial reporting), including for the purpose of preparing its audit report;
Review in advance and pre-approve all audit or non-audit services to be provided by our independent auditor, as permitted by Section 10A of the Exchange Act, and to approve all related fees and other terms of engagement;
Review disclosures required to be included in our periodic reports filed under the Exchange Act;
Review the performance of the internal auditors and our independent auditor, including the lead audit partner, on at least an annual basis;
Review and advise on the appointment, replacement, or dismissal of our Chief Audit Executive; and
Review, approve or ratify related persons transactions pursuant to our Related Persons Transactions Policy.
 
FINANCIAL EXPERTISE AND INDEPENDENCE
 
The Board has determined that all of the members of our audit committee satisfy the independence, financial sophistication, experience, and expertise requirements of our Corporate Governance Guidelines, Section 10A-3 of the Exchange Act, the applicable NASDAQ listing standards, and all other applicable regulatory requirements currently in effect.
 
The Board has also determined that Mr. Sowinski and Mr. Radway each qualify as an “audit committee financial expert” as such term is defined under the rules and regulations of the SEC.
 
REPORT
 
The audit committee report is set forth beginning on page 59 of this proxy statement.
   

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COMPENSATION COMMITTEE
PRINCIPAL FUNCTIONS
 
 
Met six times in fiscal 2019
Current Committee Members
Willie A. Deese (Chair)
Robert E. Radway
Eileen J. Voynick
Evaluate our Chief Executive Officer’s performance and set the Chief Executive Officer’s compensation based on such evaluation;
Evaluate our other executive officers’ performance and set their compensation based on such evaluations;
Review and approve the performance targets for the Company’s performance-based cash and equity incentive plans; and
Review and evaluate our compensation plans, policies, and programs for our executive officers.
INDEPENDENCE
The members of our compensation committee all satisfy the independence requirements of our Corporate Governance Guidelines, the applicable NASDAQ listing standards and all other applicable regulatory requirements currently in effect.
REPORT
The compensation committee report is set forth on page 43 of this proxy statement
   

COMPENSATION ADVISOR

The compensation committee has engaged Frederic W. Cook & Co., Inc. (“FW Cook”) as its independent external advisor. The compensation committee reviewed its relationship with FW Cook, considered FW Cook’s independence and the existence of potential conflicts of interest, and determined that the work of FW Cook did not raise any conflicts of interest in the fiscal year ended June 30, 2019 (“fiscal 2019”). In making this assessment, the compensation committee considered various factors, including the independence factors enumerated in the compensation committee’s charter, Rule 10C-1(b) under the Exchange Act, and applicable NASDAQ listing standards.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Willie Deese, Robert Radway, and Eileen Voynick served on the compensation committee for all of fiscal 2019. No member of the compensation committee is now, or was during fiscal 2019, an officer or employee of ours, and none of our executive officers serves, or served during fiscal 2019, as a director or member of a compensation committee of any entity that has one or more executive officers serving as a member of the Board or compensation committee. No member of the compensation committee had any relationship with us or any of our subsidiaries during fiscal 2019 pursuant to which disclosure would be required under our Related Persons Transactions Policy or applicable SEC rules pertaining to the disclosure of transactions with related persons.

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PROPOSAL 1: ELECTION OF DIRECTORS

   

NOMINATING AND GOVERNANCE COMMITTEE
PRINCIPAL FUNCTIONS
   
 
 
Met four times in fiscal 2019
Current Committee Members
Amy J. Hillman (Chair)
Stephen A. Miles
Frank S. Sowinski
Identify individuals qualified to become members of the Board;
Recommend to the Board director nominees;
Review director compensation and recommend director compensation level to the Board for approval;
Develop and recommend to the Board amendments to the Corporate Governance Guidelines;
Oversee the evaluation of the Board and its members; and
Develop and recommend to the Board succession plans for the Chief Executive Officer and other executive officers.
INDEPENDENCE
The members of our nominating and governance committee all satisfy the independence requirements of our Corporate Governance Guidelines, the applicable NASDAQ listing standards, and all other applicable regulatory requirements currently in effect.
   

BOARD AND COMMITTEE MEETING ATTENDANCE

During fiscal 2019, the Board held seven meetings, the audit committee held nine meetings, the compensation committee held six meetings, and the nominating and governance committees held four meetings. Overall attendance at such meetings was approximately 94%. All of our directors attended at least 75%, in the aggregate, of the meetings of the Board and the committees of which they were members during the periods that they served on the Board during fiscal 2019. It is also our policy that our directors attend the Annual Meeting. Last year all directors attended the 2018 Annual Meeting.

EXECUTIVE SESSIONS

Executive sessions of the non-management directors are held during each Board meeting and the majority of committee meetings. Mr. Brun, our independent non-executive Chairman of the Board, presides at each executive session of the Board.

OUTSIDE ADVISORS

The Board and each of its principal committees may retain independent legal, financial, or other advisors of their choosing at our expense. The Board need not obtain management’s consent to retain outside advisors. In addition, the three principal committees need not obtain either the Board’s or management’s consent to retain outside advisors.

STOCKHOLDER COMMUNICATIONS

Engagement and transparency with our stockholders provide us with useful feedback on a wide variety of topics, including governance, compensation, stockholder communication, Board composition, stockholder proposals, business performance, and operations. This information is shared regularly with our management and the Board and considered in the processes that set the governance practices and our strategic direction. We also use stockholder feedback to better tailor the public information we provide to address the interests and inquiries of our stockholders.

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PROPOSAL 1: ELECTION OF DIRECTORS

   

We interact and communicate with our stockholders through a number of forums, including quarterly earnings presentations, SEC filings, annual meetings, investor conferences, and web communications.

In addition, the Board has endorsed the Shareholder-Director Exchange (“SDX”) Protocol as a guide for effective, mutually beneficial engagement between our stockholders and directors. The Board believes that management should speak for the Company and that the Chairman of the Board should speak for the Board.

In order to provide our stockholders and other interested parties with a direct and open line of communication to the Board, we have adopted the following procedures for communications to directors. Stockholders and other interested persons may communicate with the Board by written communications addressed in care of Lee J. Brunz, our Secretary, at CDK Global, Inc., 1950 Hassell Road, Hoffman Estates, IL 60169.

All communications received in accordance with these procedures will be reviewed initially by our Secretary who will relay all such communications to the appropriate director or directors unless it is determined that the communication: (i) does not relate to our business or affairs or the functioning or constitution of the Board or any of its committees; (ii) relates to routine or insignificant matters that do not warrant the attention of the Board; (iii) is an advertisement or other commercial solicitation or communication; (iv) is frivolous or offensive; or (v) is otherwise not appropriate for delivery to directors.

The director or directors who receive any such communication will have discretion to determine whether the subject matter of the communication should be brought to the attention of the full Board or one or more of its committees and whether any response to the person sending the communication is appropriate. Any such response will be made only in accordance with applicable laws and regulations relating to the disclosure of information.

The Secretary will retain copies of all communications received pursuant to these procedures for a period of at least one year. The Board will review the effectiveness of these procedures from time to time and, if appropriate, recommend changes.

In addition, anyone who has a concern about the Company’s conduct or about the Company’s accounting, internal accounting controls or auditing matters may communicate those concerns directly to the audit committee. Such communications may be confidential or anonymous and may be submitted electronically, by phone or in writing to:

The Company’s Ethics Hotline by any method disclosed in the Company’s Code of Business Conduct and Ethics; or
The Legal Department at (847) 397-1700 (ask to speak to the general counsel or other attorney designated to handle ethics matters); or
The audit committee in writing to the attention of the Audit Committee of CDK Global, Inc., 1950 Hassell Road, Hoffman Estates, IL 60169.

CODE OF BUSINESS CONDUCT AND ETHICS

We have adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to our executive officers, directors, and employees, including our principal executive officer, principal financial officer, principal accounting officer, controller, and persons performing similar functions. The Code of Ethics may be viewed on our website at www.cdkglobal.com under “Corporate Governance” in the “Investor Relations” section. In the event we amend or waive any of the provisions of the Code of Ethics applicable to any of our directors, our principal executive officer, principal financial officer, principal accounting officer, controller, and persons performing similar functions that relates to any element of the definition of “code of ethics” enumerated in Item 406(b) of Regulation S-K under the Exchange Act, we intend to disclose these actions on our website within four business days following the date of the amendment or waiver. No such waivers were made during fiscal 2019.

Our credibility and reputation depend upon the good judgment, ethical standards, and personal integrity of each director, executive officer, and employee and we expect them to conduct themselves with the highest degree of integrity, ethics, and honesty. In order to better protect us and our stockholders, we regularly review our Code of Ethics and related policies to ensure that they provide clear guidance to our directors, executive officers, and employees.

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CORPORATE HOTLINE

We have established an independent CDK Global Ethics Hotline, utilizing a global internet and telephone information and reporting service, to allow any employee, director, or vendor to confidentially and anonymously: (i) ask questions about our Code of Ethics and other ethics and compliance issues; and (ii) submit a report or complaint about any potential accounting, internal control, auditing, Code of Ethics, or other violation or matter of concern (unless prohibited by local privacy laws in the jurisdiction of the reporting employee, in which case an alternate inquiry and reporting system has been implemented).

CERTAIN RELATIONSHIPS AND RELATED PERSONS TRANSACTIONS

We have adopted a written Related Persons Transactions Policy (the “policy”), which sets forth our policy with respect to the review, approval, ratification, and disclosure of all related person transactions by our audit committee. In accordance with the policy, our audit committee has overall responsibility for implementation of and compliance with the policy. A “related person” means a director, executive officer, or beneficial holder of more than 5% of our outstanding common stock, or any immediate family member of the foregoing, as well as any entity at which any such person is employed, is a partner or principal (or holds a similar position), or is a beneficial owner of a 10% or greater direct or indirect equity interest. Our directors and executive officers must inform our general counsel at the earliest practicable time of any plan to engage in a potential related persons transaction. For purposes of the policy, a “related persons transaction” is a transaction, arrangement, or relationship (or any series of similar transactions, arrangements or relationships) in which we were, are, or will be a participant and the amount involved exceeded, exceeds, or will exceed $120,000 and in which any related person (as defined in the policy) had, has, or will have a direct or indirect material interest. A “related persons transaction” does not include any employment relationship or transaction involving an executive officer and any related compensation resulting solely from that employment relationship that has been reviewed and approved by the Board, the compensation committee, or a group of independent directors performing a similar function. Further, we have determined that “related persons transactions” do not include transactions in which the related person’s interest derives solely from his or her service as a director of another entity that is a party to the transaction.

The policy requires that notice of a proposed related persons transaction be provided to our legal department prior to entry into such transaction. If our legal department determines that such transaction is a related persons transaction, the proposed transaction will be submitted to our audit committee for consideration at its next meeting or, in those instances in which the legal department, in consultation with the Chief Executive Officer or the Chief Financial Officer, determines that it is not practicable or desirable for us to wait until the next audit committee meeting, to the Chair of the audit committee. Under the policy, our audit committee or the Chair of the audit committee, as applicable, may approve only those related persons transactions that: (i) are in our best interests; or (ii) are not inconsistent with our best interests. In the event that we become aware of a related persons transaction that has not been previously reviewed, approved, or ratified under the policy and that is ongoing or is completed, the transaction will be submitted to the audit committee or Chair of the audit committee so that it may determine whether to ratify, rescind, or terminate the related persons transaction.

The policy also provides that the audit committee will review certain previously approved or ratified related persons transactions that are ongoing to determine whether the related persons transaction remains in our best interests and the best interests of our stockholders.

Additionally, we make periodic inquiries of directors and executive officers with respect to any potential related persons transaction of which they, or any of their immediate family members, may be a party or of which they may be aware.

RELATED PERSONS TRANSACTIONS

There were no related persons transactions during fiscal 2019.

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PROPOSAL 1: ELECTION OF DIRECTORS

   

COMPENSATION OF NON-EMPLOYEE DIRECTORS

The compensation program for non-employee directors is designed to: (i) fairly pay directors for the work required at a company of our size and scope; (ii) align directors’ interests with the long-term interests of our stockholders; and (iii) be simple, transparent, and easy for our stockholders to understand.

OVERVIEW

For the service year beginning immediately after the 2018 Annual Meeting, our non-employee directors received base annual compensation as shown in the table below. There are no additional meeting fees. The Chairman of the Board and the Chairperson of each Board committee receive additional compensation due to the workload and broad responsibilities of these positions.

All non-employee directors
$
280,000
 
Chairman of the Board*
$
150,000
 
Chair of the audit committee*
$
20,000
 
Chair of the compensation committee*
$
15,000
 
Chair of the nominating and governance committee*
$
10,000
 
* The Chairman’s retainer and each committee Chair retainer are paid in addition to the regular retainer amount for all non-employee directors.

FORM OF PAYMENT

Of the $280,000 retainer, $165,000 is paid in the form of restricted stock units (“RSUs”) and $115,000 may, at the election of each director, be paid in cash or in deferred stock units (“DSUs”). One-half of the additional $150,000 paid to the Chairman is paid in the form of mandatory DSUs and one-half may, at the election of the Chairman, be paid in cash or in DSUs. 100% of the committee Chair compensation is paid in cash or DSUs at the election of each committee Chair.

TIME OF PAYMENT

Equity awards, including mandatory and elective DSUs, are granted in full on or about the date of each annual meeting. Directors who elect to be paid in cash are paid the cash portion of their compensation quarterly in arrears beginning with the quarter following the effective date of appointment, and subsequently, beginning with the quarter following each annual meeting.

HOW NON-EMPLOYEE DIRECTOR RSUs WORK

The restricted period with respect to the RSUs lapses on the earlier of one year from the grant date and the date of our next annual meeting of stockholders. Upon the lapse of the restricted period, the RSUs either settle or convert to DSUs based on the prior election of each director. If converted to DSUs, when a dividend is paid on our common stock after the lapse of the restricted period, but prior to a director ceasing to serve on the Board, such director’s account is credited with a dividend equivalent in an amount equal to the cash dividend. When a director ceases to serve on the Board, such director will receive a number of shares of common stock equal to the number of converted DSUs in such director’s account and a cash payment equal to the dividend equivalents accrued, without interest. Non-employee directors do not have any voting rights with respect to their RSUs or the converted DSUs.

HOW NON-EMPLOYEE DIRECTOR DSUs WORK

DSUs are fully vested when credited to a director’s account. When a dividend is paid on our common stock, each director’s account is credited with a dividend equivalent in an amount equal to the cash dividend. When a director ceases to serve on the Board, such director will receive a number of shares of common stock equal to the number of DSUs in such director’s account and a cash payment equal to the dividend equivalents accrued, without interest. Non-employee directors do not have any voting rights with respect to their DSUs.

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PROPOSAL 1: ELECTION OF DIRECTORS

   

ONE-TIME RETAINER

During fiscal 2018, in support of the Board’s oversight responsibilities for the Company’s fiscal 2019 strategic plan, and at the request of the Chairman, Mr. Tarkoff provided supplemental strategic planning review and oversight duties for the Board. In recognition of the additional workload that he assumed, on August 7, 2018, the Board approved a $60,000 one-time supplemental non-elective cash retainer for Mr. Tarkoff.

CHANGES TO DIRECTOR COMPENSATION

The nominating and governance committee periodically reviews director compensation and recommends any changes to the Board for approval. Based on the recommendation of the nominating and governance committee, the Board last approved an adjustment to director compensation in connection with the 2017 review for the service year beginning immediately after the 2017 Annual Meeting. The approval superseded the prior adjustment made immediately after the 2015 Annual Meeting, and increased each non-employee director’s base annual compensation by $35,000, of which $20,000 is in the form of RSUs and $15,000 may be paid in cash or in DSUs at the election of the director, and increased the audit committee Chair retainer by $5,000 to $20,000.

STOCK OWNERSHIP REQUIREMENTS FOR NON-EMPLOYEE DIRECTORS

The stock ownership requirements set forth in the Corporate Governance Guidelines are intended to promote ownership in our stock by our non-employee directors and to align their financial interests more closely with those of our other stockholders. Each non-employee director is required to hold a minimum aggregate level of ownership of our common stock and DSUs while serving as a director, equal to five times the annual cash retainer payable to each director (excluding committee Chair retainers, but including the Chairman’s retainer, and calculated without regard to DSU elections). RSUs for which the restricted period has not lapsed do not count toward the ownership requirements. Directors will retain all shares of our common stock received pursuant to their service as a Board member until this minimum level is reached. Each director has five years from the date of his or her first election to the Board to attain this ownership threshold. In addition, non-employee directors are required to hold for at least one year the net shares obtained from exercising stock options after selling sufficient shares to cover the exercise price, taxes, and broker commissions. As of the end of fiscal 2019, the non-employee directors had satisfied, or progressed toward, the stock ownership guidelines as follows:


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PROPOSAL 1: ELECTION OF DIRECTORS

   

ANTI-HEDGING, ANTI-SHORT SALE, AND ANTI-PLEDGING POLICY

Our Insider Trading Policy prohibits directors, executive officers, and employees from purchasing any financial instrument that is designed to hedge or offset any decrease in the market value of our common stock. Our directors, executive officers, and employees are also prohibited from engaging in short sales related to our common stock. The policy also prohibits any pledging of our common stock, including holding common stock in a margin account.

DIRECTOR COMPENSATION TABLE FOR FISCAL 2019

The following table presents compensation for our non-employee directors for fiscal 2019.

Name
Fees Earned or
Paid in Cash1 ($)
Stock
Awards2 ($)
Total ($)
Leslie A. Brun
 
191,250
 
 
240,000
 
 
431,250
 
Willie A. Deese
 
131,250
 
 
165,000
 
 
296,250
 
Amy J. Hillman
 
62,500
 
 
165,000
 
 
227,500
 
Stephen A. Miles
 
116,250
 
 
165,000
 
 
281,250
 
Robert E. Radway
 
114,976
 
 
165,000
 
 
279,976
 
Stephen F. Schuckenbrock
 
114,962
 
 
165,000
 
 
279,962
 
Frank S. Sowinski
 
138,750
 
 
165,000
 
 
303,750
 
Robert M. Tarkoff3
 
65,029
 
 
 
 
65,029
 
Eileen J. Voynick
 
115,992
 
 
165,000
 
 
280,992
 

Footnotes:

1. The fees disclosed include all fees earned or paid in cash during fiscal 2019. For fiscal 2019, these fees comprised: (i) the quarterly Board, committee Chair and incremental Chairman of the Board retainer payments made in July and October of 2018, which represented the final two quarterly payments for the service year that began immediately after the 2017 Annual Meeting; (ii) the quarterly Board and committee retainer payments made in January and April of 2019, which represented the first two quarterly payments for the service year that began immediately after the 2018 Annual Meeting; (iii) the elective DSUs granted in full in November and December 2018 to each of the non-employee directors for the service year that began immediately after the 2018 Annual Meeting; and (iv) for Mr. Tarkoff: (a) the $60,000 one-time supplemental cash retainer payment; and (b) a $5,029 cash payment upon settlement of DSUs equal to his dividend equivalents accrued, without interest. For the service year that began immediately after the 2018 Annual Meeting, all of the non-employee directors elected to receive 100% of the elective portion of their retainers in cash except as follows: Mr. Radway (0% cash, 100% DSUs); Mr. Schuckenbrock (0% cash, 100% DSUs); and Ms. Voynick (80% cash, 20% DSUs).
2. The stock awards disclosed include the following stock awards granted during fiscal 2019: (i) RSUs granted in November 2018 to each of the non-employee directors for the service year that began immediately after the 2018 Annual Meeting; and (ii) mandatory DSUs granted in November 2018 to the Chairman of the Board for the service year that began immediately after the 2018 Annual Meeting. Stock award compensation amounts reflect the aggregate grant date fair value of the stock awards without regard to forfeitures, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”). This amount does not reflect the actual economic value realized by each non-employee director.

As of June 30, 2019, each then current non-employee director held 3,266 RSUs for which the restricted period had not lapsed.

As of June 30, 2019, each then current non-employee director held the following number of DSUs, exclusive of cash-settled dividend equivalents earned: Mr. Brun, 25,104; Mr. Deese, 16,141; Dr. Hillman, 23,276; Mr. Miles, 17,790; Mr. Radway, 18,715; Mr. Schuckenbrock, 9,044; Mr. Sowinski, 16,141; and Ms. Voynick 6,584.

As of June 30, 2019, each then current non-employee director held the following number of outstanding stock options: Mr. Brun, 15,384; Mr. Deese, 15,384; Dr. Hillman, 15,384; Mr. Miles, 0; Mr. Radway, 15,384; Mr. Schuckenbrock, 0; Mr. Sowinski, 15,384; and Ms. Voynick, 0.

3. Mr. Tarkoff resigned as a non-employee director on September 18, 2018.

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PROPOSAL 2: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

   

COMPENSATION OF NAMED EXECUTIVE OFFICERS

PROPOSAL 2: AN ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS

As discussed in the Compensation Discussion and Analysis (“CD&A”) section of this proxy statement, the Board believes that our long-term success depends in large measure on the talents and efforts of our employees. Our compensation system plays a significant role in our ability to attract, retain, and motivate the highest quality workforce. The principal underpinnings of our compensation system are an acute focus on performance, stockholder alignment, sensitivity to the relevant marketplace, and a long-term orientation.

In accordance with Section 14A of the Exchange Act, we are asking our stockholders to vote on an advisory basis, commonly referred to as “say on pay,” to approve the compensation paid to our Named Executive Officers (“NEOs”) as disclosed in the CD&A, the compensation tables and the related narrative disclosure contained in this proxy statement. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies, and practices described in this proxy statement.

This advisory proposal is not binding on the Board or us. Nevertheless, the views expressed by the stockholders, whether through this vote or otherwise, are important to management and the Board, and accordingly, the Board and the compensation committee intend to consider the results of this vote when making determinations in the future regarding NEO compensation arrangements.

Advisory approval of this proposal requires the vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting.

The Board recommends that you vote FOR the approval of the compensation of our NEOs because, as discussed in these disclosures, the Board believes that our compensation policies and decisions are effective in achieving our goals. Therefore, the Board recommends that our stockholders adopt the following resolution:
   
“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”

RESULTS OF 2018 STOCKHOLDER ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS

The compensation committee considers the outcome of prior stockholder advisory votes to approve compensation of our NEOs when making future decisions relating to the compensation of the executive officers identified in the CD&A and our executive compensation programs and policies.

At the 2018 Annual Meeting, stockholders expressed their support of our fiscal 2018 executive compensation programs with approximately 96% of the votes cast for approval of the “say on pay” proposal. The compensation committee believes that the voting results conveyed our stockholders’ support for the philosophy, strategy and objectives of our executive compensation programs.

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PROPOSAL 2: AN ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS

   

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis describes our compensation philosophy and summarizes the material components of our fiscal 2019 executive compensation program for our NEOs. Our NEOs for fiscal 2019 were:

Brian Krzanich, President, Chief Executive Officer and Director;
Joseph A. Tautges, Executive Vice President, Chief Financial Officer;
Mahesh Shah, Executive Vice President, Chief Product and Technology Officer;
Daniel P. Flynn, former Executive Vice President, Business Leader, Core DMS;
Lee J. Brunz, Executive Vice President, General Counsel and Secretary;
Brian P. MacDonald, former President and Chief Executive Officer; and
Ronald L. Frey, Jr., former Executive Vice President, Chief Strategy Officer.

Mr. Krzanich began service as our President and Chief Executive Officer on November 7, 2018, the date on which Brian MacDonald resigned as our President and Chief Executive Officer. Mr. MacDonald then served in a non-executive advisory role through his separation from the Company on June 30, 2019. Mr. Flynn resigned as our Executive Vice President, Business Leader, Core DMS and separated from the Company on September 20, 2019. His replacement has not been appointed as of October 10, 2019, the date that this proxy statement was filed with the SEC. Mr. Frey resigned as our Executive Vice President, Chief Strategy Officer, and the position was eliminated on May 1, 2019. Mr. Frey served in a non-executive advisory role through his separation from the Company on June 30, 2019.

EXECUTIVE SUMMARY

Overall Executive Compensation Philosophy

We believe that executive compensation should be designed to create a direct link between performance and stockholder value. To align the interests of our executives with those of our stockholders, the compensation committee has designed our executive compensation program with a substantial emphasis on variable compensation, which ties the earned compensation of our executives to the annual and long-term performance of the Company as measured by financial and strategic accomplishments as well as changes in stockholder value. The five principles that guide our decisions involving executive compensation within this program are that an executive’s compensation should be:

based on (i) our overall performance and (ii) the executive’s individual performance;
closely aligned with the short-term and long-term financial and strategic objectives that build sustainable long-term stockholder value;
competitive, in order to attract and retain executives critical to our long-term success;
consistent with high standards of corporate governance and best practices; and
designed so as not to encourage executives to take excessive risks or behave in ways that are inconsistent with our strategy or our high ethical standards.

Our compensation programs are designed so that target pay reflects the market for the executive’s skills and experience, and relative levels of responsibility among our key executives. In addition, the proportion of pay tied to operating performance and changes in stockholder value varies directly with executives’ levels of responsibility and accountability to stockholders. We assign all executives to pay grades by comparing their position-specific duties and responsibilities with market data and our internal management structure. Each pay grade has ranges for base salary, total annual cash compensation, and annual equity grants. Executives are positioned within these ranges based on a variety of factors, most notably their experience and skill set and their performance over time.

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PROPOSAL 2: AN ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS

   

We have designed our performance-based compensation so that actual, realized compensation will vary relative to the target award opportunity based on performance. As such, actual compensation amounts may vary above or below targeted levels depending on our overall performance and the achievement of individual performance goals. We have adopted this compensation design to provide meaningful incentives for our key executives to achieve superior results. We also believe that it is important for our executive officers and other senior executives to have an ongoing long-term investment in us as outlined in this proxy statement under “Stock Ownership Guidelines.”

Chief Executive Officer Transition

On November 7, 2018, we announced that effective with the filing of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, Mr. MacDonald would resign as President, Chief Executive Officer and director and Mr. Krzanich would assume the roles of President, Chief Executive Officer and director. Mr. MacDonald’s term of employment was scheduled to expire on January 1, 2019 under his employment agreement. On November 5, 2018, Mr. MacDonald and the Company entered into a Transition and Release Agreement (the “Transition Agreement”). Under the terms of the Transition Agreement Mr. MacDonald provided advisory services through June 30, 2019, and then began receiving the severance benefits to which he was entitled under the terms and conditions of his employment agreement. In light of the timing of his exit, Mr. MacDonald did not receive a fiscal 2019 long-term equity incentive compensation award.

The processes undertaken to foster a successful Chief Executive Officer transition were well executed and effective in helping the Company enhance its core automotive software competencies and position itself for future growth while providing for continuity that was integral to achieving strong financial and operational results in fiscal year 2019. See “Fiscal 2019 Results” below for a summary of our fiscal 2019 accomplishments.

Our New Chief Executive Officer’s Employment Agreement

Mr. Krzanich was selected as our next Chief Executive Officer by the Board following an extensive search conducted by the Board’s independent directors and led by the Chair of the nominating and governance committee together with the non-executive Chairman of the Board over a period of several months. Mr. Krzanich is a proven technology Chief Executive Officer with a track record of creating stockholder value who brings to the Company almost 40 years of executive management, technology and strategic leadership, and operational excellence. Importantly, the Board viewed Mr. Krzanich as having the potential to be a transformational leader equipped to drive top-line growth and help us take full advantage of our leadership position in a dynamic and rapidly evolving automotive technology market. Given his proven record of success in innovation and growth at a market-leading technology company, the Board determined that Mr. Krzanich was the right person to evolve and grow our business in the years ahead.

Recognizing that Mr. Krzanich’s unique experience made him a highly sought-after candidate by companies in many other industries, the compensation committee, in consultation with our independent compensation consultant, determined that it was necessary to provide a strongly market competitive compensation package that adequately motivated and incentivized Mr. Krzanich to choose employment with the Company, while simultaneously ensuring an appropriate and ongoing linkage between Mr. Krzanich’s compensation and the Company’s performance. Accordingly, the Company entered into an employment agreement with Mr. Krzanich dated November 5, 2018 that was designed to induce Mr. Krzanich to accept our offer to become President and Chief Executive Officer of the Company, to provide leadership stability to the Company by providing Mr. Krzanich with long-term incentives to remain as President and Chief Executive Officer for an extended period of time, and to align his interests with our stockholders’ interests by establishing that a substantial majority of his compensation will be performance-based.

The key compensation elements contained in Mr. Krzanich’s employment agreement are as follows:

an annual base salary of $1,000,000;
an annual target incentive cash bonus equal to 150% of his annual base salary;
an initial long-term equity incentive grant of: (i) performance stock units (“PSUs”) with a grant date fair value of $8,750,000; (ii) time-vesting stock options with a grant date fair value of $1,875,000; and (iii) performance-vesting stock options with a grant date fair value of $1,875,000; and
subsequent target long-term equity incentive compensation for fiscal 2020 having an aggregate grant date fair value of approximately $12,500,000. The mix of equity award instruments or value or equity participation in fiscal 2020 and thereafter are to be determined in the sole discretion of the Board.

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70% of Mr. Krzanich’s equity awards granted in fiscal 2019 were performance-based PSUs and more than 67% of his total compensation for fiscal 2019 was made up of his performance-based incentive cash bonus and PSUs. Mr. Krzanich will have similar target total direct compensation opportunities for the duration of his employment agreement. The long-term equity incentive grants were intended to encourage Mr. Krzanich to accept our offer of employment and create an immediate, performance-based tie to positive changes in stockholder value, thereby fostering commonality of interest between Mr. Krzanich and stockholders. The compensation committee’s independent compensation consultant and the search consultants retained to assist in identifying potential candidates advised the compensation committee that the value of these equity awards were reasonable in relation to typical market practice for an executive of Mr. Krzanich’s experience and proven record of success. Consistent with the alignment of Mr. Krzanich’s interest with those of our stockholders, the decline in our share price since the grant date of Mr. Krzanich’s awards has resulted in a corresponding decline in both the intrinsic value of his stock options as well as the target value of his PSUs.

Fiscal 2019 Results

Fiscal 2019 was a transformative year for CDK Global. We implemented a number of programs aimed at improving our customer experience, continued investment in product offerings such as Drive Flex and Fortellis, completed the acquisition of ELEAD1ONE (“ELEAD”), and announced our plans to sell the advertising business and certain assets of mobile advertising solutions and website services (collectively, the “Digital Marketing Business”). For the first time in over two years we saw site count growth in the North America auto business, a key metric that indicates our focus on building on our world-class software and customer experience competencies is resonating with our dealer customers. We also delivered strong financial results in fiscal 2019, including the following highlights:

Fiscal 2019 Operating Results1


1. Financial results, including the GAAP to non-GAAP reconciliations, are reflected as reported in the Company’s Annual Report on Form 10-K for fiscal 2019. Effective July 1, 2018 we adopted ASU 2014-09 “Revenue from Contracts with Customers” and related ASUs (“ASC 606”), using the modified retrospective transition approach. We did not recast historical information and have reported financial results in fiscal 2019 under both standards for the transition year for comparability purposes.

Return of Capital

In January 2017, the Board authorized us to repurchase up to $2.0 billion of our common stock as part of a return of capital plan, whereby we have repurchased approximately $1.5 billion of common stock through June 30, 2019. In fiscal 2019, we returned approximately $600.0 million of capital to stockholders via a combination of dividends and share repurchases.

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Fiscal 2019 Executive Compensation Highlights

Annual Incentive Cash Bonus

We provide an annual incentive cash bonus to align each senior executive’s interests with our stockholders’ interests, and to reinforce key strategic initiatives and encourage superior individual performance. For fiscal 2019, incentive bonus achievement was based on three core financial performance metrics and individual strategic objectives (“MBOs”). Each of the four metrics is capped at 200% of target. The specific metrics and targets (and the weighting that was placed on each), are as follows:

1. fiscal 2019 adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) growth of 10% (40%);
2. fiscal 2019 adjusted core auto software revenue growth of 8% (25%);
3. fiscal 2019 global sales of $323.7 million (15%); and
4. individual MBOs (20%).

In August 2019, the compensation committee reviewed the Company’s performance and determined that it exceeded its targets for each of the three financial performance metrics, calculated based on continuing operations as of June 30, 2019. The compensation committee noted that, while the terms of fiscal 2019 incentive bonus program approved by the compensation committee in September 2018 provide for calculating performance by reference to the Company’s continuing operations, we announced our plan to divest our Digital Marketing Business and disclosed that the Digital Marketing Business would be presented as discontinued operations only three days prior to the end of fiscal 2019. Therefore, while actual achievement based on continuing operations resulted in overall financial performance metric achievement at 131.5%, achievement including the Digital Marketing Business’ revenue and adjusted EDITDA resulted in overall financial performance achievement at 70.3%. Accordingly, the compensation committee exercised its negative discretion to adjust actual achievement commensurate with financial performance including the Digital Marketing Business revenue and adjusted EBITDA, because management was responsible for this business for substantially all of fiscal 2019. The calculation of our fiscal 2019 bonus plan is described in more detail below under “Annual Incentive Cash Bonus Program - Fiscal 2019 Financial Results.”

Long Term Equity Incentive Compensation

Grants of Fiscal 2019 Performance Stock Units and Restricted Stock Units

For fiscal 2019, NEOs other than the Chief Executive Officer received a combination of PSUs and time-based restricted stock units (“RSUs”). The compensation committee determined that utilizing both award types for long-term equity incentives balanced the dual goals of focusing our NEOs on growing the revenue and profit of our business over an extended period while also providing for retention during a period of transformation and potential volatility. This structure also better aligned our mix of grant types with those of our peer group.

The Company’s fiscal 2019 long-term equity incentive compensation for its executives consisted of grants of PSUs for 70% of total award value, which cliff vest at the end of a three-year performance period based on actual achievement of performance goals set at the time of the grant. The compensation committee also approved changing the peer group as part of our total shareholder return (“TSR”) modifier from a select group of 48 companies to the S&P Software & Services Select Index, which at the time of grant consisted of 127 companies. RSUs accounted for the remaining 30% of total award value, which have pro rata annual vesting over three years.

Additional equity awards granted in fiscal 2019 were to Messrs. Krzanich and Shah in connection with their first year of service with the Company. Both Messrs. Krzanich and Shah received grants of stock options as part of their employment offers.

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Settlement of Fiscal 2017 Performance Stock Units

The NEOs, with the exception of Messrs. Krzanich, Tautges, and Shah, were awarded PSUs in fiscal 2017 (“fiscal 2017 PSU”), which had a three-year performance period that ran from July 1, 2016, to June 30, 2019. Performance goals for the period were set by the compensation committee in September 2016. The primary performance goal was aligned with our business transformation plan adjusted EBITDA margin goal of 39% for full-year fiscal 2019, such that achievement of the business transformation plan goal would result in a maximum number of PSUs earned at 200% of target. The number of PSUs earned was subject to further adjustment depending on the TSR of our common stock during the performance period compared against a performance peer group of companies in similar Global Industry Classification Standard (“GICS”) codes, as well as digital advertising and marketing companies. Lastly, if our compounded annual revenue growth over the performance period cycle was below 3%, awards would be capped at 100% of target.

Under the terms of the fiscal 2017 PSU program approved by the compensation committee in September 2016, our actual adjusted EBITDA margin achievement for fiscal 2019 was calculated based on continuing operations as of June 30, 2019. On June 27, 2019, three days prior to the end of the performance period, we announced our plan to divest our Digital Marketing Business and disclosed that the Digital Marketing Business would be presented as discontinued operations. Further, on September 18, 2018, after almost 75% of the performance period had passed, we acquired ELEAD. The ELEAD acquisition was not a contemplated acquisition at the time the fiscal 2017 PSU program was approved. Therefore, while actual adjusted EBITDA margin achievement based on continuing operations was 40.1%, which would have resulted in achievement at 200% of target, achievement including the Digital Marketing Business adjusted EBITDA, and excluding the impact of ELEAD, resulted in an adjusted EBITDA margin of 38.0%, or achievement at 133% of target. Because management was responsible for and actively managing the Digital Marketing Business as part of the Company’s continuing operations for effectively the full three-year performance period and because ELEAD was acquired near the end of the performance period, the compensation committee exercised its negative discretion to adjust actual achievement commensurate with financial performance including the Digital Marketing Business and excluding ELEAD. The fiscal 2017 PSUs were then settled at 100% of target. This is based on adjusted achievement at 133% of target for our fiscal 2019 adjusted EBITDA margin of 38.0%, multiplied by 75% for our three-year TSR ranking at the 25th percentile in the performance peer group. Finally, the payout was not subject to the revenue growth cap because achievement did not exceed 100% of target. Our PSU awards are described in more detail below under “Compensation Review and Determination - Long-Term Equity Incentive Compensation - Performance-Based Stock Units.”

Fiscal 2019 Total Direct Compensation

A summary of fiscal 2019 total direct compensation for our NEOs is set forth in the following table, and additional detail is presented in the subsequent discussion as well as the tables and narratives that follow this CD&A. The amounts reported in this table exclude “all other compensation” and therefore differ from the amounts reported in the Summary Compensation Table calculated based on SEC rules. This table is included as a supplement to, but is not a substitute for the Summary Compensation Table which is set forth on page 44 of this proxy statement.

Fiscal 2019 Total Direct Compensation
Named Executive Officer
Base
Salary
($)1
Annual
Bonus
($)
PSUs
($)2
Stock
Options
($)3
Restricted
Stock
Units
($)4
Other
Bonuses
($)5
Total
($)
Krzanich, Brian M.
 
651,517
 
 
914,581
 
 
8,749,983
 
 
3,749,990
 
 
 
 
 
 
14,066,071
 
Tautges, Joseph A.
 
675,000
 
 
534,752
 
 
1,041,020
 
 
 
 
449,977
 
 
 
 
 
2,700,749
 
Shah, Mahesh
 
115,909
 
 
120,000
 
 
227,489
 
 
299,996
 
 
597,448
 
 
725,000
 
 
2,085,842
 
Flynn, Daniel P.
 
462,500
 
 
274,257
 
 
416,372
 
 
 
 
179,991
 
 
 
 
1,333,120
 
Brunz, Lee J.
 
412,500
 
 
234,807
 
 
347,007
 
 
 
 
149,972
 
 
 
 
1,144,286
 
MacDonald, Brian
 
930,000
 
 
448,655
 
 
 
 
 
 
 
 
 
 
1,378,655
 
Frey, Ronald L
 
443,333
 
 
241,101
 
 
347,007
 
 
 
 
149,972
 
 
 
 
1,181,413
 
1. For Messrs. Krzanich and Shah the displayed salary has been prorated based on their fiscal 2019 employment dates of November 7, 2018 and April 22, 2019, respectively.
2. In accordance with ASC 718, PSUs are deemed granted when the performance target is established. The PSU amounts include the grant date fair value of the fiscal 2019 PSU target awards, which vest on June 30, 2021. The PSU amounts are the same amounts included within Stock Awards in the “Summary Compensation Table for Fiscal 2019” on page 44 of this proxy statement. Awards for Messrs. Krzanich and Shah are their annual fiscal 2019 grant included as part of their employment offers. Mr. Shah’s award is prorated based on his hire date.

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3. Stock option amounts represent the grant date fair value of the fiscal 2019 awards, which are the same amounts disclosed in the “Summary Compensation Table for Fiscal 2019” on page 44 of this proxy statement. Awards for Messrs. Krzanich and Shah are included as part of their employment offers. Mr. Shah’s award was included as part of his CDK Global employment offer to offset the equity he would forfeit with his previous employer.
4. Restricted stock unit amounts represent the grant date fair value of the fiscal 2019 awards, which are the same amounts disclosed in the “Summary Compensation Table for Fiscal 2019” on page 44 of this proxy statement. Awards for Mr. Shah include his annual fiscal 2019 grant, and a sign-on grant included as part of his CDK Global employment offer to offset the equity he would forfeit with his previous employer.
5. Sign-on bonus paid to Mr. Shah, with the condition that Mr. Shah will repay the amount (net of taxes) to CDK Global should he voluntarily resign or be terminated for “cause” (as defined in the Corporate Officer Severance Plan) within one year of employment.

GOOD GOVERNANCE AND BEST PRACTICES

We are committed to ensuring that our compensation programs reflect principles of good governance. The following practices are key aspects of our compensation program:

What We Do
What We Don’t Do
Structure a majority of pay as performance-based and not guaranteed
Permit employees to hedge, short-sell, or pledge our common stock
Mitigate undue risk in compensation programs
Reprice or buy out underwater stock options without stockholder approval
Include clawback provisions in our cash and equity incentive programs
Grant discounted stock options
Maintain stock ownership guidelines, including holding requirements to encourage share ownership by executives
Gross up employees for taxes under Internal Revenue Code (the “Code”) Sections 280G or 409A
Include “double-trigger” treatment on change in control payments made under the Change in Control Plan
Pay current cash dividends on unearned PSUs or unvested RSUs
Provide limited perquisites
 
Use an independent compensation consultant
 

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ELEMENTS OF COMPENSATION

The following table summarizes the major elements of our fiscal 2019 executive officer compensation programs:

Compensation Element
Objectives
Key Characteristics
Base Salary
To provide a fixed amount for performing the duties and responsibilities of the position
Determined based on overall performance, level of responsibility, pay grade, competitive compensation data, and comparison to our other executives
   
Annual Incentive Cash Bonus
To motivate executive officers to achieve Company-wide and individual performance goals
80% of bonus opportunity based on financial objectives, 20% based on individual strategic objectives
Financial objectives and targets aligned with business strategy to grow revenue and increase margins
Annual cash bonus payout range of 0-200%
   
PSU Awards
To motivate executive officers to achieve certain longer-term goals and create long-term alignment with stockholders
PSUs represent 70% of long-term incentive grant value
Granted annually based on pay grades and individual performance
Based on a three-year performance period
Performance metrics are aligned with the business transformation plan
For the three-year performance period, our TSR will be compared to the S&P Software & Services Select Index, which can adjust the PSU award (upward and downward) and thereby focus executives to drive long-term value to stockholders
PSUs have a payout range of 0-260% of target, including the TSR modifier
   
RSU Awards
Time-based awards to increase retention of executive officers
RSUs represent 30% of long-term incentive grant value for NEOs other than the Chief Executive Officer
Granted annually based on pay grades and individual performance
Grants vest in equal annual installments over three years
   
Stock Options
To align the interests of executive officers with long-term stockholders’ interests and ensure that realized compensation occurs only when there is an increase in stockholder value
Stock options represent 30% of the Chief Executive Officer’s long-term incentive grant value and were included as part of the employment offer to Mr. Shah
Grants vest in substantially equal annual installments over a defined time period, typically three or four years
   

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Consistent with a pay-for-performance philosophy, compensation for Mr. Krzanich and the other NEOs is structured so that a significant portion of their total compensation is at-risk and paid based on meeting certain performance goals. The mix of target total direct compensation (base salary, cash bonus, and long-term incentive awards) for fiscal 2019 was designed to deliver the following approximate proportions of total compensation to Mr. Krzanich and the other NEOs (on average) if Company-wide and individual target levels of performance are achieved. Mr. Krzanich’s higher portion of at-risk compensation reflects his greater responsibility for overall Company performance and other factors discussed above regarding his employment agreement.

Chief Executive Officer and NEO Total Direct Compensation Mix at Target


1. The total direct compensation mix includes: (i) Mr. Krzanich’s base salary and annual incentive cash bonus which are annualized for the full fiscal 2019 even though actual base salary and annual incentive cash bonus are prorated as of his employment date; and (ii) Mr. Shah’s base salary and annual incentive cash bonus which are annualized for the full fiscal 2019 even though actual base salary and annual incentive cash bonus are prorated as of his employment date, and his long-term equity incentive compensation which assumes his annual target excluding sign-on equity compensation awarded during fiscal 2019 pursuant to his employment offer.

COMPENSATION REVIEW AND DETERMINATION

Role of the Compensation Committee

The compensation committee oversees and administers our executive compensation programs. Beginning before the start of the fiscal year the compensation committee reviews the executive compensation program, considers what modifications are appropriate to adapt to changes in market conditions, the Company’s experience with attracting and retaining executive talent, and alignment with the strategic priorities of the business, and then establishes base salaries, target annual cash bonus opportunities, and long-term incentive awards for executives and other eligible employees.

The compensation committee examines compensation data detailing the amounts and mix of base salary, cash bonus, and long-term equity incentives for each of the NEOs, which compare the amounts and mix to competitive compensation levels. We generally target base salary, annual cash bonus, and long-term equity incentives at the median of competitive compensation levels, but will set targets above or below the median when warranted in the judgment of the compensation committee. The degree to which target compensation ranges are above or below the median competitive rate is based on a variety of factors, including each executive’s skill set and experience relative to market peers. Executives who are new in their roles and therefore less experienced than market peers are typically positioned lower in the range, whereas executives with a long tenure in their role may be positioned higher in the range.

Role of the Compensation Adviser

Our compensation committee has engaged FW Cook as its independent external advisor to provide assistance with the design of our compensation programs regarding the amount and types of compensation that we provide our executives, and how these compare to peer company compensation practices. In June 2018, FW Cook examined the competitiveness of senior executive compensation levels and the Company’s aggregate share usage, dilution, and fair value cost of long-term incentives for all participants, which was used for setting fiscal 2019 target total compensation.

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Representatives of FW Cook attend meetings of the compensation committee as requested and may also communicate with the Chair of the compensation committee outside of meetings. As part of its ongoing support to our compensation committee, FW Cook also reviews executive compensation disclosures, reviews and provides comments on changes to the committee’s charter, advises on emerging trends and the implications of regulatory and governance developments, and reviews and provides commentary on materials and proposals prepared by management that are presented at the committee’s meetings. FW Cook also advises our nominating and governance committee on director compensation and conducts biennial competitive reviews of director compensation.

Role of Competitive Market Data

Survey Market Data

With respect to the total cash and long-term incentive compensation for our Chief Executive Officer and other NEOs, the compensation committee reviews competitive compensation market data based on compensation surveys reflecting the pay practices of publicly traded companies and our compensation peer group, discussed below. The surveys used were the Willis Towers Watson U.S. General Industry Executive Database, the Aon Hewitt U.S. Total Compensation Measurement Executive Survey, and the Radford Global Technology Survey. The general industry surveys are weighted 50% and the technology survey is weighted 50%. In benchmarking compensation levels against the survey data, the compensation committee considered only the aggregated survey data, and the identity of the companies included in the survey data is not disclosed to, or considered by, the compensation committee in its decision-making process. The companies included were based on a revenue range such that the median company revenue approximates the annual revenue for CDK Global or the executive’s business unit, as appropriate. In setting target compensation for the NEOs, the compensation committee also considers the executive’s total compensation for the previous year and internal comparisons of total compensation to our other executive officers.

Peer Companies

For fiscal 2019, the compensation peer group was unchanged from last year and consisted of companies that are of a similar business model to CDK Global (including B-to-B operations, back-office services, and digital marketing services), that are of similar size to CDK Global with revenues between 33% to 300% of our expected annual revenue, and that are considered to be a peer by prominent proxy advisory firms and/or a prevalent peer of our peer group companies. The following companies made up our peer group for fiscal 2019 compensation decisions:

Acxiom Corporation
Adobe Systems Incorporated
Alliance Data Systems Corporation
ANSYS, Inc.
Autodesk, Inc.
AutoNation, Inc.
CA, Inc.1
Cadence Design Systems, Inc.
CoStar Group, Inc.
Gartner, Inc.
Group 1 Automotive, Inc.
Intuit Inc.
Open Text Corporation
Red Hat, Inc.
ServiceNow, Inc.
SS&C Technologies Holdings, Inc.
Synopsys, Inc.
Teradata Corporation
Total System Services, Inc.
Verint Systems Inc.
Zillow Group, Inc.
 
1. CA, Inc. acquired by Broadcom in November 2018.

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Role of Management

The Chief Executive Officer provides recommendations to the compensation committee with respect to each NEO’s overall performance and actual achievement against performance objectives, and in the determination of each NEO’s compensation, other than his own. The compensation committee takes the Chief Executive Officer’s general input into consideration when reviewing and approving compensation for NEOs other than the Chief Executive Officer.

The Chief Executive Officer and Chief Human Resources Officer participate in the development of the performance criteria measures and any plan design changes for our annual bonus and equity plans. The Chief Human Resources Officer incorporates any plan design changes and presents proposed compensation matters to the compensation committee for its review and approval.

CASH COMPENSATION

Base Salary

Base salaries represent fixed amounts paid to each executive for performing their normal duties and responsibilities. For fiscal 2019, the compensation committee determined the amount based on the executive’s overall performance in prior years, level of responsibility, pay grade, competitive positioning, and comparison to our other executives. Based on these criteria, our NEOs received the following annual salary increases in fiscal 2019:

Named Executive Officer
Fiscal 2018 Salary ($)
Increase
Fiscal 2019 Salary ($)1
Krzanich, Brian M.
 
 
 
%
 
1,000,000
 
Tautges, Joseph A.
 
650,000
 
 
4.6
%
 
680,000
 
Shah, Mahesh
 
 
 
%
 
600,000
 
Flynn, Daniel P.
 
450,000
 
 
3.3
%
 
465,000
 
Brunz, Lee J.
 
400,000
 
 
3.8
%
 
415,000
 
MacDonald, Brian
 
930,000
 
 
%
 
930,000
 
Frey, Ronald L
 
435,000
 
 
2.3
%
 
445,000
 
1. The salaries for Messrs. Krzanich and Shah are their annual salary.

Annual Incentive Cash Bonus Program

Program Design

The NEOs are eligible to earn an annual incentive cash bonus as a way to align each NEO’s interests with our stockholders’ interests, and to reinforce key strategic initiatives and encourage superior individual performance. Potential payouts are capped at 200% of target based on actual performance against financial metrics and MBOs. There is no minimum payment level, and the entire award opportunity is forfeited if threshold performance metric goals are not achieved. When making final payout determinations, the compensation committee may exercise negative discretion to award less than the maximum potential bonus based on actual performance metric goal achievement.

Each year the compensation committee approves bonus performance metrics aligned with the key components of our operational and strategic success and the degree to which the Chief Executive Officer and the other NEOs have responsibility for overall performance results. They also provide a set of common objectives that facilitate collaborative engagement.

For fiscal 2019, incentive bonus achievement was based on three core financial performance metrics and individual MBOs. The specific metrics and the weighting that was placed on each, are as follows:

1. fiscal 2019 adjusted EBITDA growth (40%);
2. fiscal 2019 adjusted Core Auto Software Revenue Growth (25%);
3. fiscal 2019 global sales (15%); and
4. individual MBOs (20%).

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Individual MBOs enhance focus on business objectives, such as operational objectives, strategic initiatives, succession planning, and talent development, which are important to the long-term success of the Company. The financial performance metrics are defined and explained in greater detail as follows:

Financial Performance Metrics1
Calculation
Rationale for Metric
Adjusted EBITDA Growth (%)2
The percentage difference between adjusted EBITDA for fiscal 2019 and adjusted EBITDA for fiscal 2018
Encourages efficient operations and resource allocations in order to maximize earnings relative to the revenue growth
Adjusted Core Auto Software Revenue Growth (%)3
The percentage difference between adjusted core auto software revenues for fiscal 2019 and adjusted core auto software revenues for fiscal 2018
Reflects top-line financial performance of our core auto software business, which is a strong indicator of our long-term ability to drive stockholder value
Global Sales ($)4
The dollar difference between global sales growth for fiscal 2019 and global sales growth for fiscal 2018
In-year new business and indicator of revenue trajectory for future periods
1. While financial results are reported in accordance with GAAP, financial performance metric targets and results under incentive plans are sometimes based on non-GAAP or adjusted financial measures. The financial results, whether GAAP or non-GAAP, may be further adjusted as permitted by those plans and approved by the compensation committee. The compensation committee reviewed GAAP to non-GAAP adjustments and any other adjustments to ensure performance took into account the way the goals were set and executive accountability for performance. These metrics and the related performance targets are relevant only to our executive compensation program and should not be used or applied in other contexts.

An explanation of how management uses adjusted measures and the reasons why management views such measures as providing useful information for investors can be found in our fiscal 2019 Annual Report on Form 10-K. Our adjusted financial measures should be viewed in addition to, and not as an alternative to, financial results prepared in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from the Company’s results should be carefully evaluated.

2. Adjusted EBITDA is net earnings from continuing operations attributable to CDK Global, based on our historical revenue accounting in accordance with ASC 605, and excluding the impact of foreign exchange by calculating revenues and earnings at budget rates for the current year, as adjusted by those adjustments disclosed in our Annual Report on Form 10-K, the Company-wide impact on bonus funding, and other adjustments permitted by the Company’s 2014 Omnibus Award Plan (the “2014 Plan”), established by the compensation committee at adoption, and subsequently approved by the compensation committee following the completion of the performance period.
3. Adjusted Core Auto Software Revenue is the combined revenue from continuing operations of our CDK North America and CDK International segments based on our historical revenue accounting in accordance with ASC 605, and excluding the impact of foreign exchange by calculating revenues and earnings at budget rates for the current year, as adjusted by those adjustments disclosed in our Annual Report on Form 10-K, and other adjustments permitted by the 2014 Plan, established by the compensation committee at adoption, and subsequently approved by the compensation committee following the completion of the performance period.
4. The Company does not disclose its definition of Global Sales because this information is not otherwise publicly disclosed by the Company, and the Company believes it would cause competitive harm to do so in this proxy statement. Global Sales targets may vary from year-to-year based on the sales function’s annual objectives and may be impacted by factors such as the weighting of customer retention versus new customer growth in a specific year. After careful consideration, the compensation committee determined that it was appropriate to set the Threshold, Target, and Maximum levels for Global Sales at levels lower than the prior fiscal year, but consistent with the Company’s fiscal 2019 operating plan approved by the Board, 2019 financial outlook, and customer retention strategy. Consistent with the other financial targets, Global Sales targets were set at levels necessary to drive stockholder value.

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Design Changes for Fiscal 2019

The terms of the fiscal 2019 annual incentive cash bonus program remained largely consistent with those of the program from the prior year. Two adjustments were made to better align executives’ interests to the interests of our stockholders and to reflect the Company’s focus on driving revenue and earnings growth to enhance the ultimate performance of the Company as a whole:

Adjusted EBITDA margin and adjusted EBITDA were replaced with adjusted EBITDA growth; and
Global revenue was replaced with adjusted Core Auto Software Revenue Growth.

The compensation committee made these changes following the Board’s review and approval of our fiscal 2019 operating plan because it determined that they balanced shorter-term drivers of stockholder value while remaining aligned with the longer-term goals set for the same objectives for the fiscal 2019 PSUs. The compensation committee believes such a balance drives the appropriate amount of focus on propelling short and long-term revenue growth in the Company’s strategic core software business, without detracting from the ultimate performance of the Company as a whole.

Fiscal 2019 Financial Results

In August 2019, the compensation committee reviewed and determined performance against the three core financial performance metrics, calculated based on continuing operations as of June 30, 2019, as follows:

Financial Performance Metric
Weight
Threshold
(50% of
Target)1
Target1
Maximum
(200% of
Target)1
Actual
Results2
Percentage of Target
Annual Incentive
Funded
Adjusted EBITDA Growth (%)
40%
8.0%
10.0%
14.0%
12.3%
63.0%
Adjusted Core Auto Software Revenue Growth (%)
25%
7.0%
8.0%
9.8%
9.4%
43.1%
Global Sales ($) millions
15%
$291.3
$323.7
$388.4
$367.4
25.4%
Total
80%
131.5%
1. Targets are publicly disclosed after the end of the performance period.
2. Adjusted EBITDA growth and adjusted core auto software revenue growth results are from continuing operations and exclude results from our Digital Marketing Business, which was presented as discontinued operations for fiscal 2019. Adjusted EBITDA has been adjusted for the impact of budgeted foreign currency exchange rates and to neutralize the positive impact on adjusted EBITDA resulting from the lower bonus funding based on discretion, and adjusted core auto software revenue growth has been adjusted for the impact of budgeted foreign currency exchange rates, both as permitted by the 2014 Plan and as approved by the compensation committee.

The compensation committee noted that, while the terms of fiscal 2019 incentive bonus program approved by the compensation committee in September 2018 provide for calculating performance by reference to the Company’s continuing operations, we announced our plan to divest our Digital Marketing Business and disclosed that the Digital Marketing Business would be presented as discontinued operations only three days prior to the end of fiscal 2019. Therefore, while actual achievement based on continuing operations resulted in overall financial performance metric achievement at 131.5%, achievement including the Digital Marketing Business’ revenue and adjusted EDITDA resulted in overall financial performance achievement at 70.3% as follows:

Financial Performance Metric
Weight
Threshold
(50% of
Target)
Target
Maximum
(200% of
Target)
Results after
Discretion1
Percentage of Target
Annual Incentive
Funded
Adjusted EBITDA Growth (%)
40%
8.0%
10.0%
14.0%
8.0%
20.1%
Adjusted Core Auto Software Revenue Growth (%)
25%
7.0%
8.0%
9.8%
8.0%
24.8%
Global Sales ($) millions
15%
$291.3
$323.7
$388.4
$367.4
25.4%
Total
80%
70.3%
1. Adjusted EBITDA growth and adjusted core auto software revenue growth reflect results as if the Digital Marketing Business had not been presented as discontinued operations for fiscal 2019.

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PROPOSAL 2: AN ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS

   

Accordingly, the compensation committee exercised its negative discretion to adjust actual achievement commensurate with financial performance including the Digital Marketing Business revenue and adjusted EBITDA, because management was responsible for this business for substantially all of fiscal 2019.

Discussion of MBOs

With respect to performance against the MBOs, the compensation committee evaluated Mr. Krzanich’s performance during an executive session held in August 2019. The evaluation included an analysis of Mr. Krzanich’s performance against all of his individual MBOs, which included defining a long-term strategy for the Company; identifying and executing strategic mergers, acquisitions and divestitures; retaining customers; and establishing the right organization design and leadership talent to achieve our strategic objectives. After conducting a thorough review of Mr. Krzanich’s performance, the compensation committee determined that Mr. Krzanich’s MBO performance was achieved at 120%.

As the Chief Executive Officer, Mr. Krzanich evaluated the performance of the other executive officers and presented his recommendations to the compensation committee in August 2019 based on those evaluations. The evaluations included an analysis of each officer’s performance against his or her individual MBOs, which are intended to be differentiated performance metrics. After discussion, the compensation committee determined the degree of attainment of the MBOs. The results of these evaluations and selected MBOs for the other NEOs are summarized below:

Mr. Tautges. The compensation committee determined that Mr. Tautges’ MBO performance was achieved at 140%. Mr. Tautges’ MBOs included: improve customer retention by delivering analytics and instrumentation, improve forecast process and visibility, operationalize new financial organization design, and implement and operationalize new business review process.

Mr. Shah. Mr. Shah began employment with CDK Global in our fiscal 2019 4th quarter and he did not have specific MBOs established; however, Mr. Shah was tasked to evaluate our existing technology, and develop a plan to modernize our technology and applications.

Mr. Flynn. The compensation committee determined that Mr. Flynn’s MBO performance was achieved at 140%. Mr. Flynn’s MBOs included: improve customer retention including driving ELEAD integration to grow sites, chart a path towards world class customer support, establish a customer success organization and create a plan for reducing losses, drive further productivity in the installation process, and drive growth in shrinking products.

Mr. Brunz. The compensation committee determined that Mr. Brunz’s MBO performance was achieved at 120%. Mr. Brunz’s MBOs included: support customer retention efforts through a review and revisions to customer contracting policies and processes, ensure the CDK Global executive leadership team and the Board understand the current litigation landscape, support Fortellis and Drive Flex efforts including the associated governance and compliance elements, and drive improvements in the M&A process.

Mr. MacDonald. Based on the terms of his Transition Agreement, Mr. MacDonald was deemed to have an individual performance rating of 100% for this portion of bonus determination.

Mr. Frey. Based on the terms of his separation in accordance with the terms of the Company’s Amended and Restated Corporate Officer Severance Plan, Mr. Frey was deemed to have an individual performance rating of 100% for this portion of bonus determination.

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TABLE OF CONTENTS

PROPOSAL 2: AN ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS

   

Based on the findings of these performance evaluations, the compensation committee evaluated performance against the non-financial metrics for the NEOs to determine the overall level of achievement in the table below. We do not disclose detailed MBO goals for each NEO out of concern for competitive harm.

Named Executive Officer
Actual
Performance
as a
Percentage of
Target (%)
Weight (%)
Percentage of
Target Annual
Incentive Funded
Krzanich, Brian M.
120%
20%
24%
Tautges, Joseph A.
140%
20%
28%
Shah, Mahesh
N/A
N/A
N/A
Flynn, Daniel P.
140%
20%
28%
Brunz, Lee J.
120%
20%
24%
MacDonald, Brian
100%
20%
20%
Frey, Ronald L
100%
20%
20%

Fiscal 2019 Annual Incentive Cash Bonus Payouts

Based on the fiscal 2019 financial and non-financial level of performance after applying negative discretion as described above, the calculated annual incentive results for the NEOs under the annual incentive cash bonus program ranged between 90.3% and 98.3% of target. The calculated annual incentive awards prior to and after the compensation committee’s application of negative discretion are reflected in the table below.

Fiscal 2019 Annual Incentive Cash Bonus Program Payout
 
Percentage of Target Annual Incentive Payout
Total Annual Incentive
Payout1
Named Executive Officer
Annual
Base
Salary
($)
Annual
Incentive
Target
(%)
Financial Metrics (%)
Non-
Financial
Metrics (%)
As % of Target Annual
Incentive (%)
Calculated
Results
Prior to
Discretion
($)
Actual
Payout
After
Negative
Discretion
($)
Prior to
Discretion
After
Discretion
Prior to
Discretion
After
Discretion
Prior to
Discretion
After
Discretion
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Krzanich, Brian M.
 
1,000,000
 
 
150
%
131.5%
70.3%
24%
155.5%
94.3%
 
1,508,137
 
 
914,581
 
Tautges, Joseph A.
 
680,000
 
 
80
%
131.5%
70.3%
28%
159.5%
98.3%
 
867,680
 
 
534,752
 
Shah, Mahesh
 
600,000
 
 
N/A
 
N/A
N/A
N/A
N/A
N/A
 
120,000
 
 
120,000
 
Flynn, Daniel P.
 
465,000
 
 
60
%
131.5%
70.3%
28%
159.5%
98.3%
 
445,005
 
 
274,257
 
Brunz, Lee J.
 
415,000
 
 
60
%
131.5%
70.3%
24%
155.5%
94.3%
 
387,195
 
 
234,807
 
MacDonald, Brian
 
930,000
 
 
150
%
131.5%
70.3%
20%
151.5%
90.3%
 
752,727
 
 
448,655
 
Frey, Ronald L
 
445,000