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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. )

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Brown & Brown, Inc.

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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Message from Our President and CEO and Our Lead Independent Director

 

		“While we have always been mindful of our relationship with the environment and the communities in which we live and work, we recently committed ourselves to create more transparency around the environmental, social, and governance (“ESG”) matters that are important to our stakeholders.”
		J. POWELL BROWN, H. PALMER PROCTOR, JR.

March 23, 2021

 

 

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Notice of Annual Meeting of Shareholders

 

 

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Proxy Summary

 

 

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Proxy Summary

 

Our Strategy and Performance   The Company’s strategy is focused on growing our total and organic revenues while maintaining our strong, industry-leading operating margins and cash conversion metrics. As part of our goal to manage our capital in the long-term interests of our shareholders, we generally invest our earnings in the following ways: (1) internally by hiring new teammates, expanding our capabilities, and investing in new ways to innovate, (2) making high-quality acquisitions, and (3) returns to shareholders through the payment of dividends and periodic share repurchases. As part of our overall capital allocation strategy, we remain focused on preserving a level of flexibility and conservative profile in order to enable us to deploy our capital in ways we believe optimize long-term shareholder value.

 

Performance Highlights

 

In fiscal 2020, we delivered strong results, as reflected in the following financial and operational highlights:

 

Strong total and organic revenue growth and operating margin expansion from our three largest business segments comprising over 90% of our total annual revenue 27th consecutive annual dividend increase, returning approximately $101 million to shareholders Healthy growth in net cash provided by operating activities 25 strategic acquisitions with aggregate annual revenues of approximately $197 million

 

 

(1)	See Annex A for additional information regarding Organic Revenue, Organic Revenue growth and Adjusted EBITDAC Margin, which are non-GAAP financial measures, including a reconciliation to the most closely comparable GAAP financial measure.
(2)	Income before income taxes margin is calculated as the Company’s income before income taxes, as reported, divided by total revenues, as reported.
(3)	National Programs Segment Organic Revenue growth was adjusted (i) for 2019 and 2020, to exclude the impact of certain offices within the National Programs Segment for which Chris L. Walker, Executive Vice President and President - National Programs Segment, did not have responsibility in 2019 and 2020, respectively, (ii) for 2019 and 2020, to include the impact of certain offices within the Services Segment for which Mr. Walker did have responsibility in 2019 and 2020, respectively, and (iii) for 2019, to exclude a one-time, non-cash increase of approximately $8 million in the commissions and fees earned by one of the businesses in our National Programs Segment in 2018 resulting solely from our implementation of “Revenue from Contracts with Customers (Topic 606)” and Accounting Standards Codification Topic 340 – Other Assets and Deferred Cost, both of which were adopted by the Company effective on January 1, 2018 (the “New Revenue Standard”). See Annex A for additional information regarding National Programs Segment Organic Revenue growth -adjusted, which is a non-GAAP financial measure, including a reconciliation to the most closely comparable GAAP financial measure.

 

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Board and Corporate Governance Matters

 

Proposal 1: Election of 12 Directors
At the Meeting, 12 directors will stand for re-election for a term expiring at the 2022 Annual Meeting of Shareholders. Information about each nominee’s experience and qualifications appears below.
The Board recommends a vote FOR each of the 12 Director nominees.

 

All nominees have consented to being named in the Proxy Statement and have agreed to serve if elected. If any director nominee becomes unable or unwilling to serve, proxies will be voted for any substitute nominee(s) as the Board of Directors (the “Board”) may nominate on the recommendation of the Nominating/Corporate Governance Committee.

 

Vote Required; Majority Voting; Board Recommendation

 

Our By-Laws provide for a majority voting standard for the election of our directors in uncontested elections. If the director election were contested, the plurality standard would apply, which means the nominees receiving the greatest numbers of votes would be elected to serve as directors.

 

To be elected, a nominee must receive the affirmative vote of more than 50% of the votes cast, present either in person or by proxy, at the Meeting. If an incumbent director does not receive more than 50% of the votes cast with respect to his or her election, he or she must promptly tender a conditional resignation following certification of the vote. The Nominating/ Corporate Governance Committee will then consider the resignation and recommend to the Board whether to accept it, and the Board would be expected to act on the recommendation within 90 days. Thereafter, the Board will promptly publicly disclose its decision concerning whether to accept the director’s resignation offer (and, if applicable, the reasons for rejecting the offer). If the Board does not accept the resignation, the director will continue to serve until the next annual meeting and until a successor has been elected and qualified. If the Board accepts the resignation, then the Board may fill any resulting vacancy or may decrease the size of the Board.

 

The Board unanimously recommends a vote “FOR” each of the 12 director nominees

 

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Director Nominees

 

Director Nominees and Qualifications

 

Set forth below is certain information concerning our current directors, all of whom are director nominees. All directors hold office for one-year terms or until their successors are elected and qualified.

 

J. Hyatt Brown	Chairman of the Board			Hugh M. Brown	Independent Director
Director since 1993 Committees served •   None				Director since 2004 Committees served •   Acquisition •   Compensation
Skills and Experience Mr. Hyatt Brown, 83, was our Chief Executive Officer from 1993 to 2009 and our President from 1993 to December 2002 and served as President and Chief Executive Officer of our predecessor corporation from 1961 to 1993. He was a member of the Florida House of Representatives from 1972 to 1980 and Speaker of the House from 1978 to 1980. Mr. Brown served on the Board of Directors of International Speedway Corporation, a publicly held company, until 2019, and he previously served on the Board of Directors of Verisk Analytics, Inc. (formerly Insurance Services Office). Mr. Brown is a member of the Board of Trustees of Stetson University, of which he is a past Chairman, and the Florida Council of 100. Mr. Hyatt Brown’s sons, J. Powell Brown and P. Barrett Brown, are employed by us as President and Chief Executive Officer, and as Executive Vice President and President – Retail Segment, respectively. His son, J. Powell Brown, has served as a director since October 2007.				Skills and Experience Mr. Brown, 85, who is unrelated to Mr. Hyatt Brown and Mr. Powell Brown, founded BAMSI, Inc., a full-service engineering and technical services company, in 1978 and served as its President and Chief Executive Officer until his retirement in 1998. Mr. Brown currently serves as a member of the Board of Managers (BOM), Nemours Children’s Hospital, Orlando, Florida. In 2017, Mr. Brown was named one of the Most Influential Black Corporate Directors by Savoy Magazine.
Nominee Attributes Mr. Hyatt Brown’s extensive business and industry experience, knowledge of our company, service on boards of other publicly traded companies, and proven leadership ability are just a few of the attributes that make him uniquely qualified to serve on, and chair, our Board.				Nominee Attributes Mr. Brown’s business experience, leadership abilities and proven value in previously leading the Audit Committee, of which he is a past chair, and his past service on the Acquisition, Compensation, and Nominating/Corporate Governance Committees are among the features considered in his nomination for re-election to the Board.

 

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J. Powell Brown	Director and Chief Executive Officer			Lawrence L. Gellerstedt III	Independent Director
Director since 2007 Committees served •   None				Director since 2018 Committees served •   Audit •   Acquisition
Skills and Experience Mr. Powell Brown, 53, was named Chief Executive Officer in July 2009. He has been our President since January 2007 and was appointed to be a director in October 2007. Prior to 2007, he served as one of our Regional Executive Vice Presidents since 2002. Mr. Brown was previously responsible for overseeing certain or all parts of all of our segments over the years and worked in various capacities throughout the Company since joining us in 1995. Mr. Brown has served on the Board of Directors of WestRock Company (formerly RockTenn Company), a publicly held company, since January 2010. He is the son of our Chairman, J. Hyatt Brown, and the brother of P. Barrett Brown, our Executive Vice President and President – Retail Segment.				Skills and Experience Mr. Gellerstedt, 64, served as Chairman of the Board and Chief Executive Officer of Cousins Properties Incorporated (Cousins) from July 2017 until January 2019 and as Cousins’ Executive Chairman of the Board from January 2019 until his retirement in April 2020. He previously served as President and Chief Executive Officer of Cousins from July 2009 to July 2017. Prior to this time, he held other roles at Cousins, including President and Chief Operating Officer, Executive Vice President and Chief Development Officer, and Senior Vice President and President of the Office/Multi-Family Division. Mr. Gellerstedt joined Cousins in 2005 following the acquisition of his firm, The Gellerstedt Group. He currently serves as a director of Georgia Power Co., a publicly held company, and previously served as a director of WestRock Company (formerly RockTenn Company) from 2000 to 2017.
Nominee Attributes Mr. Powell Brown’s work in all segments of our Company, leadership experience at every level of our Company, current position as President and Chief Executive Officer, and experience on other boards are among the qualities considered in connection with his nomination for re-election to the Board.				Nominee Attributes Mr. Gellerstedt’s breadth and depth of experience running businesses and serving on boards of both privately held and publicly traded companies, as well as his significant knowledge in real estate development, construction, and project management, were all considered in connection with his nomination for re-election to the Board.

 

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James C. Hays	Director and Vice Chairman			Theodore J. Hoepner	Independent Director
Director since 2018 Committees served •   Acquisition				Director since 1994 Committees served •   Audit •   Nominating/Corporate Governance
Skills and Experience Mr. James Hays, 63, joined us as Vice Chairman in November 2018 following Brown & Brown’s acquisition of The Hays Group, Inc. and certain of its affiliates (collectively, Hays Companies). He co-founded Hays Companies in 1994 and served as its Chief Executive Officer and President and as a Director since its inception.				Skills and Experience Mr. Hoepner, 79, served as Vice Chairman of SunTrust Bank, Inc. from January 2000 to December 2004 and as Vice Chairman of SunTrust Bank Holding Company from January 2005 until June 2005, when he retired. From 1995 to 2000, Mr. Hoepner was Executive Vice President of SunTrust Bank, Inc. and Chairman of the Board, President and Chief Executive Officer of SunTrust Banks of Florida, Inc.
Nominee Attributes Mr. James Hays’ extensive experience in, and knowledge of, the insurance industry, as well as his impressive track record as an entrepreneur and investor in businesses, were among the factors considered in connection with his nomination for re-election to the Board.				Nominee Attributes Mr. Hoepner’s years of experience in the banking industry, including extensive experience in management, make him a valuable addition to the Board. He previously chaired our Audit, Compensation, and Acquisition Committees. All of these attributes were among the factors considered in connection with his nomination for re-election to the Board.

 

 

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James S. Hunt	Independent Director			Toni Jennings	Independent Director
Director since 2013 Committees served •   Acquisition •   Audit (Chair)				Director since 2007 Committees served •   Compensation •   Nominating/Corporate Governance
Skills and Experience Mr. Hunt, 65, served as Executive Vice President and Chief Financial Officer of Walt Disney Parks and Resorts Worldwide from 2003 until his retirement in 2012. During that period, he was a member of the Boards of Directors of Disney’s Hong Kong International Theme Park Company Limited, Shanghai International Theme Park Company Limited, and Shanghai International Associated Facilities Company, Limited, as well as Disney’s Alameda Insurance and Buena Vista Insurance companies. Between 1992 and 2003, he held various senior finance positions with Walt Disney World Resort and prior to that, was a Partner with Ernst & Young. Mr. Hunt serves on the Board of Directors of Subway Worldwide, Inc., a private company; the Board of Trustees of Penn Mutual Life, a private mutual life insurance company, where he serves on the Investment and Executive Committees and as Chair of the Audit Committee; and the Board of Directors of the Nemours Foundation, where he is Chairman of the Audit and Finance Committee. Mr. Hunt was previously a member of the Board of Directors of Caesars Entertainment Corporation, where he served as Chairman of the Board, and The St. Joe Company, where he served on the Compensation Committee and as Chair of the Audit Committee. Mr. Hunt is a Certified Public Accountant (CPA). He is also a National Association of Corporate Directors Board Leadership Fellow.				Skills and Experience Ms. Jennings, 71, serves as Chairman of the Board of Jack Jennings & Sons, Inc., a commercial construction firm based in Orlando, Florida, and Jennings & Jennings, Inc., an architectural millwork firm based in Orlando, Florida. Ms. Jennings previously served on our Board of Directors from 1999 until April 2003. From 2003 through 2006, Ms. Jennings served as Lieutenant Governor of the State of Florida. She was the President of Jack Jennings & Sons, Inc. and Secretary and Treasurer of Jennings & Jennings, Inc. from 1982 to 2003. Ms. Jennings was a member of the Florida Senate from 1980 to 2000, and President of the Florida Senate from 1996 to 2000. She served in the Florida House of Representatives from 1976 to 1980. She is a member of the Board of Directors of Next Era Energy, Inc., a publicly held company, Mid-America Apartment Communities, Inc., a publicly traded real estate investment trust (REIT), The Nemours Foundation, and the Foundation for Florida’s Future. In 2019, Ms. Jennings was named one of the Most Influential Corporate Directors by WomenInc. magazine.
Nominee Attributes Mr. Hunt’s more than 40 years of increasingly responsible executive and senior executive finance, strategy, and related operational roles, financial expertise, and significant international experience, along with his past service as a member of the Compensation Committee, were factors considered in connection with his nomination for re-election to the Board.				Nominee Attributes Ms. Jennings’ experience as owner and operator of a successful business, and her years of service in the legislative and executive branches of the State of Florida, along with her past service as a member of the Audit Committee and the Chair of the Compensation Committee, are features considered in concluding that she should continue to serve as a director of the Company.

 

 

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Timothy R.M. Main	Independent Director			H. Palmer Proctor, Jr.	Lead Independent Director
Director since 2010 Committees served •   Acquisition (Chair)				Director since 2012 Committees served •   Nominating/Corporate Governance (Chair)
Skills and Experience Mr. Main, 55, has served as Global Head of the Financial Institutions Group at Barclays Plc since April 2018 and from September 2016 until April 2018 served as the Chairman of the Global Financial Institutions Group. From October 2011 until September 2016, he was a Senior Managing Director of Evercore Partners. Prior to joining Evercore, Mr. Main worked at JPMorgan Chase, a global investment bank, for 23 years, most recently as a Managing Director and Head of the Financial Institutions Group.				Skills and Experience Mr. Proctor, 53, has served as Chief Executive Officer of Ameris Bancorp, a publicly held company (“Ameris”), and Ameris’s wholly owned bank subsidiary, Ameris Bank, since July 2019. He also serves as a director of Ameris. He previously served as President and Chief Executive Officer and a Director of Fidelity Bank and its holding company, Fidelity Southern Corporation, until their merger with Ameris Bank and Ameris, respectively, in July 2019. He is a member of the Advisory Board of Allied Financial. Mr. Proctor previously served as Chairman of the Georgia Bankers Association.
Nominee Attributes Mr. Main’s extensive experience with complex financial transactions and acquisitions, as well as his broad knowledge of the insurance industry acquired throughout his career, are key components considered in nominating Mr. Main for re-election to the Board.				Nominee Attributes Mr. Proctor’s business experience, leadership abilities, and management expertise, along with his past service as a member of the Audit and Compensation Committees and Chair of the Acquisition Committee, were factors considered in connection with his nomination for re-election to the Board.

 

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Wendell S. Reilly	Independent Director			Chilton D. Varner	Independent Director
Director since 2007 Committees served •   Compensation (Chair) •   Nominating/Corporate Governance				Director since 2004 Committees served •   Compensation •   Nominating/Corporate Governance
Skills and Experience Mr. Reilly, 63, is the Chairman of Berman Capital Advisors and Managing Partner of Grapevine Partners, LLC, of Atlanta, Georgia, a private investment company. He is also a General Partner of Peachtree Equity Partners II. Previously, he was Chairman and Chief Executive Officer of Grapevine Communications, LLC, a group of local television stations. Earlier, he was the Chief Financial Officer of The Lamar Corporation and Haas Publishing Companies. Mr. Reilly currently serves on the Board of Directors of Lamar Advertising Company, a publicly traded company. He is Trustee Emeritus of Emory University and is past Chair of the Governance Committee of Emory University’s Board of Trustees, and he serves on the Board of Trustees of The Carter Center and the Board of Directors of the International Center for Journalists. Mr. Reilly is a graduate of Emory University and earned his MBA in Finance from Vanderbilt University.				Skills and Experience Ms. Varner, 78, has been a member of the law firm of King & Spalding in Atlanta, Georgia since 1976 and was partner from 1983 to 2017. Since January 2018, she has served as Senior Counsel at King & Spalding. A graduate of Smith College, where she was named to membership in Phi Beta Kappa, and Emory University School of Law, Ms. Varner was honored with Emory University School of Law’s Distinguished Alumni Award in 1998. In 2001, the National Law Journal profiled Ms. Varner as one of the nation’s top ten women litigators. With more than 30 years of courtroom experience, she specializes in defending corporations in product liability, commercial and other civil disputes. She was a Trustee of Emory University from 1995 until 2014 and currently continues her services as a Trustee Emeritus. In 2019, Ms. Varner was named one of the Most Influential Corporate Directors by WomenInc. magazine.
Nominee Attributes Mr. Reilly’s business background and experience enhance his ability to analyze and contribute valuable and unique insights on matters including those relating to capital structure, financing and acquisition structure. Mr. Reilly’s contributions as a past Chairman of our Acquisition Committee and Nominating/Corporate Governance Committee, as well as his past service as Lead Independent Director, were also taken into consideration in connection with his nomination for re-election to the Board.				Nominee Attributes As a practicing attorney at one of the nation’s premier law firms and a counselor to businesses, their directors and management concerning risk and risk control, Ms. Varner brings a depth of experience and a wealth of unique and valuable perspectives to our Board. Ms. Varner previously chaired the Compensation Committee and served as our Lead Independent Director.

 

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Directors Emeritus

 

From time to time, our Board may designate one or more of its former directors as “Director Emeritus” based on their past meritorious service to the Company. Our Directors Emeritus are entitled to attend Board meetings in an advisory capacity, but do not vote on Board matters, and they receive compensation and fees as may be deemed appropriate by the Company in view of their services to the Company.

 

Samuel P. Bell, III	Director Emeritus
Director from 1993 until 2021

 

Skills and Experience

Mr. Bell, 81, served as Of Counsel to the law firm of Buchanan Ingersoll & Rooney PC from March 2015 until June 2017. From November 2013 until March 2015, he served as Of Counsel to the law firm of Pennington, Moore, Wilkinson, Bell & Dunbar, P.A., and prior to that, had been a shareholder of the firm since January 1998. Prior to that, he was a shareholder and managing partner of Cobb Cole & Bell (now Cobb & Cole, P.A.), and he served as Of Counsel to Cobb Cole & Bell until August 2002. Mr. Bell was a member of the Florida House of Representatives from 1974 to 1988. He is Chairman of the Advisory Board for the College of Public Health at the University of South Florida, Member of the Florida Institute for Health Innovation, and a member of the Board of Directors of the Florida Children’s Home Society. The Board designated Mr. Bell as a Director Emeritus of the Company, effective immediately following the 2021 Annual Meeting of Shareholders.

 

 

Bradley Currey, Jr.	Director Emeritus
Director from 1995 until 2020

 

Skills and Experience

Mr. Currey, 90, served as Chief Executive Officer of RockTenn Company, a publicly held manufacturer of packaging and recycled paperboard products, from 1989 to 1999 and as Chairman of the Board of RockTenn Company from 1993 to 2000, when he retired. He also previously served as President (1978-1995) and Chief Operating Officer (1978-1989) of RockTenn Company. Mr. Currey previously served as a member of the Board of Directors and Executive Committee of RockTenn Company, and is currently Director Emeritus of Genuine Parts Company, a publicly traded company. Mr. Currey is Trustee Emeritus and a past Chairman of the Board of Trustees of Emory University. He is a Trustee Emeritus and past Chairman of the Board of the Woodruff Arts Center and the Atlanta Symphony Orchestra, a division of the Woodruff Arts Center in Atlanta, Georgia. The Board designated Mr. Currey as a Director Emeritus of the Company, effective immediately following the 2020 Annual Meeting of Shareholders.

 

 

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Director Independence

 

The New York Stock Exchange (“NYSE”) listed company manual requires directors to satisfy certain criteria to be deemed “independent.” The Board applies these standards in determining whether any director has a material relationship with the Company that would impair his or her independence, as discussed below. As required by the NYSE listed company manual, the Board considers all material relevant facts and circumstances known to it in making an independence determination, from the standpoints of both the director and persons or organizations with which the director has an affiliation.

 

The Board has considered the independence of our nominees in light of these NYSE standards and has affirmatively determined that the following 9 of the 12 director nominees have no material relationship with us other than service as a director, and are therefore independent: Hugh M. Brown; Lawrence L. Gellerstedt III; Theodore J. Hoepner; James S. Hunt; Toni Jennings; Timothy R.M. Main; H. Palmer Proctor, Jr.; Wendell S. Reilly; and Chilton D. Varner. The following factors were relevant to the Board’s determination of independence:

 

9 of the 12 director nominees have no material relationship with us other than service as a director 

 

•	The Board considered the relationships described below in “Relationships and Transactions with Affiliated Parties.”
•	In each case, the Board considered the fact that from time to time, in the ordinary course of business and on usual commercial terms, we and our subsidiaries may provide services in our capacities as insurance intermediaries to various directors of the Company, and to entities in which various directors of the Company have direct or indirect interests.
•	In the case of Mr. Main, the Board considered the fact that Mr. Main is Global Head of the Financial Institutions Group at Barclays Plc. The Board considered that (i) Mr. Main’s ownership interest in Barclays does not exceed ten percent, and he is not an executive officer of Barclays; (ii) there are no existing projects or transactions between Barclays’ investment banking division (i.e., the division in which Mr. Main holds his position) and the Company; (iii) in his role at Barclays, Mr. Main (a) is not permitted to cover the insurance brokerage sector, (b) is required to recuse himself from any conversations with clients or Barclays employees regarding the insurance business sector, (c) is prohibited from appearing as the coverage person for the Company on any Barclays books, records, or systems, and may not supervise any activity in relation to the Company or the insurance brokerage sector generally, and (d) is prohibited from selling the Company’s common stock while it is on Barclays’ “watch” or “restricted” list, except in accordance with Barclays’ personal investment policy; and (iv) during each year between 2016 and 2020, the interest amounts the Company paid to Barclays in connection with the Company’s borrowings from Barclays were less than one percent of the Company’s annual revenue, and less than one percent of Barclays’s annual revenue.
•	In the case of Mr. Hoepner, the Board considered the fact that he is an investor in a bank holding company in which Messrs. Hyatt Brown and Powell Brown also are investors, in which a checking account with a balance of approximately $1.6 million was maintained by the Company in 2020 and for which a subsidiary of the Company provides insurance services and concluded that the investment, which in the aggregate comprised less than five percent of the outstanding stock of the bank holding company, was not material.

 

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•

In the case of Mr. Proctor, the Board considered the fact that the Company maintains a money market account with a balance of approximately $10 million with Ameris Bank, of which Mr. Proctor is Chief Executive Officer, as well as Chief Executive Officer and a director of its parent company, and to both of which a subsidiary of the Company provides insurance services, and concluded that the relationship was not material.

 

Director Nominee Selection Process

 

The Nominating/Corporate Governance Committee is responsible for identifying and evaluating director nominees and for recommending to the Board a slate of nominees for election at each Annual Meeting of Shareholders. The Committee has not established “minimum qualifications” for director nominees because it believes that rigid “minimum qualifications” might preclude the consideration of otherwise desirable candidates for election to the Board.

 

1 The Committee evaluates director candidates based on a number of factors, including:	•    the need or desirability of maintaining or expanding the size of the Board; •    independence; •    credentials, including, without limitation, business experience, experience within the insurance industry, educational background, professional training, designations and certifications; •    interest in, and willingness to serve on, the Board; •    ability to contribute by way of participation as a member of Board committees; •    financial expertise and sophistication; •    basic understanding of the Company’s principal operational and financial objectives, plans and strategies, results of operations and financial condition, and relative standing in relation to the Company’s competitors; and •    willingness to commit requisite time and attention to Board service, including preparation for and attendance at regular quarterly meetings, special meetings, committee meetings and periodic Board “retreats” and director education programs.
2 Board diversity	With respect to diversity, while no formal policy has been proposed or adopted, heterogeneity of points of view, background, experience, credentials, gender, and ethnicity are considered desirable, and characterize the current composition of our Board.
3 Sources for identifying potential Board members	The Committee and the Board consider a variety of sources when identifying individuals as potential Board members, including other enterprises with which current Board members are or have previously been involved and through which they have become acquainted with qualified candidates. The Company does not pay any third party a fee to assist in the identification or evaluation of candidates.
	The Committee will consider director nominations that are submitted in writing by shareholders in accordance with our procedures for shareholder proposals. See “Proposals of Shareholders” below. Such proposals must contain all information with respect to a proposed candidate as required by the SEC’s proxy rules, must address the manner in which the proposed candidate meets the criteria described above, and must be accompanied by the consent of such proposed candidate to serve as a director, if elected.

 

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The Board’s Role and Responsibilities

 

Overview

 

The role of the Board of Directors is to oversee the affairs of the Company for the benefit of our shareholders and other constituencies, including our teammates, customers, suppliers, carrier partners, and the communities in which we do business. The Board strives to propel the success and continuity of the Company’s business through the selection of qualified management and through ongoing monitoring designed to assure the Company’s activities are conducted in a legal, responsible and ethical manner.

 

Risk Oversight

 

The Board and its committees actively oversee management of the Company’s risks. They receive regular reports from senior management on areas of material risk to the Company, including operational, financial, strategic, acquisition-related, technological, competitive, reputational, legal, and regulatory risks.

 

The Board believes risk oversight is a responsibility of the entire Board, and it does not look to any individual director or committee to lead it in discharging this responsibility. However, our Board committees have specific oversight responsibilities relating to certain aspects of risk management:

 

Our Audit Committee Regularly reviews our financial statements, certain financial disclosures, our financial and other internal controls, and regularly receives reports from management, including the Company’s Chief Information Officer and the Company’s Chief Information Security Officer, on the Company’s cybersecurity risks. Additionally, our Internal Audit Team and independent registered public accountants regularly identify and discuss with the Committee risks and related mitigation measures that may arise during their regular reviews of the Company’s financial statements and audit work, as applicable.   Our Compensation Committee Regularly reviews our executive compensation policies and practices, and other related employee benefits, and the risks associated with each. We believe our compensation policies and principles, in conjunction with our internal oversight of those policies and principles, reduce the possibility of imprudent risk-taking. We do not believe our compensation policies and principles are reasonably likely to have a material adverse effect on the Company.   Our Nominating/Corporate Governance Committee Considers issues associated with the independence of our Board, corporate governance and potential conflicts of interest. Additionally, the Committee oversees our environmental, social, and governance (ESG) policies and initiatives.

 

While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through attendance at committee meetings or through committee reports about such risks.

 

We believe the Board’s approach to risk oversight, as described above, helps assess various risks, make informed decisions, and evaluate emerging risks in a proactive manner for the Company.

 

Further, our Financial Internal Audit Team is responsible for the performance of the internal audit function and for testing compliance with policies and procedures relating to our financial reporting and control environment. Our Information Technology Audit Team is responsible for testing our systems and data security, as well as information technology controls. Our Insurance Operations Audit Team is responsible for the testing of our operational internal controls. Our Team Resources Audit Team tests compliance with internal guidelines and state and federal employment law requirements relating to compensation and human resources and regularly assesses risks and potential risks associated with our operations. These teams evaluate and support the integration of our acquisitions and report to our Audit Committee on a quarterly basis, unless more frequent reports are necessary. Our Director of Internal Audit regularly reports directly to the Audit Committee and regularly reviews the audits of our businesses and related control environment.

 

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Our General Counsel is primarily responsible for enterprise risk management for the Company. On a quarterly basis, our General Counsel presents an enterprise risk management analysis to our Board of Directors, which includes an assessment of overall risk, risk mitigation and elimination priorities, anonymous ethics hotline reports and claims liabilities. Also, our Chief Executive Officer and General Counsel annually deliver a detailed presentation to our Board of Directors about risks associated with our business. This presentation includes extensive discussion, analysis and categorization of risks with respect to likelihood of occurrence, severity and frequency, as well as consideration of mitigating factors that contribute to lessening the potential adverse consequences associated with such risks (which can never, in any business, be fully eliminated). This presentation is prepared with input from the Company’s senior leaders, as well as our Chief Information Security Officer.

 

Talent Management and Succession Planning

 

The Chairman of the Board, as well as our Chief Executive Officer, routinely discuss with the Board, generally in executive sessions, the Company’s management development and succession activities.

 

Communication with Directors

 

Interested parties, including shareholders, may communicate with our Board of Directors, with specified members or committees of our Board, with non-management directors as a group or with the Lead Independent Director, H. Palmer Proctor, Jr., by sending correspondence to our Corporate Secretary at 300 N. Beach St., Daytona Beach, Florida 32114, and specifying in such correspondence that the message is for our Board or for one or more of its members or committees. Communications will be relayed to directors no later than the next regularly scheduled quarterly meeting of the Board and Board Committees.

 

Corporate Governance Principles; Code of Business Conduct and Ethics; Code of Ethics for Chief Executive Officer and Senior Financial Officers

 

The Board of Directors has adopted Corporate Governance Principles, a Code of Business Conduct and Ethics, and a Code of Ethics for Chief Executive Officer and Senior Financial Officers, the full text of each of which can be found in the “Corporate Governance” section of the “Investor Relations” tab, under “Key Documents” on our website (www.bbinsurance.com), and each of which is available in print to any shareholder who requests a copy by writing to our Corporate Secretary at 300 N. Beach St., Daytona Beach, Florida 32114.

 

Related Party Transactions Policy

 

Under our Related Party Transactions Policy, our General Counsel (or our Chief Executive Officer if the related party is our General Counsel or an immediate family member of our General Counsel) will review any potential Related Party Transaction to determine if it is subject to the Policy. If so, the transaction will be referred to the Nominating/Corporate Governance Committee for approval or ratification. If, however, the General Counsel determines that it is not practical to wait until the next meeting of the Nominating/Corporate Governance Committee, the Chair of the Nominating/Corporate Governance Committee shall have the authority to act on behalf of the Nominating/Corporate Governance Committee on whether to approve or ratify a Related Party Transaction (unless the Chair of the Nominating/Corporate Governance Committee is a Related Party in the Related Party Transaction). In determining whether to approve or ratify a Related Party Transaction, the Nominating/Corporate Governance Committee (or, as applicable, the Chair of the Nominating/Corporate Governance Committee) will consider, among other things, the benefits of the transaction to the Company, the potential effect of entering into the transaction on a director’s independence, the availability of other sources for the products or services, the terms of the transaction and the terms available to unrelated third parties generally. The Nominating/Corporate Governance Committee has authority to administer the Policy and to amend it as appropriate from time to time.

 

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For purposes of our Policy, “Related Party Transactions” are transactions in which the Company is a participant, the amount involved exceeds $120,000 when all such transactions are aggregated with respect to an individual, and a “related party” had, has or will have a direct or indirect material interest. “Related parties” are our directors (including any nominees for election as directors), our executive officers, any shareholder who beneficially owns more than five percent (5%) of our outstanding common stock, and any firm, corporation, charitable organization or other entity in which any of the persons listed above is an officer, general partner or principal or in a similar position or in which the person has a beneficial ownership interest of ten percent (10%) or more.

 

Relationships and Transactions with Affiliated Parties

 

P. Barrett Brown, who is the son of Mr. Hyatt Brown and the brother of Mr. Powell Brown, is an Executive Vice President and President of the Company’s Retail Segment. In 2020, he received compensation of $1,885,412, consisting of $1,840,308 for services rendered to the Company in 2020, $33,704 in cash dividends paid on granted Performance Stock Plan (“PSP”), 2010 Stock Incentive Plan (“2010 SIP”), and 2019 Stock Incentive Plan (“2019 SIP”) shares for which conditions of vesting other than time-based conditions have been satisfied, and $11,400 in matching contributions made by the Company to his 401(k) Plan account. In addition, Mr. Barrett Brown received grants under our 2019 SIP in February 2020 and February 2021 with grant date fair values of $499,944 and $491,286, respectively.

 

Zambezi, LLC (“Zambezi”), a Florida limited liability company whose Members and Managers are J. Hyatt Brown and his wife, Cici Brown, owns a Cessna Citation Sovereign aircraft (the “Aircraft”), which the Company leases pursuant to an Aircraft Dry Lease Agreement (the “Agreement”) with Zambezi. In 2020, the Company paid Zambezi $41,508 under the Agreement to lease the Aircraft. Pursuant to the Agreement, subject to availability of the Aircraft and other specified conditions, Mr. Hyatt Brown has the right to use the Aircraft for personal use, subject to reimbursement paid to the Company at the maximum rate permitted by law. Mr. Hyatt Brown paid $103,944 to the Company for such personal use of the Aircraft in 2020. The Company and Zambezi also are party to an Airside Sub-Lease Agreement and Services Agreement, pursuant to which Zambezi leases hangar space from the Company and pursuant to which pilots and mechanics employed by the Company are available to pilot and service the Aircraft as provided therein. In 2020, Zambezi paid the Company $19,937 for the lease of hangar space for the Aircraft, and $237,261 for the services of pilots and mechanics employed by the Company and for parts, equipment, and supplies related to the Aircraft’s maintenance and operation.

 

On July 27, 2020, the Company, Hays Companies, Inc., a Florida corporation f/k/a BBHG, Inc. and wholly owned subsidiary of the Company (“Buyer” or “HCI”), The HG Group, Inc., f/k/a The Hays Group, Inc., a Minnesota corporation (“THG”), The Hays Group Of Wisconsin LLC, a Minnesota limited liability company (“THGW”), The Hays Benefits Group, LLC, a Minnesota limited liability company (“THBG”), PlanIT, LLC, a Minnesota limited liability company (“PlanIT”), The Hays Benefits Group of Wisconsin, LLC, a Minnesota limited liability company (“THBGW”), and The Hays Group of Illinois, LLC, a Minnesota limited liability company (“THGI”); and Claims Management of Missouri, LLC, a Missouri limited liability company (dba MMMA Claims Management) (“MMMA,” and together with THG, THGW, THBG, PlanIT, THBGW and THGI, each a “Seller” and collectively, the “Sellers”), and THG, as the Sellers’ Representative (the “Sellers’ Representative”), entered into an amendment (the “Amendment”) to the asset purchase agreement dated October 22, 2018 (the “Purchase Agreement”), pursuant to which Buyer purchased certain assets and assumed certain liabilities of the Sellers (the “Acquisition”). The Purchase Agreement provided that the Sellers may receive additional consideration from Buyer, if earned, in the form of earn-out payments (the “Earn-Out Payments”) in the aggregate amount of up to $25 million in cash over three years, subject to certain conditions and the successful achievement of average annual EBITDA compound annual growth rate targets for the acquired business during 2019, 2020 and 2021 (the “Earn-Out Period”). Pursuant to the Amendment, the parties to the Purchase Agreement agreed that (a) based on the financial performance of the acquired business from the period from January 1, 2019, through June 30, 2020, Buyer has determined that the acquired business has achieved sufficient average annual EBITDA that the calculated Earn-Out Payments will exceed the maximum Earn-Out Payments amount of $25,000,000, (b) the Sellers will be deemed to have achieved the maximum Earn-Out Payments of $25,000,000 as of the date of the Amendment, (c) the operational covenants of Buyer with respect to

 

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the operation of the acquired business during the remainder of the Earn-Out Period are terminated, and (d) the Earn-Out Payments of $25,000,000 will be paid in accordance with the Purchase Agreement in the first quarter of calendar year 2022. Mr. James Hays, who is one of our directors and also serves as Vice Chairman of the Company, has the right to receive cash consideration in the amount of approximately $5,200,000 upon payment of the Earn-Out Payments pursuant to the Amendment.

 

Jessica H. Whinnery, who is the daughter of Mr. James Hays, is employed by a subsidiary of the Company as a Benefits Consultant in the Company’s Minneapolis, Minnesota office and received compensation of $171,267, consisting of $164,680 for services rendered in 2020 and $6,587 in matching contributions made by the Company to her 401(k) Plan account.

 

The owners of The Hays Financial Group, Inc. (“HFG”), a Minnesota corporation and registered investment advisor, include Brian Whinnery, who is the son-in-law of Mr. James Hays, and who individually owns approximately 10% of the outstanding stock of HFG, and THG, which owns approximately 70% of the outstanding stock of HFG and of which Mr. James Hays individually owns approximately 21% of the outstanding stock. During 2020, HFG paid HCI, a subsidiary of the Company, approximately $467,437 in connection with business referrals made from HCI to HFG, and HCI paid HFG approximately $40,051 in connection with business referrals made by HFG to HCI.

 

During 2020, TGH reimbursed HCI, a subsidiary of the Company, approximately $180,000 for accounting and administrative services provided by employees of HCI to THG.

 

Jeffrey L. Hays, who is the son of Mr. James Hays, is the majority owner of RLA Insurance Intermediaries, LLC, a wholesale insurance brokerage firm headquartered in Boston, Massachusetts (“RLA”) that occasionally places insurance products or services on behalf of certain offices within our Retail Segment. Between January 1, 2020 and February 28, 2020, we received net agency commissions of approximately $293,780 in connection with the placement of insurance products or services placed by RLA on behalf of offices within our Retail Segment.

 

Effective March 1, 2020, Peachtree Special Risk Brokers, LLC, a wholly owned subsidiary of the Company (“Peachtree”), acquired substantially all of the assets, and assumed certain liabilities, of RLA, pursuant to that certain asset purchase agreement (the “Asset Purchase Agreement”), by and among the Company, Peachtree, RLA, and RLA’s individual owners. Pursuant to the Asset Purchase Agreement, Peachtree paid to RLA an initial purchase price of $50,725,000 at the closing of the transaction, and an additional amount of up to $22,500,000 may be paid based on the performance of the acquired assets during the three-year period following the effective date of the transaction. The Asset Purchase Agreement includes certain five-year non-competition and non-solicitation covenants applicable to Mr. Jeffrey Hays.

 

In addition, effective as of March 1, 2020, Mr. Jeffrey Hays became employed by Peachtree as an Executive Vice President and profit center leader of our new “RLA Insurance Intermediaries” profit center, and he entered into an Employment Agreement with Peachtree that provides for payment of the following compensation for a three-year term of employment: (i) an annual base salary of $400,000, (ii) an annual bonus based upon the performance of the RLA Insurance Intermediaries profit center, and (iii) additional commissions based upon the growth of his individual book of business. During the initial three-year employment term, Peachtree may only terminate the Employment Agreement “with cause.” Mr. Jeffrey Hays’ Employment Agreement includes a prohibition on directly or indirectly soliciting or servicing our clients or soliciting our employees to leave their employment with us. For 2020, Mr. Jeffrey Hays received compensation of $334,915, consisting of $323,515 for services rendered in 2020 and $11,400 in matching contributions made by the Company to his 401(k) Plan account.

 

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Board Structure and Process

 

Board Leadership

 

Our Board has the flexibility to determine whether the roles of Chairman of the Board and Chief Executive Officer should be separated or combined. The Board makes this decision based on its evaluation of the circumstances and the specific needs of the Company. Mr. Hyatt Brown, who retired from the position of Chief Executive Officer in 2009, continues to serve as Chairman of the Board, while Mr. Powell Brown serves as Chief Executive Officer.

 

We believe our leadership structure is desirable because it allows Mr. Powell Brown to focus his efforts on running our business and managing the Company in the best interests of our shareholders, while we continue to realize the benefits of Mr. Hyatt Brown’s extensive business and industry experience, knowledge of our company, current and past service on boards of other publicly traded companies and proven leadership ability.

 

The Board conducts executive sessions of non-management directors in connection with each regularly scheduled meeting of the Board. Our Lead Independent Director, H. Palmer Proctor, Jr., presides over these executive sessions.

 

Board and Board Committee Matters

 

Our Board of Directors has an Audit Committee, Compensation Committee, and Nominating/Corporate Governance Committee. The charters of each of these Board committees are available in the “Corporate Governance” section of the “Investor Relations” tab, under “Key Documents” on our website (www.bbinsurance. com) and are also available in print to any shareholder who requests a copy from the Corporate Secretary at 300 N. Beach St., Daytona Beach, Florida 32114. Our committee meetings are generally attended by all Board members, subject to the availability of each director, which we believe enables our Board to function in a more collaborative, transparent, and effective manner, and which we believe promotes collegiality among the Board.

 

Audit Committee

Members   James S. Hunt (Chair) Samuel P. Bell, III Theodore J. Hoepner Lawrence L. Gellerstedt III   Six Meetings Held in 2020	The Audit Committee is composed of independent directors as defined in the NYSE listed company manual and includes two audit committee financial experts, Theodore J. Hoepner and James S. Hunt, among its members. The duties of the Audit Committee are to recommend to the Board of Directors the selection of independent registered public accountants, to meet with our independent registered public accountants to review and discuss the scope and results of the annual audit, and to consider various accounting, auditing, and technology matters related to the Company, including our systems of internal controls and financial management practices.
Compensation Committee
Members   Wendell S. Reilly (Chair) Hugh M. Brown Toni Jennings Chilton D. Varner   Six Meetings Held in 2020	Each member of the Compensation Committee is independent as defined in the NYSE listed company manual. The Compensation Committee sets the compensation for our Chief Executive Officer and reviews and approves the compensation for our other executive officers, including the Named Executive Officers. See “Executive Compensation - Compensation Committee Report” and “Compensation Discussion and Analysis” below. The Compensation Committee also reviews, makes recommendations with respect to, and approves our existing and proposed compensation plans, and is responsible for administering our 1990 Employee Stock Purchase Plan (“ESPP”), our 2008 Sharesave Plan, our PSP, which was suspended in April 2010, our ISO Plan, which expired December 31, 2008, our 2010 SIP, which was suspended in May 2019, and our 2019 SIP. The Compensation Committee is authorized by its charter to form and delegate authority to subcommittees when appropriate.

 

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Nominating/Corporate Governance Committee

Members   H. Palmer Proctor, Jr. (Chair) Samuel P. Bell, III Theodore J. Hoepner Toni Jennings Wendell S. Reilly Chilton D. Varner Five Meetings Held in 2020

Each member of the Nominating/Corporate Governance Committee is independent as defined in the NYSE listed company manual. This Committee’s duties include responsibilities associated with corporate governance, as well as the nomination of persons to stand for election to the Board at our Annual Meeting of Shareholders and recommendation of nominees to the Board of Directors to fill vacancies on, or as additions to, the Board.

 

 

Director Tenure and Board Refreshment

 

The Nominating/Corporate Governance Committee regularly considers the composition of the Board. However, we have not established a mandatory retirement age or other term limits because we believe longer-tenured directors can bring important experience and institutional knowledge that are critical to the success of our Board and the long-term interests of our shareholders. Consideration is given to rotating committee members, committee chairs, and the Lead Independent Director position generally every three to five years because we believe we benefit from having a level of consistency in our committee compositions and committee chairs, but that fresh perspectives likewise facilitate enhanced Board and committee performance. Our Nominating/ Corporate Governance Committee evaluates the performance of each incumbent director at least annually before recommending his or her nomination for an additional term. In addition, any director who has a job change must submit a letter of resignation resigning from the Board. The submission of a letter of resignation provides an opportunity for the Board to review the continued appropriateness of the director’s membership on the Board under the circumstances.

 

Board Evaluations

 

The Nominating/Corporate Governance Committee conducts an annual evaluation of the Board and its committees, as well as the individual performance of each director. As part of this process, all directors complete detailed confidential questionnaires to provide feedback on the effectiveness of the Board, the committees and the performance of individual directors. The results of the questionnaires are compiled anonymously by the Chair of the Nominating/Corporate Governance Committee in the form of summaries, and the feedback is reviewed and discussed by the Nominating/ Corporate Governance Committee and subsequently reported to the full Board. We believe these assessments allow us to continually improve the effectiveness of our Board and committee meetings throughout the year.

 

Meetings and Attendance

 

During 2020, our Board of Directors held 10 meetings. Each incumbent director serving during 2020 attended at least 75% of the total number of Board meetings, and 75% of the total number of meetings of committees of which such director is or was a member. The Board expects, but does not require, directors, all of whom, other than Samuel P. Bell, III, are director nominees, to attend the Annual Meeting of Shareholders. All then-current members of the Board attended the 2020 Annual Meeting of Shareholders.

 

All Board and Board committee meetings during 2020, other than those held in January 2020, were conducted virtually due to the COVID-19 pandemic.

 

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Director Compensation

 

2020 Director Compensation

 

Our Board of Directors reviews the compensation of our non-employee directors at least every two years or as such other time as circumstances may warrant. Frederic W. Cook & Co., Inc. (“FW Cook”), an independent outside compensation consulting firm retained by the Compensation Committee, most recently conducted a comprehensive analysis of the Company’s non-employee director compensation review in 2019. There were no changes to the compensation of our non-employee directors for 2020.

 

During 2020, non-employee directors were paid an annual retainer of $80,000, payable in quarterly installments. In addition, the Chairs of the Audit and Compensation Committees are each paid a $10,000 retainer, and the Chairs of the Nominating/Corporate Governance and Acquisition Committees each receive a $6,000 retainer, for services associated with those positions. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with meetings of the Board.

 

Also, each director who is not an employee of the Company received in May 2020 a grant of fully vested shares of our common stock under our 2019 SIP, valued at $80,000. While such grants are usually valued as of the close of business on the last business day before the regular May meeting of the Compensation Committee, in light of the decline in the Company’s stock price that occurred as part of the overall market turbulence at the onset of the COVID-19 pandemic, the Compensation Committee, with the Board’s input, instead calculated the number of shares to be granted to each non-employee director based upon the closing price of the Company’s common stock on February 20, 2020. This decision was intended to signal solidarity with the Company’s management, who had been issued SIP grants in February 2020, which grants had since decreased in value as a result of the corresponding stock price decline.

 

No director who is an employee receives separate compensation for services rendered as a director.

 

The following table sets forth cash and other compensation earned during 2020 by directors who are not Named Executive Officers.

 

2020 DIRECTOR COMPENSATION

 

			Fees Earned or				Stock				All Other
			Paid in Cash				Awards				Compensation				Total
	NAME		($)				($)				($)				($)
	SAMUEL P. BELL, III			80,000				58,655				—				138,655
	HUGH M. BROWN			80,000				58,655				—				138,655
	J. HYATT BROWN			—				—				211,848	(1)			211,848
	LAWRENCE L. GELLERSTEDT III			80,000				58,655				—				138,655
	JAMES C. HAYS			—				—				1,287,515	(2)			1,287,515
	THEODORE J. HOEPNER			80,000				58,655				—				138,655
	JAMES S. HUNT			90,000				58,655				—				148,655
	TONI JENNINGS			80,000				58,655				—				138,655
	TIMOTHY R.M. MAIN			86,000				58,655				—				144,655
	H. PALMER PROCTOR, JR.			86,000				58,655				—				144,655
	WENDELL S. REILLY			90,000				58,655				—				148,655
	CHILTON D. VARNER			80,000				58,655				—				138,655

 

(1)

During 2020, J. Hyatt Brown, who is the father of J. Powell Brown, a director and President and Chief Executive Officer of the Company, and P. Barrett Brown, an Executive Vice President and President – Retail Segment, received compensation of $211,848, consisting of $180,000 for services rendered to the Company in 2020, including assistance with acquisitions and recruitment, $6,480 in matching contributions made by the Company to his 401(k) Plan account, $22,543 for reimbursement of amounts earned by the Company for personal lines insurance he purchased through the Company or its subsidiaries, and $2,825 for the cost of certain club membership dues. Mr. Hyatt Brown serves as Chairman of the Board of the Company.

 

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(2)

During 2020, James C. Hays received compensation of $1,287,515, consisting of $1,236,885 for services rendered to the Company in 2020, $11,400 in matching contributions made by the Company to his 401(k) Plan account, and $39,230 for the cost of certain club membership dues. Mr. James Hays, who serves as Vice Chairman of the Company, is a party to an Employment Agreement with the Company, effective as of November 16, 2018, that provides for payment of an annual base salary of $517,000 for a three-year term of employment, after which time this amount will be as mutually agreed upon between Mr. James Hays and the Company, and which provides that the Company will terminate the agreement only “with cause” during the initial three-year term. Pursuant to his Employment Agreement, Mr. James Hays is also eligible during the initial three-year term to participate in the Company’s Senior Leader Bonus Program in effect from time to time, and his bonus target under the Senior Leader Bonus Program is $700,000. The Company has determined that Mr. James Hays is not an executive officer.

 

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Audit Matters

 

Proposal 2: Ratification of the Appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accountants
The Audit Committee of the Board of Directors has selected Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021. Deloitte & Touche LLP has served as our independent registered public accounting firm since the fiscal year ended December 31, 2002.
The Board recommends a vote FOR the ratification of Deloitte & Touche LLP for 2021.

The Committee and the Board are requesting that shareholders ratify this appointment as a means of soliciting shareholders’ opinions and as a matter of good corporate governance. If the shareholders do not ratify the selection, the appointment of the independent registered public accountants will be reconsidered by the Committee. Even if the selection is ratified, the Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such change would be in the best interests of the Company and its shareholders.

 

One or more representatives of Deloitte & Touche LLP are expected to be present at the Meeting, will have the opportunity to make a statement, and will be available to respond to appropriate questions from shareholders.

 

Vote Required; Board Recommendation

 

In order to be ratified, this Proposal 2 must receive the affirmative vote of a majority of the votes cast on the Proposal. The Board of Directors believes that the ratification of Proposal 2 is in the best interests of the Company and its shareholders.

 

The Board unanimously recommends a vote “FOR” this proposal.

 

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Report of the Audit Committee

 

The Audit Committee of the Board of Directors operates pursuant to an Audit Committee Charter, which was most recently reviewed by the Committee in October 2020 and amended in January 2021. The Charter is posted on the Company’s website (www.bbinsurance.com) in the “Corporate Governance” section of the “Investor Relations” tab, under “Key Documents.”

 

Each member of the Audit Committee qualifies as “independent” (as that term is defined in the NYSE listed company manual, as well as other statutory, regulatory and other requirements applicable to the Company’s Audit Committee members).

 

With respect to the fiscal year ended December 31, 2020, the Audit Committee:

 

1.	has reviewed and discussed the Company’s audited financial statements with management and the independent registered public accountants;
2.	has discussed with the independent registered public accountants of the Company the matters required to be discussed by the standards of the Public Company Accounting Oversight Board, including those described in Auditing Standard No. 16, Communications with Audit Committees;
3.	has received and reviewed the written disclosures and the letter from the independent registered public accountants required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accountants’ communications with the Audit Committee concerning independence, and has discussed with the independent registered public accountants the independent registered public accountants’ independence; and
4.	based on the review and discussions with management and the independent registered public accountants referenced above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, for filing with the Securities and Exchange Commission.

 

It is not the duty or responsibility of the Audit Committee to conduct auditing or accounting reviews or procedures. In performing its oversight responsibility, members of the Audit Committee rely without independent verification on the information provided to them and on the representations made by management and the independent registered public accountants. Accordingly, the Audit Committee’s considerations and discussions do not assure that the audit of the Company’s financial statements has been carried out in accordance with the standards of the Public Company Accounting Oversight Board or that the financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

 

AUDIT COMMITTEE

 

James S. Hunt (Chair)
Samuel P. Bell, III
Theodore J. Hoepner
Lawrence L. Gellerstedt III

 

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Information Concerning Independent Registered Public Accountants

 

Fees Paid to Deloitte & Touche LLP

 

We incurred the following fees for services performed by Deloitte & Touche LLP for fiscal years 2020 and 2019:

 

			2019				2020
	AUDIT FEES:(1)		$	2,340,553			$	1,957,973
	AUDIT-RELATED FEES:(2)		$	0			$	0
	TAX FEES:(3)		$	0			$	0
	ALL OTHER FEES:(4)		$	0			$	0
	TOTAL:		$	2,340,553			$	1,957,973

 

(1)	Audit Fees were the aggregate fees billed to us by Deloitte & Touche LLP for professional audit services rendered for the audit of our annual financial statements, the review of financial statements included in our Forms 10-Q and the audit of our internal control over financial reporting for the fiscal years ended December 31, 2020 and 2019, including any out-of-pocket expense.
(2)	Audit-Related Fees are fees for assurance and related services reasonably related to the performance of the audit or review of our financial statements that are not reported above under the caption “Audit Fees” for the fiscal year ended December 31, 2020 and 2019. Deloitte & Touche LLP did not provide any such services during the periods.
(3)	Tax Fees are fees for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 2020 or 2019. Deloitte & Touche LLP did not provide any such services during the periods.
(4)	Deloitte & Touche LLP did not provide any “other services” during the periods.

 

Audit Committee Policy for Pre-Approval of Independent Registered Public Accountant Services

 

Our policy requires that the Audit Committee consider and approve in advance any proposed engagement of the independent registered public accountants to perform services in addition to those approved in connection with their annual engagement letter, except for certain limited non-audit services. During fiscal years 2020 and 2019, all services were approved by the Audit Committee in accordance with this policy.

 

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Compensation Matters

 

Proposal 3: Advisory Vote to Approve Named Executive Officer Compensation
At the Meeting, we will ask our shareholders to approve, on a nonbinding, advisory basis, under Section 14A of the Exchange Act, the compensation of our Named Executive Officers as disclosed in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on our executive compensation. We have held a similar shareholder vote every year since 2011 and expect to hold a similar vote at the 2022 Annual Meeting.
The Board recommends a vote FOR the resolution to approve on a non-binding advisory basis the compensation of the named executive officers.

 

As described in detail below under “Compensation Discussion and Analysis,” our executive compensation program is designed to attract, motivate, and retain our Named Executive Officers, who are critical to our success. Accordingly, our Named Executive Officers are rewarded to the extent we achieve specific annual goals and deliver financial performance intended to increase long-term shareholder value.

 

Our Compensation Committee has adopted an approach to executive compensation that we believe enables the Company to retain its executive talent while remaining committed to our core compensation philosophy of paying for performance and aligning executive compensation with shareholder interests. The Committee continually reviews the compensation programs for our Named Executive Officers with the goal of most effectively aligning our executive compensation structure with our shareholders’ interests and current market practices. For example, (1) a significant portion of pay is performance-based, (2) compensation is incentive-driven with both short- and long-term focus, and (3) we believe components of compensation are linked to increasing shareholder value.

 

We are again asking our shareholders to indicate their support for our executive officer compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the philosophy, program and practices described in this Proxy Statement in accordance with the SEC’s compensation disclosure rules. Accordingly, we ask our shareholders to vote “FOR” the approval, on an advisory basis, of executive compensation.

 

The say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or our Board. However, our Board and Compensation Committee value the opinions of our shareholders, and to the extent there is any significant vote against the executive compensation as disclosed in this Proxy Statement, we will consider our shareholders’ concerns, and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.

 

Accordingly, we ask our shareholders to vote on the following resolution at the Meeting:

 

“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.”

 

Vote Required; Board Recommendation

 

In order to be approved, this Proposal 3 must receive the affirmative vote of a majority of the votes cast on the Proposal. The Board of Directors believes that the advisory approval of Proposal 3 is in the best interests of the Company and its shareholders.

 

The Board unanimously recommends a vote “FOR” this proposal.

 

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Compensation Matters

 

Compensation Committee Report

 

Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this Proxy Statement, in whole or in part, the following Board Compensation Committee Report shall not be incorporated by reference into any such filings.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on this review and those discussions, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

COMPENSATION COMMITTEE

 

Wendell S. Reilly (Chair)
Hugh M. Brown
Toni Jennings
Chilton D. Varner

 

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Executive Summary

 

Our Compensation Committee has responsibility for the design, implementation, and approval of the compensation of our executive officers. We seek to provide an executive compensation package that supports our business strategy and is driven by our overall financial performance, the success of the business segments and corresponding financial performance that are directly impacted by the executive’s leadership, and the performance of the individual executive. The Compensation Committee periodically reviews, with the support of an independent compensation consultant, the pay practices of other companies with the goal of seeing that the Company’s executive compensation program remains competitive but does not target compensation decisions or levels to a specific percentile or other absolute measures related to comparison group data.

 

At last year’s Annual Meeting of Shareholders, 97% of the votes cast were in favor of the advisory vote to approve executive compensation. In view of this favorable vote (as well as a similar favorable vote in 2019) and the success of our 2019 executive compensation policies in incentivizing results that were aligned with the long-term interests of our shareholders, as well as other factors (including regulatory requirements, market considerations, and Company and individual performance), our executive compensation policies and practices were substantially unchanged from the prior year.

 

For 2020, our Named Executive Officers were as follows:

 

	Name		Principal Position
	J. Powell Brown		Chief Executive Officer and President
	R. Andrew Watts		Chief Financial Officer, Executive Vice President and Treasurer
	J. Scott Penny		Executive Vice President and Chief Acquisitions Officer
	Anthony T. Strianese		Executive Vice President and Chairman - Wholesale Brokerage Segment
	Chris L. Walker		Executive Vice President and President - National Programs Segment

 

We believe our compensation system continues to effectively incentivize our executive officers to deliver results for the Company that are aligned with the long-term interests of our shareholders. As reflected in the table below, we delivered strong performance in 2020, and as a result, the annual cash incentives for our Named Executive Officers were calculated and paid above the target amounts:

 

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Performance Highlights

 

 

Source: FactSet as of December 31, 2020.

 

(1)	Calculated as change in share price plus total dividends paid.
(2)	Represents median total return of Aon plc, Willis Towers Watson PLC, Arthur J. Gallagher & Co., and Marsh & McLennan Companies Inc.

 

 

 

(1)	See Annex A for additional information regarding Organic Revenue, Organic Revenue growth and Adjusted EBITDAC Margin, which are non-GAAP financial measures, including a reconciliation to the most closely comparable GAAP financial measure.
(2)	Income before income taxes margin is calculated as the Company’s income before income taxes, as reported, divided by total revenues, as reported.
(3)	National Programs Segment Organic Revenue growth was adjusted (i) for 2019 and 2020, to exclude the impact of certain offices within the National Programs Segment for which Chris L. Walker, Executive Vice President and President - National Programs Segment, did not have responsibility in 2019 and 2020, respectively, (ii) for 2019 and 2020, to include the impact of certain offices within the Services Segment for which Mr. Walker did have responsibility in 2019 and 2020, respectively, and (iii) for 2019, to exclude a one-time, non-cash increase of approximately $8 million in the commissions and fees earned by one of the businesses in our National Programs Segment in 2018 resulting solely from our implementation of the New Revenue Standard. See Annex A for additional information regarding National Programs Segment Organic Revenue growth - adjusted, which is a non-GAAP financial measure, including a reconciliation to the most closely comparable GAAP financial measure.

 

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Our Compensation Philosophy

 

Our compensation system is intended to:

 

	1	2	3
Attract and Retain		Compensate for Performance	Create a Common Interest
High-quality people that are crucial to both the short-term and long-term success of the Company		Linked to our strategic objectives through the use of incentive compensation programs	Between our executive officers and shareholders through compensation structures that promote the sharing of the rewards and risks of strategic decision-making

 

In support of these goals, for 2020, our incentive compensation program included both long- and short-term compensation and was tied to increases in our adjusted earnings per share, Organic Revenue growth, Adjusted EBITDAC Margin, and predetermined personal objectives for each of our executive officers. The COVID-19 pandemic was not a consideration at the time our 2020 incentive compensation program was established, and we made no changes to our incentive compensation program in 2020 due to pandemic-related circumstances. Notwithstanding the overall market and economic volatility surrounding the COVID-19 pandemic, we believe our compensation program rewarded our executives for delivering strong financial results that aligned with the long-term interests of our shareholders.

 

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Compensation Components

 

Our compensation philosophy is reflected in the following short-term and long-term compensation components:

 

1 Base Salary	Rationale •  Provide competitive levels of compensation to our executive officers based on scope of responsibilities and duties •  Recruit and retain executive officers How Amounts Are Determined •  Based on a wide range of factors, including business results, individual performance and responsibilities, and comparative market assessments
2 Annual Cash Incentives and Bonuses	Rationale •  Align executive officers’ performance with annual goals and objectives •  Create a direct link between pay and current year financial and operational performance How Amounts Are Determined •  Target payouts based upon comparative market assessments, recommendations by chief executive officer, and input from the Compensation Committee’s independent compensation consultant, subject to the approval of Compensation Committee or, in the case of the chief executive officer, recommendations from the Compensation Committee’s independent compensation consultant, subject to the approval of Compensation Committee based upon its annual chief executive officer performance review •  Actual payout based upon a combination of Company and/or segment performance and achievement of personal performance objectives •  Additional discretionary bonus available as determined by chief executive officer, subject to the approval of Compensation Committee, or, in the case of chief executive officer, as determined by Compensation Committee
3 Long-Term Equity Incentive Awards	Rationale •  Reward effective long-term capital management and decision-making •  Focus attention on future returns to shareholders •  Retain executive officers who have the potential to impact both our short-term and long-term profitability through a combination of time- and performance-based awards •  Recognize and reward specific achievements and/or the previous year’s performance •  Generally granted annually during first quarter How Amounts Are Determined •  Award amount determined based upon a blend of quantitative measures and consideration of personal performance, as well as comparative market assessments •  For awards with a performance-based vesting condition, number of awarded shares may be higher or lower than target, subject to specified threshold and maximum amounts, based upon the Company’s performance during the performance period •  Actual value realized based upon the Company’s stock price over measurement and vesting periods

 

 

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The chart below shows the 2020 mix of compensation for our Chief Executive Officer and for the other Named Executive Officers as a group.

 

 

*	Total of all percentages does not equal 100% due to rounding.

 

How We Set Compensation

 

Role of Management

 

The Compensation Committee considers input from our Chief Executive Officer in making determinations regarding the compensation of our executive officers, other than our Chief Executive Officer. As part of the annual planning process, our Chief Executive Officer recommends, and presents to the Compensation Committee for consideration, base salary adjustments, framework and targets for our annual cash incentive program, and long-term equity incentive award amounts, in each case based upon an individual’s performance and responsibilities, as well as comparative market data, as described below, for our executive officers, other than our Chief Executive Officer. In addition, our Chief Executive Officer periodically presents to the Compensation Committee and the Board his evaluation of each executive officer’s performance and reviews succession plans for each of our executive officers.

 

Role of the Compensation Consultant

 

Beginning in August 2015, the Compensation Committee engaged FW Cook to assist with a review of the components, structure and design of the long-term equity incentive arrangements with our executive officers and other key employees. The primary goal of this engagement was to help design long-term equity incentive arrangements that continue to be competitive and aligned with shareholder interests. FW Cook has remained engaged by the Compensation Committee to advise and assist with other matters related to executive and non-employee director compensation. The Compensation Committee considers FW Cook to be independent because FW Cook performed no services for the Company’s management unrelated to services performed for the Compensation Committee and there was no conflict of interest raised as a result of any work performed by FW Cook, directly or indirectly, for the Compensation Committee during fiscal years 2015-2020.

 

Comparative Market Assessment

 

The Compensation Committee does not target compensation decisions or levels to a specific percentile or other absolute measures related to comparison group data but does periodically review the pay practices of other companies with the goal of seeing that the Company’s executive compensation program remains competitive. Historically, these analyses have been completed approximately every two or three years, unless there has been a material change in our business or in one of our segments, as comparative market rates do not typically materially change over the short term.

 

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In 2019, FW Cook conducted a comprehensive analysis of the Company’s pay practices and executive compensation levels as compared to a group of the Company’s peers (the “2019 Comparative Market Assessment”), as described below. In January 2021, FW Cook conducted an additional analysis of the Company’s compensation levels of its Chief Executive Officer as compared to a group of the Company’s peers (the “2021 Comparative Market Assessment” and together with the 2019 Comparative Market Assessment, the “Comparative Market Assessments”), as described below.

 

Proxy Comparison Group

 

For the Comparative Market Assessments, FW Cook focused on our peers in the Russell 3000 of similar size, industry, and business characteristics. The other insurance intermediaries for which compensation data was publicly available—Aon plc, Arthur J. Gallagher & Co, Marsh & McLennan Companies Inc. and Willis Towers Watson PLC—compete with us the most directly for talent. However, these publicly traded insurance intermediaries are significantly larger than we are in total assets, total revenue and market capitalization. Because of these differences in size, FW Cook also reviewed the compensation practices of nine publicly traded insurance carriers and several other companies in the capital markets industry. The proxy comparison group was as follows:

 

Peer Company	Business Focus
Arch Capital Group Ltd.	Property & Casualty Insurance Carrier
AXIS Capital Holdings Limited	Property & Casualty Insurance Carrier
Aon plc	Insurance Intermediary
Argo Group International Holdings	Property & Casualty Insurance Carrier
Arthur J. Gallagher & Co.	Insurance Intermediary
CBIZ, Inc.	Research & Consulting Services
Crawford & Company	Insurance Intermediary
Erie Indemnity Company	Property & Casualty Insurance Carrier
FBL Financial Group Inc.	Life & Health Insurance Company
Marsh & McLennan Companies Inc.	Insurance Intermediary
Primerica, Inc.	Life & Health Insurance Company
Raymond James Financial, Inc.	Investment Banking & Brokerage
RLI Corp.	Property & Casualty Insurance Carrier
Selective Insurance Group Inc.	Property & Casualty Insurance Carrier
Waddell & Reed Financial, Inc.	Asset Management & Custody Banks
Willis Towers Watson PLC	Insurance Intermediary

 

Survey Comparison

 

As part of the Comparative Market Assessments, the Compensation Committee also reviewed and considered data from certain third-party surveys.

 

Results of the Comparative Market Assessments

 

Based upon the results of the Comparative Market Assessments, the Compensation Committee determined that, among other things, the total 2018 direct compensation for the Company’s executive officers, which includes each executive officer’s base salary, target cash incentive amount, and target long-term equity incentives, was in each case generally aligned with the market blend median. However, the Compensation Committee also concluded that the Company’s 2018 management service fee (MSF), which is the notional amount investors pay for a company to be managed, calculated as the aggregate 2018 target pay for the Company’s five highest paid executive officers in 2017, was also positioned at the 32nd percentile of the Company’s peer group, while the Company’s 2017 revenue was positioned in the 41st percentile of the peer group.

 

The Compensation Committee believes that the evaluation of MSF is valuable to gain an understanding of the

 

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pay competitiveness of the Company’s executive officers, regardless of position or tenure.

 

Based, in part, upon the results of FW Cook’s analyses, the Compensation Committee applied the following pay adjustments for our Named Executive Officers for 2020:

 

•	Mr. Powell Brown received an increase in his 2020 long-term equity incentive award of $1,000,000 and an increase in his 2020 target cash incentive of $600,000. The Committee’s decision to increase Mr. Powell Brown’s 2020 long-term equity incentive award from $2,000,000 to $3,000,000 and his 2020 target cash incentive amount from $1,400,000 to $2,000,000 was based, in part, upon the 2019 Comparative Market Assessment and the conclusion that Mr. Powell Brown’s 2019 target total direct compensation was 11% below the peer group median and aligned with only the general industry 25th percentile, that his 2019 long-term equity incentive award was below the 50th percentile of the peer group and below the 25th percentile of the general industry, and that his 2019 target cash incentive amount was below the 50th percentile of the peer group.
•	At the recommendation of Mr. Powell Brown, Mr. Watts received an increase in his 2020 base salary of $100,000, an increase in his 2020 long-term equity incentive award of $100,000, and an increase in his 2020 target cash incentive of $75,000. Mr. Powell Brown’s recommendation to increase Mr. Watts’ 2020 base salary from $500,000 to $600,000, his 2020 long-term equity incentive award from $600,000 to $700,000, and his 2020 target cash incentive amount from $625,000 to $700,000 was based, in part, upon the 2019 Comparative Market Assessment and the conclusion that Mr. Watts’ 2019 target total direct compensation was 15% below the peer group median and 9% below the general industry median, that his 2019 base salary was between the 25th and 50th percentile of both the peer group and the general industry, that his 2019 target cash incentive was between the 25th and 50th percentile of the peer group, and that his 2019 long-term equity incentive award was below the 25th percentile of both the peer group and the general industry.
•	At the recommendation of Mr. Powell Brown, Mr. Penny received an increase in his 2020 base salary of $100,000, an increase in his 2020 long-term equity incentive award of $50,000, and an increase in his 2020 target cash incentive amount of $100,000. Mr. Powell Brown’s recommendation to increase Mr. Penny’s 2020 base salary from $500,000 to $600,000, his 2020 long-term equity incentive award from $450,000 to $500,000, and his 2020 target cash incentive amount from $800,000 to $900,000 was based, in part, upon the 2019 Comparative Market Assessment and the conclusion that Mr. Penny’s 2019 target total direct compensation was not above the peer group median.
•	At the recommendation of Mr. Powell Brown, Mr. Strianese receive an increase in his 2020 target cash incentive amount of $50,000. Mr. Powell Brown’s recommendation to increase Mr. Strianese’s 2020 target cash incentive amount from $850,000 to $900,000 was based, in part, upon the 2019 Comparative Market Assessment and the conclusion that Mr. Strianese’s 2019 target total direct compensation was 22% below the peer group median.
•	At the recommendation of Mr. Powell Brown, Mr. Walker received an increase in his 2020 base salary of $50,000, increase in his 2020 long-term equity incentive award of $50,000, and an increase in his 2020 target cash incentive amount of $100,000. Mr. Powell Brown’s recommendation to increase Mr. Walker’s 2020 base salary from $650,000 to $700,000, his 2020 long-term equity incentive award from $450,000 to $500,000, and his 2020 target cash incentive amount from $900,000 to $1,000,000 was based, in part, upon the 2019 Comparative Market Assessment and the conclusion that Mr. Walker’s 2019 target total direct compensation was 20% below the peer group median.

 

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2020 Compensation

 

Consideration of Last Year’s “Say-On-Pay” Vote

 

In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), we provide our shareholders with an opportunity to approve, on a nonbinding, advisory basis, the compensation of named executive officers. At our annual meetings of shareholders in both 2019 and 2020, our shareholders voted to approve compensation by a significant margin.

 

In view of the favorable vote in 2020 (as well as a similar favorable vote in 2019), as well as other factors (including regulatory requirements, market considerations, and Company and individual performance), we did not substantially change our executive compensation policies for 2020.

 

2020 Base Salaries

 

The Compensation Committee changed the 2020 base salaries of certain of our Named Executive Officers, as follows:

 

	Executive Officer		2020 Base Salary				2019 Base Salary				Change
	J. Powell Brown		$	1,000,000			$	1,000,000				—
	R. Andrew Watts		$	600,000			$	500,000			$	100,000	(1)
	J. Scott Penny		$	600,000			$	500,000			$	100,000	(2)
	Anthony T. Strianese		$	600,000			$	600,000				—
	Chris L. Walker		$	700,000			$	650,000			$	50,000	(3)

 

(1)	The decision to increase Mr. Watts’ 2020 base salary from $500,000 to $600,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Watts’ 2019 target total direct compensation was 15% below the peer group median and 9% below the general industry median and that his 2019 base salary was between the 25th and 50th percentile of both the peer group and the general industry.
(2)	The decision to increase Mr. Penny’s 2020 base salary from $500,000 to $600,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Penny’s 2019 target total direct compensation was not above the peer group median.
(3)	The decision to increase Mr. Walker’s 2020 base salary from $650,000 to $700,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Walker’s 2019 target total direct compensation was 20% below the peer group median.

 

2020 Annual Cash Incentives

 

Our annual cash incentives are designed to align executive officer compensation with our annual goals and objectives, and to create a direct link between compensation and financial and operational performance. During the first quarter of each year, the Compensation Committee approves the annual cash incentive components, consisting of financial performance measures, individual target cash incentive amounts, and personal objectives, for each executive officer, including the relative weightings and goals against which performance is measured and payouts are determined for such fiscal year.

 

Target Amounts. In February 2020, the Compensation Committee determined not to change the components of our annual executive officer cash incentives or the weighting of each component, but did change the target cash incentive amounts for all of our Named Executive Officers, as follows:

 

	Executive Officer		2020 Target Cash Incentive Amount				2019 Target Cash Incentive Amount				Change
	J. Powell Brown		$	2,000,000			$	1,400,000			$	600,000	(1)
	R. Andrew Watts		$	700,000			$	625,000			$	75,000	(2)
	J. Scott Penny		$	900,000			$	800,000			$	100,000	(3)
	Anthony T. Strianese		$	900,000			$	850,000			$	50,000	(4)
	Chris L. Walker		$	1,000,000			$	900,000			$	100,000	(5)

 

 

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(1)	The decision to increase Mr. Powell Brown’s 2020 target cash incentive amount from $1,400,000 to $2,000,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Powell Brown’s 2019 target total direct compensation was 11% below the peer group median and aligned with only the general industry 25th percentile and that his 2019 target cash incentive amount was below the 50th percentile of the peer group.
(2)	The decision to increase Mr. Watts’ 2020 target cash incentive amount from $625,000 to $700,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Watts’ 2019 target total direct compensation was 15% below the peer group median and 9% below the general industry median and that his 2019 target cash incentive was between the 25th and 50th percentile of the peer group.
(3)	The decision to increase Mr. Penny’s 2020 target cash incentive amount from $800,000 to $900,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Penny’s 2019 target total direct compensation was not above the peer group median.
(4)	The decision to increase Mr. Strianese’s 2020 target cash incentive amount from $850,000 to $900,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Strianese’s 2019 target total direct compensation was 22% below the peer group median.
(5)	The decision to increase Mr. Walker’s 2020 long-term equity incentive award from $900,000 to $1,000,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Walker’s 2019 target total direct compensation was 20% below the peer group median.

 

Payouts can range from 0% to 200% of the aggregate target cash incentive depending on the financial performance of the Company or the segment, as applicable, and the Named Executive Officer’s performance against personal objectives.

 

For 2020, the Compensation Committee selected the following components and weightings for the annual cash incentives for the Named Executive Officers:

 

			Financial Performance Measures(1)				Personal Objectives
	Executive Officer	Weighting	Measure	Weighting	Measure		Weighting	Measure
	J. Powell Brown R. Andrew Watts		Company Organic Revenue(2) growth		Adjusted EBITDAC Margin(2) (applicable to all Named Executive Officers)			Personal objectives established for each Named Executive Officer(4)
	Anthony T. Strianese		Wholesale Brokerage Segment Organic Revenue(2) growth
	Chris L. Walker		National Programs Segment Organic Revenue(2) growth – adjusted(3)
	J. Scott Penny(5)		Company Organic Revenue(2) growth

 

(1)	The Compensation Committee selected these financial performance measures in furtherance of our strategy to increase our Organic Revenue growth, while maintaining, among other things, our strong, industry-leading operating margins.
(2)	See Annex A for additional information regarding Organic Revenue, Organic Revenue growth and Adjusted EBITDAC Margin, which are non-GAAP financial measures, including a reconciliation to the most closely comparable GAAP financial measure.
(3)	National Programs Segment Organic Revenue growth was adjusted (i) for 2019 and 2020, to exclude the impact of certain offices within the National Programs Segment for which Chris L. Walker, Executive Vice President and President – National Programs Segment, did not have responsibility in 2019 and 2020, respectively, (ii) for 2019 and 2020, to include the impact of certain offices within the Services Segment for which Mr. Walker did have responsibility in 2019 and 2020, respectively; and (iii) for 2019, to exclude a one-time, non-cash increase of approximately $8 million in the commissions and fees earned by one of the businesses in our National Programs Segment in 2018 resulting solely from our implementation of the New Revenue Standard. See Annex A for additional information regarding National Programs Segment Organic Revenue growth - adjusted, which is a non-GAAP financial measure, including a reconciliation to the most closely comparable GAAP financial measure.
(4)	The personal objectives for each of our Named Executive Officers were approved by the Compensation Committee in February 2020.
(5)	The components and weightings for Mr. Penny’s annual cash incentive were selected to more effectively incentivize Mr. Penny in his role as Chief Acquisitions Officer. As Chief Acquisitions Officer, Mr. Penny’s performance is assessed on a more qualitative basis than our other named executive officers, as his duties involve sourcing and completing high-quality acquisitions, which, in many cases, occurs over long periods of time.

 

The target amounts for each financial performance measure were discussed over several months and then reviewed and approved by the Compensation Committee in February 2020. To ensure our performance targets are rigorous and challenging, yet realistic for our executive officers, the target amounts for the Organic Revenue growth for the Company and our operating segments were based on our 2020 budget, and the target amount for our Adjusted EBITDAC Margin was set slightly higher than our 2020 budget to incentivize growth over our Adjusted EBITDAC Margin for 2019. Our 2020 budget was approved by the Board in December 2019 and reflects a multi-month process that includes thorough and thoughtful discussions among management and the leaders of our businesses, and between management and our Board. In determining our 2020 budget, which served as the basis for the targets for each 2020 financial performance measure, consideration was given to, among other things:

 

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•	our expectation that insurance premium rates would increase moderately in 2020;
•	our expectation that the economy would expand slightly as compared to 2019, helping to drive new business and therefore grow our revenues;
•	our expectation that “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, sales and payroll levels) to determine what premium to charge the insured, would increase modestly in 2020, facilitating only moderate revenue growth for some of our businesses;
•	our previous investments in technology, incentive plans, and expanding our capabilities, along with moderate expected Organic Revenue growth would benefit our operating margins slightly in 2020 as compared to 2019; and
•	our expectation that certain businesses we acquired over in the previous three years, which had lower operating margins than our other businesses in the segment in which they operate, would grow profitably and have a positive impact on our overall 2020 operating margins.

 

For each financial performance measure, we make no payout for performance below a certain threshold. As part of our pay-for-performance framework, the Compensation Committee adopted payout curves that are intended to incentivize performance generally within a “target payout corridor” and that provide for incrementally higher and lower payouts for performance outside of the target payout corridor. Payout percentages for each financial performance measure were calculated based on the following tables:

 

 

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Determination of 2020 Annual Cash Incentive Payouts. In the first quarter of 2021, the Compensation Committee reviewed actual 2020 performance of each financial performance measure against the target performance for each such measure as set forth in the following table:

 

	Financial Performance Measure		Target		Actual		Percentage of Target Performance		Payout Percentage
	Adjusted EBITDAC Margin		30.0%		31.5%	(1)	—		200%
	Company Organic Revenue growth		4.3%		3.8%		88%		96%
	Wholesale Brokerage Segment Organic Revenue growth		7.0%		5.5%		79%		82%
	National Programs Segment Organic Revenue growth - adjusted		3.9%		11.1%		285%		200%

(1)	In calculating the Company’s Adjusted EBITDAC Margin, the Committee excluded: (i) the negative impact of the Company’s non-cash stock-based compensation expense, including expenses related to our ESPP, in excess of what was reflected in the Company’s Board-approved 2020 budget, (ii) the negative impact of a judgment entered into against the Company of approximately $6.6 million in 2020, and (iii) the positive impact of the net gain on disposal resulting from sales of books of businesses in 2020.
	In making its determination to exclude the negative impact of the Company’s non-cash stock-based compensation expense, including expenses related to our ESPP, in excess of what was reflected in the Company’s Board-approved 2020 budget, the Committee considered the fact that the higher-than-budgeted non-cash stock-based compensation expense, including expenses related to our ESPP, for 2020 was the result of above-target performance by the Company for those grants of restricted stock made in February 2017 under our 2010 SIP, which resulted in the issuance of additional shares of restricted stock, as well as higher-than-expected expenses related to our ESPP, which were driven by a higher-than-expected participation rate in our ESPP, and a higher-than-expected price of our common stock. For additional information about those grants of restricted stock made in February 2017 under our 2010 SIP, see “Equity Incentive Plan Outcomes in 2020” below.
	In making its determination to exclude the negative impact of a judgment entered into against the Company of approximately $6.6 million in 2020, the Committee considered the fact that the underlying legal matter was related to the pre-acquisition activities of a business we acquired in 2012 and was not related to the performance of the Company or the Named Executive Officers.

 

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With respect to the achievement of personal objectives by each of the Named Executive Officers, which accounts for 20% of the 2020 cash incentive amount for each Named Executive Officer, except for Mr. Penny, and for 50% of the 2020 cash incentive amount for Mr. Penny, the Compensation Committee evaluated the level of achievement for each Named Executive Officer’s personal objectives in the first quarter of 2021. The evaluation for Mr. Powell Brown, our Chief Executive Officer, was made by the Compensation Committee. For the other Named Executive Officers, the Compensation Committee, after discussion, consideration and review, accepted without modification the recommendations as proposed by the Chief Executive Officer. The Compensation Committee evaluated the achievement of each Named Executive Officer’s personal objectives in their totality instead of assigning a weight to each particular personal objective.

 

	Name		Personal Objectives		Personal Objective Portion of 2020 Cash Incentive (0-200% of Target)
	J. Powell Brown		•  contribution to evaluating acquisitions that fit strategically and financially, and align culturally •  contribution to recruiting, retaining, and developing talent •  contribution to delivering consistent, Company-wide technology platforms and to fostering Company-wide innovation
	R. Andrew Watts		•  contribution to recruiting, retaining, and developing finance and accounting talent •  contribution to leading the development of the Company’s new Daytona Beach campus •  contribution to maintaining the Company’s control environment
	J. Scott Penny		•  contribution to supporting the integration of completed acquisitions •  contribution to sourcing and evaluating all acquisitions that fit strategically and financially and that align culturally •  contribution to certain initiatives within the Company’s Retail Segment and Services Segment •  contribution to recruiting, retaining, and developing talent
	Anthony T. Strianese		•  contribution to recruiting, retaining, and developing talent •  contribution to evaluating acquisitions in the Wholesale Brokerage Segment that fit strategically and financially and that align culturally •  contribution to further developing the capabilities of the Wholesale Brokerage Segment •  contribution to developing and executing a multi-year technology strategy within the Wholesale Brokerage Segment
	Chris L. Walker		•  contribution to recruiting, retaining, and developing talent •  contribution to further developing and executing a multi-year technology strategy for the National Programs Segment •  contribution to evaluating acquisitions in the National Programs Segment that fit strategically and financially and that align culturally

 

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As illustrated in the table below, the final 2020 cash incentive amounts were calculated by combining the payout amounts for each of the components discussed above and then rounding the resulting number up to the nearest thousand dollars:

 

	Executive Officer		2020 Aggregate Target Cash Incentive Amount				Organic Revenue Growth Payout Amount				Adjusted EBITDAC Margin Payout Amount				Personal Objective Payout Amount				Total 2020 Cash Incentive Payout Amount(1)				Payout vs. Target Cash Incentive Amount
	J. Powell Brown		$	2,000,000			$	767,000			$	1,600,000			$	650,000			$	3,017,000				151%
	R. Andrew Watts		$	700,000			$	268,450			$	560,000			$	191,100			$	1,020,000				146%
	J. Scott Penny		$	900,000			$	215,719			$	450,000			$	573,750			$	1,240,000				138%
	Anthony T. Strianese		$	900,000			$	296,722			$	720,000			$	180,000			$	1,197,000				133%
	Chris L. Walker		$	1,000,000			$	800,355			$	800,000			$	200,000			$	1,801,000				180%

 

(1)	The 2020 cash incentive payouts are also shown in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column.

 

While not exercised in 2020, the Compensation Committee expressly reserves the right, in its sole discretion, to reduce the annual cash incentive for any Named Executive Officer, or to pay no annual cash incentive at all, if the Company’s performance is unexpectedly poor or if the intended recipient commits acts of malfeasance.

 

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2020 Discretionary Bonuses

 

Each of the Named Executive Officers is eligible to receive an additional discretionary bonus upon such terms and conditions as might be determined by the Chief Executive Officer, subject to the approval of the Compensation Committee, or, in the case of the Chief Executive Officer, as might be determined by the Compensation Committee. None of our Named Executive Officers received a discretionary bonus for 2020.

 

2020 Equity Incentive Grants

 

We endeavor to make our long-term equity incentive arrangements competitive and aligned with shareholder interests, as reflected in the following structure:

 

Terms		Rationale
75% of shares granted to each executive officer as a Performance Stock Award (“PSA”) that vest based on performance (over a three-year period) and time (over a five-year period from the date of grant); 25% of shares granted to each executive officer as a Restricted Stock Award (“RSA”) that vest on time only (over a five-year period from the date of grant)		Tying a majority of our equity awards to pre-established corporate financial objectives which drive long-term shareholder returns should more closely align the long-term interests of our executive officers and our shareholders
Vesting of PSA shares tied to increases in the Company’s Organic Revenue growth (as further defined in the applicable award agreement) and compound annual growth rate of the Company’s cumulative earnings per share, excluding any impact for changes in acquisition earn-out liabilities, in each case measured over a three-year period beginning January 1, 2020		Organic Revenue growth and cumulative earnings per share are easily understandable, directly influenced by our executive officers and are intended to drive our long-term shareholder value
PSAs granted to our executive officers contemplate a minimum payout of 0% and a maximum payout of 200% based upon the level of performance of each performance condition during the three-year measurement period		Payouts for above-target performance motivate our executive officers to overperform; recognition of performance that may be less than target
PSAs are subject to both performance-based and time-based vesting conditions. In addition to the performance conditions described above, PSAs granted in February 2020 are subject to an additional time-based, cliff vesting condition requiring five years of continuous employment from the date of grant		A combination of performance- and time-based vesting conditions is intended to achieve a strong alignment between pay and performance, and incentivize the long-term retention of our executive officers and key employees
RSAs are subject to a cliff vesting condition requiring five years of continuous employment from the date of grant; RSA recipients acquired voting and dividend rights at the time of grant, but cannot dispose of the shares		Equity awards with time-based vesting conditions continue to operate as a complement to our traditional equity awards characterized by both performance-based and time-based vesting conditions to further incentivize and reward key personnel; continued inclusion of a longer-term equity award (e.g., five years) helps attract, motivate and retain individuals whose performance drives our results

 

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Based upon the recommendation of our Chief Executive Officer and, with respect to our Chief Executive Officer, based upon the Compensation Committee’s annual evaluation of our Chief Executive Officer’s performance, as well as input from FW Cook, the following long-term equity incentive awards for our Named Executive Officers were approved by our Compensation Committee in February 2020:

 

Executive Officer		2020 Performance Stock Award (75%)				2020 Restricted Stock Award (25%)				Total 2020 Long-Term Equity Incentive Awards (100%)				Total 2019 Long-Term Equity Incentive Awards				Change
J. Powell Brown		$	2,250,000			$	750,000			$	3,000,000			$	2,000,000			$	1,000,000(1)
R. Andrew Watts		$	525,000			$	175,000			$	700,000			$	600,000			$	100,000(2)
J. Scott Penny		$	375,000			$	125,000			$	500,000			$	450,000			$	50,000(3)
Anthony T. Strianese		$	375,000			$	125,000			$	500,000			$	500,000				—
Chris L. Walker		$	375,000			$	125,000			$	500,000			$	450,000			$	50,000(4)

 

(1)	The decision to increase Mr. Powell Brown’s 2020 long-term equity incentive award from $2,000,000 to $3,000,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Powell Brown’s 2019 target total direct compensation was 11% below the peer group median and aligned with only the general industry 25th percentile and that his 2019 long-term equity incentive award was below the 50th percentile of the peer group and below the 25th percentile of the general industry.
(2)	The decision to increase Mr. Watts’ 2020 long-term equity incentive award from $600,000 to $700,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Watts’ 2019 target total direct compensation was 15% below the peer group median and 9% below the general industry median and that his 2019 long-term equity incentive award was below the 25th percentile of both the peer group and the general industry.
(3)	The decision to increase Mr. Penny’s 2020 long-term equity incentive award from $450,000 to $500,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Penny’s 2019 target total direct compensation was not above the peer group median.
(4)	The decision to increase Mr. Walker’s 2020 long-term equity incentive award from $450,000 to $500,000 was based upon the 2019 Comparative Market Assessment and the conclusion that Mr. Walker’s 2019 target total direct compensation was 20% below the peer group median.

 

Equity Incentive Plan Outcomes in 2020

 

In February 2017, certain of our Named Executive Officers received grants of restricted stock under our 2010 SIP, which included performance conditions of vesting based upon the following, in each case excluding items (for example, extraordinary, nonrecurring items) the Compensation Committee determines to be appropriately disregarded for all grants subject to this vesting condition: (i) the Company’s average Organic Revenue growth (“Average Organic Revenue Growth”), and (ii) the compounded annual growth rate (“CAGR”) of our earnings per share, excluding the impact of the change in estimated acquisition earn-out payables and any other items (for example, extraordinary, nonrecurring items) that the Compensation Committee determines to be appropriately disregarded for all grants subject to this vesting condition (“Adjusted EPS”). Under the applicable award agreements, the performance condition is satisfied (i) for one-half of the shares granted based our Average Organic Revenue Growth during the three-year performance period ending December 31, 2019, as follows:

 

Performance Level		Average Organic Revenue Growth		Awarded Percentage of Tranche 1 Performance Shares
Maximum		Equal to or greater than 4.0%		200%
High Target		3.0%		120%
Target		2.5%		100%
Low Target		2.0%		80%
Threshold		1.0%		50%
No Payout		Less than 1.0%		0%

 

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and (ii) for one-half of the shares granted based on the CAGR of our Adjusted EPS during the three-year performance period ending December 31, 2019, as follows:

 

Performance Level		Adjusted EPS		CAGR		Awarded Percentage of Tranche 2 Performance Shares
Maximum		Equal to or greater than $3.45		Equal to or greater than 11.0%		200%
High Target		$3.33		9.0%		120%
Target		$3.23		7.5%		100%
Low Target		$3.14		6.0%		80%
Threshold		$3.08		5.0%		50%
No Payout		Less than $3.08		Less than 5.0%		0%

 

If the actual performance level for each performance condition falls in between any of the performance levels, the percentage of shares that are awarded is determined based on straight-line interpolation.

 

In February 2020, the Compensation Committee determined that:

 

•

our cumulative Average Organic Revenue Growth, which excluded the positive impact of the New Revenue Standard in 2018, during the performance period was 3.6% and, therefore, fell between the high target and maximum performance levels, resulting in a payout percentage of 168% of the target; and

•

our Adjusted EPS, which excluded the positive impact in 2017 of revaluing the Company’s deferred tax liabilities as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), which excluded the positive after-tax impact of the New Revenue Standard in 2018, and which excluded the negative after-tax impact of a legal settlement paid by the Company of approximately $4.8 million in 2019 (the “2019 Legal Matter”), during the performance period was $3.59 and, therefore, fell above the maximum performance level, resulting in a payout percentage of 200% of the target.

 

The Compensation Committee concluded that it was desirable to make certain adjustments in the calculations of the Company’s actual performance, as follows:

 

•	Adjusted EPS excluded the positive impact of revaluing the Company’s deferred tax liabilities as a result of the Tax Reform Act in 2017 because it was non-recurring, not related to the performance of the Company, and a non-cash adjustment;
•	Average Organic Revenue Growth and Adjusted EPS excluded the positive impact of the New Revenue Standard in 2018 because the adoption of New Revenue Standard was not related to the performance of the Company and did not create any long-term economic value for the Company’s shareholders, as it primarily impacts only the timing of when the Company’s recognizes revenues and expenses during the year; and
•	Adjusted EPS excluded the negative after-tax impact of the 2019 Legal Matter in 2019 because the underlying legal matter was related to the pre-acquisition activities of a business we acquired in 2012 and was not related to the performance of the Company.

 

Upon the Compensation Committee’s certification of these performance conditions, the following Named Executive Officers gained dividend rights and voting entitlement with respect to the indicated number of shares: Mr. Powell Brown – 95,940; Mr. Watts – 31,979; Mr. Penny – 20,464; Mr. Strianese – 31,979; and Mr. Walker – 31,979. Except in limited circumstances, these shares will become fully vested on February 24, 2022, provided, the grantee remains continuously employed by us until such date.

 

See Annex A for additional information regarding Adjusted EPS and Organic Revenue growth, which are non-GAAP financial measures, including a reconciliation to the most closely comparable GAAP financial measure.

 

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2021 Compensation

 

As part of its ongoing evaluation of our executive officers’ compensation and based, in part, on the recommendation of FW Cook, in early 2021, the Compensation Committee approved the framework for our executive officers’ compensation for 2021, as described below, other than Mr. Strianese, who took a temporary medical leave of absence, effective February 8, 2021.

 

2021 Base Salaries

 

The Compensation Committee did not increase the base salaries for the Named Executive Officers in 2021.

 

2021 Annual Cash Incentives

 

In February 2021, the Compensation Committee determined not to change the components of our annual executive officer cash incentives, the weighting of each component, or the target cash incentive amounts for our Named Executive Officers, except for Mr. Penny. For Mr. Penny, the Compensation Committee determined that because Mr. Penny would have more office-specific oversight in 2021 as compared to 2020, including with respect to the integration and operations of recently completed acquisitions, the weighting of the components of his 2021 annual cash incentive would be changed, as follows:

 

CASH INCENTIVE WEIGHTINGS FOR J. SCOTT PENNY
Component		2020 Weighting		2021 Weighting
Company Organic Revenue growth		25%		40%
Adjusted EBITDAC Margin		25%		40%
Personal objectives		50%		20%

 

2021 Equity Incentive Grants

 

Based upon the recommendation of our Chief Executive Officer and, with respect to our Chief Executive Officer, based upon the Compensation Committee’s annual evaluation of our Chief Executive Officer’s performance, as well as input from FW Cook, the following long-term equity incentive awards for our Named Executive Officers were approved by our Compensation Committee in February 2021:

 

Executive Officer		2021 Performance Stock Award (75%)				2021 Restricted Stock Award (25%)				Total 2021 Long-Term Equity Incentive Awards (100%)				Total 2020 Long-Term Equity Incentive Awards				Change
J. Powell Brown		$	2,250,000			$	750,000			$	3,000,000			$	3,000,000			$	—
R. Andrew Watts		$	637,500			$	212,500			$	850,000			$	700,000			$	150,000	(1)
J. Scott Penny		$	375,000			$	125,000			$	500,000			$	500,000			$	—
Chris L. Walker		$	375,000			$	125,000			$	500,000			$	500,000			$	—

 

(1)	The decision to increase Mr. Watts’ 2021 long-term equity incentive award from $700,000 to $850,000 reflects a one-time incremental increase of $150,000 in recognition of his leadership in developing the Company’s new Daytona Beach, Florida campus, which was completed in 2020.

 

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Other Compensation

 

We also provide the following compensation and benefits to attract and retain key employees.

 

Benefits Generally

 

Along with all other full-time employees, each of the Named Executive Officers is eligible: (a) to receive matching contributions to the Company’s 401(k) Plan; (b) to participate in our ESPP; (c) to participate in group medical, dental and other benefit plans; and (d) to the extent permitted by applicable law, for reimbursement of amounts earned by the Company on personal lines insurance such as homeowners and flood insurance purchased by such Named Executive Officer. Our 401(k) Plan provides for matching contributions of up to four percent (4.0%) of the contributions made by each participant. The 401(k) Plan also permits discretionary profit-sharing contributions, but the Company made no such contributions to the accounts of Named Executive Officers for 2020.

 

Dividend Payments on Unvested Stock Awards

 

The Named Executive Officers receive dividends on unvested shares granted pursuant to the Company’s equity incentive compensation plans (i) that have exclusively time-based vesting requirements (e.g., time-based Restricted Stock Awards), or (ii) for which the applicable performance conditions have been satisfied in accordance with the applicable award agreements, but the time-based vesting requirements have not been satisfied (e.g., performance-based Performance Stock Awards).

 

Deferred Compensation Plan

 

The Named Executive Officers are eligible to participate in the Company’s non-qualified deferred compensation plan, which provides the opportunity to defer receipt of up to 75% of base salary and up to 100% of cash incentive and bonus compensation. Participant deferrals are credited to the participant’s deferral contribution account. The participant’s account is credited with earnings based on the performance of the participant’s investment allocation among a menu of investment options designated by the Company. The Company is permitted, but not required, to make matching contributions and other discretionary contributions under this plan. The Company made no matching or other discretionary contributions to the accounts of Named Executive Officers for 2020.

 

A participant’s account under the Company’s non-qualified deferred compensation plan generally is distributed in a lump sum or installments upon the participant’s retirement, other termination of employment or death. However, in some circumstances (including hardship) all or a portion of the participant’s deferral account may be distributed on one or more specified dates prior to termination of employment. Participants elect at the time of deferral to have the distributions made in a lump sum or annual installments.

 

Personal Benefits

 

Certain golf or social club membership dues paid by the Named Executive Officers who have responsibility for the entertainment of clients, prospective clients and principals of acquisition prospects may be reimbursed by the Company or paid on behalf of the Named Executive Officer. Additionally, the Company reimburses the costs of annual physical examinations that are not otherwise covered by insurance, certain car service expenses, and for certain financial and tax planning services for each of the Named Executive Officers.

 

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Compensation Discussion and Analysis

 

Policy on Tax Deductibility

 

The deductibility of compensation payments can depend upon numerous factors, including the nature of the payment and the time that income is recognized under various plans, agreements, and programs. Interpretations of, and changes in, applicable tax laws and regulations as well as other factors beyond the control of the Compensation Committee also can affect the deductibility of compensation. The Compensation Committee considers the anticipated tax treatment of the Company’s compensation programs and payments, including the potential impact of Section 162(m) of the United States Internal Revenue Code of 1986, as amended. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding one million dollars in any taxable year for certain executive officers. Before the effective date of the Tax Reform Act, which was signed into law in December 2017, amounts in excess of one million dollars were deductible if they qualified as performance-based compensation under a plan that was approved by the shareholders and that met certain other technical requirements. With respect to awards made before the Tax Reform Act, our general policy was to try to deliver equity-based compensation to employees in as tax-efficient a manner as possible, taking into consideration the overall cost to the Company. However, because our interests and our shareholders’ interests may sometimes be best served by providing compensation that is not deductible in order to attract and retain high-quality people that are crucial to both the short-term and long-term success of the Company, the Compensation Committee has determined at this time to retain the flexibility to provide for compensation that is not deductible.

 

As a result of the Tax Reform Act, the exemption from the Section 162(m) deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017. Therefore, compensation paid to our covered executive officers in excess of one million dollars is not deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. Also, the Tax Reform Act expands the number of individuals covered by the Section 162(m) deduction limit. We will continue to monitor the pre-2018 equity-based awards and endeavor to preserve the deductibility of such awards if and when they are paid. Despite the Compensation Committee’s efforts to structure these awards in a manner intended to be exempt from the Section 162(m) deduction limit, because of uncertainties as to the application and interpretation of Section 162(m) after the Tax Reform Act and the Internal Revenue Service regulations that govern the scope of the transition relief provided by the legislation, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) will do so. In addition, the Compensation Committee reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such modifications are consistent with the Company’s business needs.

 

Payments Upon Termination or Change in Control

 

With the exception of Mr. Walker and Mr. Watts, all of the Named Executive Officers have employment agreements with the Company that include change-in-control provisions. The terms of our employment agreements with our Named Executive Officers are described below in “Employment and Deferred Compensation Agreements.”

 

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The 2010 SIP and 2019 SIP provide for double-trigger vesting under which all participants, including all of the Named Executive Officers, would become vested in the following amounts if the participant’s service with us is involuntarily or constructively terminated (other than for specified causes, as set forth in the 2010 SIP and 2019 SIP) within 12 months after a change-in-control transaction, which is defined in each plan and designated as a “Transfer of Control” in the 2010 SIP and a “Change in Control” the 2019 SIP:

 

•

For all grants, except those performance-based restricted stock grants in or after February 2019, 100% of all unvested restricted stock grants granted pursuant to such 2010 SIP or 2019 SIP grants agreements, and

•

For all performance-based restricted stock grants in or after February 2019, the greater of: (a) 100% of such unvested restricted stock grants or (b) the percentage of unvested restricted stock grants determined in accordance with the applicable performance schedule based upon the actual level of achievement (up to the applicable maximum level of achievement) from the first day of the performance period to the date on which the change-in-control transaction occurs.

 

For information concerning the value of the vested shares that each of the Named Executive Officers would have under the 2010 SIP and the 2019 SIP in the event that termination of employment after a change-in-control transaction had occurred on the last business day of 2020, see the table titled “Potential Payments Upon Termination or Change in Control - 2020” below.

 

The PSP (which was terminated in 2010) provides that all outstanding grants of PSP stock shall become fully vested and non-forfeitable in the event of: (i) the Company’s entry into any agreement to sell all or substantially all of its assets or to enter into any merger, consolidation, reorganization, division or other corporate transaction in which Company stock is converted into another security or into the right to receive securities or property, where such agreement does not provide for the assumption or substitution of PSP stock; (ii) any tender or exchange offer for the Company’s stock accepted by a majority of the shareholders of the Company; or (iii) the death of J. Hyatt Brown and the subsequent sale by his estate, his wife, his lineal descendants, any trust created for his benefit during his lifetime, or any combination of the foregoing, of the Company stock owned by J. Hyatt Brown prior to his death. The PSP further provides that if any shares of PSP stock become fully vested and non-forfeitable because of the occurrence of these events, the Company shall pay to the holders of such shares, within 60 days of the occurrence of such event, the full amount of any federal and state income tax liability incurred by such holder as a result of such vesting, including, without limitation, any excise tax with respect to such vesting (e.g., under Internal Revenue Code Section 4999 and any successor provision) as well as the amount of any tax liability with respect to such “gross-up” payment. This excise tax gross-up provision is a legacy provision that applies only to awards that were granted under the PSP prior to its suspension in 2010, and no new agreements that contain excise tax gross-up provisions have been entered into, and no previous agreements containing such legacy provisions have been materially amended. Additionally, the PSP provides that in the event of any “Change in Control” (as defined in the PSP, and excluding the triggering events described above), the Board thereafter shall have the right to take such action with respect to any shares of PSP stock that are forfeitable, or all such shares of PSP stock, as the Board in its discretion deems appropriate under the circumstances to protect the interests of the Company in maintaining the integrity of the awards under the PSP. The PSP further states that the Board shall have the right to take different action with respect to different “Key Employees” (as defined in the PSP) or different groups of “Key Employees,” as the Board in its discretion deems appropriate under the circumstances. For information concerning the value of the vested PSP stock that each of the Named Executive Officers would have in the event that one of the triggering events described above occurred on the last business day of 2020, see the table titled “Potential Payments Upon Termination or Change in Control - 2020” below.

 

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Employment and Deferred Compensation Arrangements

 

Messrs. Powell Brown, Penny, and Strianese

 

The Named Executive Officers other than Mr. Watts and Mr. Walker, entered into new employment agreements with the Company in 2014, replacing previous employment agreements that had different terms. Compensation under these agreements is not specified, but rather is to be agreed upon between us and the executive from time to time. See “Compensation Discussion and Analysis” for information concerning the considerations affecting the compensation of the Named Executive Officers. The agreements include a provision that states that in the event of a “Change in Control,” defined as a circumstance in which the holders of more than 50% of the voting stock of the Company before the transaction closes hold less than 50% of the voting stock of the Company after the transaction closes, if the resulting entity employs executives with duties similar in character, classification or responsibilities to the Named Executive Officer’s, the Agreement shall be deemed modified to provide the Named Executive Officer with “equivalent terms and benefits to those of similar executives.” The new employment agreements include, among other provisions, restrictive covenants prohibiting the solicitation or diversion of business or employees for a period of two years following voluntary or involuntary separation from employment, and also prohibit disclosure of confidential information. These agreements may be terminated by either party at any time, with or without cause or advance notice.

 

Mr. Walker

 

Mr. Walker entered into an employment agreement with the Company effective January 9, 2012, in connection with our acquisition of Arrowhead General Insurance Agency, Inc. The agreement may be terminated by either party at any time, with or without cause or advance notice. Compensation under the agreement is at an amount agreed upon between us and Mr. Walker from time to time, and for a period of two years following the termination of employment, the agreement prohibits Mr. Walker from directly or indirectly soliciting or servicing our clients, or soliciting our employees to leave their employment with us.

 

Mr. Watts

 

In connection with his hiring in 2014, Mr. Watts and the Company entered into an employment agreement with an initial term that ended on February 17, 2017 (the “Term”), pursuant to which, among other things, Mr. Watts: (1) received a stock grant with a grant date fair value of $250,002 that fully vested on February 17, 2019 (i.e., five years after the date of grant); (2) received a stock grant with a grant date fair value of $474,991 that fully vested on February 17, 2017 (i.e., three years after the date of grant); and (3) received a stock grant with grant date fair value of $800,020, which included a five-year, performance-based vesting condition that the Compensation Committee determined in February 2019 was achieved and which will vest in years five, six, and seven, subject to continuous employment through the applicable vesting dates. Following the conclusion of the Term on February 17, 2017, the terms of the employment agreement continued in effect, except that the agreement may now be terminated by either party at any time, with or without cause or advance notice. Compensation under the agreement is at an amount agreed upon between us and Mr. Watts from time to time, and for a period of two years following the termination of employment, the agreement prohibits Mr. Watts from directly or indirectly soliciting or servicing our clients, or soliciting our employees to leave their employment with us.

 

The above descriptions of our employment agreements with our Named Executive Officers are summaries and are qualified by reference to the copies of such agreements that have been filed as exhibits to our SEC filings as follows:

 

•	With respect to Messrs. Powell Brown, Penny, and Strianese, Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2014;
•	With respect to Mr. Watts, Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2014; and
•	With respect to Mr. Walker, Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2013.

 

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Hedging and Pledging Policies; Stock Ownership Requirements; Clawback Policy

 

The Board has adopted policies prohibiting the hedging (as defined below) of our stock by directors, executive officers, and other members of our Senior Leadership Team and prohibiting the pledging of our stock by directors, as well prohibiting the pledging of our stock held pursuant to our stock ownership requirements by our executive officers and other members of our Senior Leadership Team. For the purposes of this policy, “hedging” includes engaging in short sales of Company stock and engaging in hedging transaction in publicly traded options that are based on the trading price of Company stock, such as puts, calls and other derivative securities. Our stock ownership requirements provide that members of the Company’s Senior Leadership Team must accumulate Company stock valued at the following multiples of their base salaries within three years of hire or promotion, and retain such stock until retirement, separation from employment, or removal from one of the categories set forth below:

 

 

(1)

Ownership levels include: (i) shares owned directly or indirectly, excluding shares owned by immediate family members as to which beneficial ownership is disclaimed; (ii) unvested PSP shares that have met the applicable performance conditions under the applicable award agreements; and (iii) unvested 2010 SIP shares that (a) are subject to a time-based-only vesting condition or (b) have met the applicable performance conditions under the applicable award agreements.

(2)

The ownership requirements are as follows: Chief Executive Officer - six times base salary; Senior Leadership Team members who are “officers” pursuant to Section 16 of Securities Exchange Act 1934 - three times base salary; and Senior Leadership Team members who are not “officers” pursuant to Section 16 of the Securities Exchange Act of 1934 - one times base salary.

 

In addition, each non-employee director is required to accumulate Brown & Brown common stock valued at least four times the current annual cash retainer within four years of joining the Board.

 

The Board has adopted a policy that provides for the clawback of certain performance-based compensation in the event of a restatement of the Company’s financial results, other than a restatement caused by a change in applicable accounting rules or interpretations. Under the policy, if any performance-based equity or non-equity compensation paid to a current or former officer of the Company in the three years prior to the date of restatement would have been a lower amount had it been calculated based on the restated results, the Board’s Compensation Committee will evaluate recovery of such performance-based equity or non-equity compensation. If a recovery is determined to be appropriate, then the Compensation Committee will seek to recover, for the benefit of the Company and to the extent permitted by applicable law, the after-tax portion of the difference between the previously awarded compensation and the recalculated compensation.

 

In determining whether to seek recovery under the Company’s clawback policy, the Compensation Committee will take into account such considerations as it deems appropriate, including, without limitation, whether the assertion of a claim may violate applicable law or prejudice the interests of the Company in any related proceeding or investigation, and the likelihood of success under applicable law.

 

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Executive Compensation Tables

 

The following table sets forth the compensation received by our Named Executive Officers for services rendered to us in such capacity for the years ended December 31, 2020, 2019 and 2018.

 

Summary Compensation Table 2018-2020

 

Name and Principal Position	Fiscal Year		Salary ($)(1)		Bonus ($)		Stock Awards ($)(2)		Non-Equity Incentive Plan Compensation ($)		All Other Compensation ($)(3)		Total ($)
J. Powell Brown	2020		1,038,462		—		2,948,008		3,017,000		250,830		7,254,300
Chief Executive Officer	2019		1,000,000		1,946,101		250,000		1,750,000		231,924		5,178,025
and President	2018		1,000,000		—		1,943,526		1,038,000		207,515		4,189,041
R. Andrew Watts	2020		618,461		—		687,830		1,020,000		67,764		2,394,055
Chief Financial Officer	2019		500,000		43,000		583,833		782,000		62,417		1,971,250
Executive Vice President	2018		500,000		—		582,991		537,000		51,217		1,671,208
and Treasurer
J. Scott Penny	2020		618,461		—		491,286		1,240,000		89,690		2,439,437
Executive Vice President and	2019		500,000		—		437,846		1,050,000		100,439		2,088,285
Chief Acquisitions Officer	2018		500,000		—		310,893		800,000		94,328		1,705,221
Anthony T. Strianese	2020		623,077		—		491,286		1,197,000		77,395		2,388,758
Executive Vice President and	2019		600,000		233,000		486,489		1,042,000		85,354		2,446,843
Chairman - Wholesale	2018		600,000		—		485,816		731,000		76,055		1,892,871
Brokerage Segment(4)
Chris L. Walker	2020		724,615		—		491,286		1,801,000		56,492		3,073,393
Executive Vice President and	2019		644,231		153,000		437,846		1,197,000		53,975		2,486,052
President - National	2018		500,000		—		485,816		780,000		45,675		1,811,491
Programs Segment

 

(1)	Amounts shown for 2020 reflect the inclusion of 27 regular pay periods, as compared to 26 regular pay periods in 2019 and 2018.
(2)	Amounts shown under the “Stock Awards” column reflect the aggregate grant date fair value of awards computed in accordance with Statement of Financial Accounting Standards ASC Topic 718 (formerly “SFAS 123(R)”) with respect to stock granted under the 2010 SIP and the 2019 SIP to our Named Executive Officers rather than the dollar amount recognized during the fiscal year for financial statement purposes. The assumptions used for the valuations are set forth in Note 12 to our audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. See the “Compensation Discussion and Analysis” and the “Outstanding Equity Awards at Fiscal Year-End - 2020” tables for information with respect to stock granted under the PSP, the 2010 SIP, and the 2019 SIP prior to 2020. For awards that are performance based, the indicated grant date fair value amounts assume that the target level of performance will be achieved.
	The amounts reported in this column include the aggregate grant date fair value of all awards. For 2018, 2019, and 2020, 75% of the shares granted to each Named Executive Officer were PSAs, and 25% of the shares granted to each Named Executive Officer were RSAs. Assuming the highest level of performance conditions will be achieved for the PSAs in this column (200% for 2018, 2019, and 2020), the grant date fair value for each Named Executive Officer, including both PSAs and RSAs, would be as follows:

 

Name	Fiscal Year		Maximum Value ($)		Fiscal  Year		Maximum Value ($)		Fiscal Year		Maximum Value ($)
J. Powell Brown	2018		3,387,072		2019		3,392,215		2020		5,146,051
R. Andrew Watts	2018		1,016,014		2019		1,017,667		2020		1,200,685
J. Scott Penny	2018		541,832		2019		763,201		2020		857,611
Anthony T. Strianese	2018		846,677		2019		848,003		2020		857,611
Chris L. Walker	2018		846,677		2019		763,201		2020		857,611

 

(3)	These dollar amounts include the items identified in the table titled “All Other Compensation Table - 2020” below.
(4)	Anthony T. Strianese served as our Executive Vice President and President – Wholesale Brokerage Segment from 2014 until January 2021.

 

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Executive Compensation Tables

 

All Other Compensation Table 2018-2020

 

Name		Year		Perquisites and Other Personal Benefits ($)(1)		Insurance Premiums ($)(2)		Company Contributions to Retirement and 401(k) Plans ($)		Cash Dividends ($)(3)		Other ($)		Total  ($)
J. Powell Brown		2020		4,991		—		11,400		234,439		—		250,830
		2019		15,521		—		11,200		205,203		—		231,924
		2018		23,334		—		11,000		173,181		—		207,515
R. Andrew Watts		2020		15,006		—		11,400		41,358		—		67,764
		2019		14,967		2,049		11,200		34,201		—		62,417
		2018		20,413		2,682		11,000		17,122		—		51,217
J. Scott Penny		2020		15,035		5,097		11,400		58,158		—		89,690
		2019		16,412		4,797		11,200		68,030		—		100,439
		2018		17,084		4,081		11,000		62,163		—		94,328
Anthony T. Strianese		2020		—		—		11,400		65,995		—		77,395
		2019		—		—		11,200		74,152		—		85,354
		2018		—		—		11,000		65,055		—		76,055
Chris L. Walker		2020		17,006		—		—		39,486		—		56,492
		2019		11,270		—		—		42,705		—		53,975
		2018		13,432		—		—		32,243		—		45,675

 

(1)	These amounts include reimbursement of the cost of annual physical examinations to the extent not otherwise covered by insurance, the reimbursement of the cost of certain financial and tax planning services and reimbursement of certain club membership dues and car service expenses. For additional information, see “Compensation Discussion and Analysis - Other Compensation.”
(2)	These amounts include amounts earned by the Company and reimbursed to these employees for personal lines insurance purchased by these employees through the Company or its subsidiaries.
(3)	These amounts represent cash dividends paid on granted PSP, 2010 SIP, and 2019 SIP shares for which conditions of vesting other than time-based conditions have been satisfied.

 

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Executive Compensation Tables

 

Grants of Plan-Based Awards in Fiscal 2020

 

The following table provides information about the range of possible annual incentive cash payouts in respect of 2020 performance, the range of shares that may be earned pursuant to the stock grants made to our Named Executive Officers under our 2019 SIP in 2020 and the grant date fair value of these stock grants computed under Statement of Financial Accounting Standards ASC Topic 718 (formerly “SFAS 123(R)”).

 

			Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)						Estimated Future Payouts Under Equity Incentive Plan Awards(2)						Grant Date Fair Value of
Name	Grant Date		Threshold ($)(3)		Target ($)		Maximum ($)(4)		Threshold (#)		Target (#)		Maximum (#)		Stock Awards ($)(5)
J. Powell Brown	2/21/20		0		2,000,000		4,000,000
	2/21/20								0		46,382		92,764		2,198,043
	2/21/20								—		15,460		15,460		749,965
R. Andrew Watts	2/21/20		0		700,000		1,400,000
	2/21/20								0		10,822		21,644		512,855
	2/21/20								—		3,607		3,607		174,976
J. Scott Penny	2/21/20		0		900,000		1,800,000
	2/21/20								0		7,730		15,460		366,325
	2/21/20								—		2,576		2,576		124,962
Anthony T. Strianese	2/21/20		0		900,000		1,800,000
	2/21/20								0		7,730		15,460		366,325
	2/21/20								—		2,576		2,576		124,962
Chris L. Walker	2/21/20		0		1,000,000		2,000,000
	2/21/20								0		7,730		15,460		366,325
	2/21/20								—		2,576		2,576		124,962

 

(1)	For additional information related to the annual cash incentive awards including performance targets and measures, see “Compensation Discussion and Analysis.”
(2)	The “Estimated Future Payouts Under Equity Incentive Plan Awards” column shows the range of shares that may be earned pursuant to the stock awards granted under our 2019 SIP in 2020. For additional information related to these grants, see “Compensation Discussion and Analysis.”
(3)	For additional information related to the annual cash incentive awards including performance targets and measures, see “Compensation Discussion and Analysis.”
(4)	For additional information related to the annual cash incentive awards including performance targets and measures, see “Compensation Discussion and Analysis.”
(5)	The “Grant Date Fair Value of Stock Awards” column shows the full grant date fair value of the shares granted to our Named Executive Officers under our 2019 SIP in 2020. The grant date fair value of the awards is determined under Statement of Financial Accounting Standards ASC Topic 718 (formerly “SFAS 123(R)”) and represents the amount we would expense in our financial statements over the vesting schedule for the grants. In accordance with SEC rules, the amounts in this column reflect the actual ASC 718 accounting cost without reduction for estimates of forfeitures related to service-based vesting conditions. The amounts reflect our accounting for these grants and do not correspond to the actual values that may be realized by the grantees.

 

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Executive Compensation Tables

 

Outstanding Equity Awards at Fiscal Year-End – 2020

 

	Option Awards											Stock Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)(1)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)
J. Powell Brown		—		—		—		—		—		671,545		31,837,948		153,944		7,298,485
R. Andrew Watts		—		—		—		—		—		125,600		5,954,696		43,089		2,042,849
J. Scott Penny		—		—		—		—		—		126,464		5,995,658		28,242		1,338,953
Anthony T. Strianese		—		—		—		—		—		151,831		7,198,308		34,619		1,641,287
Chris L. Walker		—		—		—		—		—		87,686		4,157,193		33,348		1,581,029

 

(1)	The market value shown was determined by multiplying the number of shares of stock that have not vested by $47.41, the closing market price of our common stock on December 31, 2020.
(2)	The market value shown was determined by multiplying the number of unearned stock shares (at target) by $47.41, the closing market price of our common stock on December 31, 2020.

 

Option Exercises and Stock Vested – 2020

 

	Option Awards					Stock Awards
Name		Number of Shares Acquired on Exercise (#)		Value Realized on Exercise ($)		Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($)(1)
J. Powell Brown		—		—		87,326		3,575,848
R. Andrew Watts		—		—		30,976		1,224,393
J. Scott Penny		—		—		107,766		4,400,762
Anthony T. Strianese		—		—		115,670		4,728,067
Chris L. Walker		—		—		82,952		3,389,343

 

(1)

The value realized upon the vesting of stock awards is the number of shares multiplied by the market value (being the closing market price as of the previous trading day) of the underlying shares on the vesting date. The value realized was determined without considering any taxes that were owed upon vesting.

 

Nonqualified Deferred Compensation at Fiscal Year-End – 2020

 

Name		Executive Contributions in 2020(1) $		Registrant Contributions in 2020 $		Aggregate Earnings in 2020 $		Aggregate Withdrawals/ Distributions $		Aggregate Balance at 12/31/2020 $
J. Powell Brown		500,000		—		728,280		—		4,111,422
R. Andrew Watts		288,750		—		66,571		—		566,410
J. Scott Penny		—		—		23,202		—		122,493
Anthony T. Strianese		62,308		—		103,851		—		717,325
Chris L. Walker		—		—		—		—		—

 

(1)	In each instance, the indicated executive contribution is included in the amounts reported for that Named Executive Officer in the Summary Compensation Table for 2020.

 

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Executive Compensation Tables

 

Potential Payments Upon Termination or Change in Control – 2020

 

Name		Benefit(1)		Before Change in Control Termination w/o Cause Resignation for Good Reason ($)		After Change in Control Termination w/o Cause or Resignation for Good Reason ($)(2)		Voluntary Termination ($)		Death ($)		Disability ($)		Change in Control ($)
J. Powell Brown		PSP		—		—		—		3,364,214		3,364,214		5,019,423	(3)
		2010 SIP				22,140,043		—		31,753,701		31,753,701		14,188,106	(4)
		2019 SIP				3,943,422		—		1,343,784		1,343,784		—
R. Andrew Watts		PSP		—		—		—		—		—		—
		2010 SIP		—		8,359,710		—		6,987,494		6,987,494		—
		2019 SIP		—		920,086		—		313,528		313,528		—
J. Scott Penny		PSP		—		—		—		1,641,903		1,641,903		2,449,728	(3)
		2010 SIP		—		5,887,374		—		4,969,348		4,969,348		—
		2019 SIP		—		657,150		—		223,928		223,928		—
Anthony T. Strianese		PSP		—		—		—		1,436,713		1,436,713		2,143,582	(3)
		2010 SIP		—		7,786,097		—		6,642,639		6,642,639		—
		2019 SIP		—		657,150		—		223,928		223,928		—
Chris L. Walker		PSP		—		—		—		—		—		—
		2010 SIP		—		6,073,174		—		5,001,413		5,001,413		—
		2019 SIP		—		657,150		—		223,928		223,928		—

 

(1)	All figures shown for the value of stock granted under the PSP, 2010 SIP, and 2019 SIP that would vest upon death, disability or following a change in control are calculated based on the assumption that the triggering event(s) for such vesting took place on December 31, 2020, the last business day of the Company’s last completed fiscal year, and that the price per share of our common stock is $47.41, the closing market price as of that date. Other than the amounts shown in the column captioned “Change in Control” payable under the PSP, the figures shown in this table do not reflect the impact of the excise tax under Sections 280G and 4999 of the Internal Revenue Code, which may effectively reduce the amounts of change-in-control payments that a Named Executive Officer may receive, and do not reflect the assignment of any value to non-competition and other restrictive covenants or determinations of reasonable compensation that may reduce the amounts of change-in-control payments subject to the excise tax. For more detailed information concerning the change-in-control provisions of the PSP, the 2010 SIP, and the 2019 SIP, see “Compensation Discussion and Analysis - Payments Upon Termination or Change in Control,” above. All figures shown in this table would be paid in lump-sum payments by us in accordance with the applicable grant agreements.
(2)	The figures shown in this column were determined as follows: (a) for all grants, except those performance-based restricted stock grants in or after February 2018, the amount contemplates 100% of all unvested restricted stock grants granted pursuant to such 2010 SIP and 2019 SIP grant agreements, and (b) for those performance-based restricted stock grants in or after February 2018, the amount contemplates the greater of: (i) 100% of such unvested restricted stock grants or (ii) the estimated percentage of unvested restricted stock grants determined in accordance with the applicable performance schedule based upon the actual level of achievement (up to the applicable maximum level of achievement and assuming the applicable performance level is adjusted downward, pursuant to the Compensation Committee’s exercise of its discretion, to exclude the following from the first day of the performance period to December 31, 2020, the date on which the Transfer of Control occurs: (x) in 2018, the positive impact of the New Revenue Standard, and (y) in 2019, the negative impact of the 2019 Legal Matter and the negative impact of a one-time, non-cash increase of approximately $8 million in the commissions and fees earned by one of the businesses in our National Programs Segment in 2018 resulting solely from our implementation of the New Revenue Standard, and (z) in 2020, a legal judgment entered into against the Company in 2020 for approximately $6.6 million in connection with the 2019 Legal Matter (the “2020 Legal Matter” and together with the 2019 Legal Matter, the “Legal Matters”).
(3)	These figures represent amounts that would be paid pursuant to the terms of the PSP in the event of a change in control as defined in the PSP and include the following excise tax gross-up amount to be paid by the Company on PSP shares on behalf of the participant in the event of change in control: Mr. Powell Brown - $1,655,210; Mr. Penny - $807,824 and Mr. Strianese - $706,870. The excise tax gross-up amount has been calculated assuming the excise tax rate of 20% multiplied by the excess of the value of the change-in-control payments over the executive’s average W-2 earnings for the last five calendar years, and assuming a blended effective tax rate of approximately 40% for each executive. However, the excise tax gross-up is only applicable if the sum of all payments equals or exceeds three times the executive’s average W-2 earnings for the past five calendar years. Further, the excise tax gross-up assumes no value is assigned to non-competition and other restrictive covenants or determination of reasonable compensation that may apply to the participant. Such excise tax gross-up amounts also assume a change in control date of December 31, 2020, at our closing market price of $47.41 as of that date. The excise tax gross-up provision is a legacy provision that applies only to awards that were granted under the PSP prior to its suspension in 2010 and does not apply to awards under the 2010 SIP or the 2019 SIP. No new agreements that contain excise tax gross-up provisions have been entered into, and no previous agreements containing such legacy provisions have been materially amended.
(4)	This amount would be paid pursuant to that certain grant under our 2010 SIP made on April 29, 2010 for 374,080 shares. This grant replaced 374,080 shares granted under our PSP on July 21, 2009, which had inadvertently exceeded the maximum number of shares permitted to be awarded in a particular calendar year. In order to assure achievement of the full intent of the original PSP grant, the replacement grant under the 2010 SIP has identical performance-based and other vesting conditions, including those associated with a change in control, to the original PSP grant.

 

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Pay Ratio

 

As required by Section 953(b) of the Dodd-Frank Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Powell Brown, our President and Chief Executive Officer:

 

Chief Executive Officer Pay Ratio

 

For 2020, our last completed fiscal year:

 

•	the median of the annual total compensation of all employees of our company, other than Mr. Powell Brown, was $66,820; and
•	the annual total compensation of Mr. Powell Brown, as reported in the Summary Compensation Table, was $7,254,300.
•	Based on this information, for 2020, the ratio of the annual total compensation of Mr. Powell Brown to the median of the annual total compensation of all employees, other than Mr. Powell Brown, was 109 to 1.

 

Methodology

 

To identify the median of the annual total compensation of all our employees, other than Mr. Powell Brown, as well as to determine the annual total compensation of our median employee and Mr. Powell Brown, we took the following steps:

 

1.	We determined that, as of December 26, 2020, the last day of our last regular pay period in 2020, our employee population consisted of approximately 11,123 full-time, part-time, seasonal, and temporary employees, with 10,933 of these individuals located in the United States, 45 of these individuals located in the United Kingdom, 132 of these individuals located in Canada, 11 of these individuals located in Bermuda, and two of these individuals located in the Cayman Islands.
2.	As permitted by SEC rules, we chose to exclude (a) all of the non-U.S. employees described from the determination of the “median employee” because they account for less than 5% of our total employees, and (b) 60 employees hired in December 2020 in connection with our acquisition of substantially all of the assets of South & Western General Agency, Inc. and all issued and outstanding shares of its affiliate, S&W Premium Finance Company, Inc. Our employee population, after taking into consideration these adjustments, consisted of approximately 10,873 individuals.
3.	To identify the “median employee” from our employee population, we compared the amount of compensation of our employees as reflected in our payroll records as reported to the Internal Revenue Service on Form W-2 for 2020. In making this determination, we annualized the compensation of approximately 2,025 permanent employees (full-time and part-time) who were hired in 2020, but did not work for us for the entire fiscal year. Since we do not widely distribute annual equity awards to our employees, the grant date fair values of such awards were excluded from our compensation measure. Fewer than 10% of our employees receive annual equity awards.
4.	We identified our median employee as of December 26, 2020 using this compensation measure, which was consistently applied to all our employees included in the calculation. We did not make any cost-of-living adjustments in identifying the “median employee.”

 

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Pay Ratio

 

5.	Once we identified our median employee, we combined all of the elements of such employee’s compensation for 2020 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $66,820. The difference between such employee’s annual total compensation and such employee’s Form W-2 compensation represents (a) $2,815 in matching contributions made by the Company to such employee’s 401(k) Plan account, and (b) a decrease of $6,375 in the performance-based bonus paid to such employee in January 2021 for service in 2020 as compared to the performance-based bonus paid to such employee in January 2020 for service in 2019.
6.	With respect to the annual total compensation of Mr. Powell Brown, we used the amount reported in the “Total” column of the Summary Compensation Table.

 

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Other Important Information

 

Security Ownership of Management and Certain Beneficial Owners

 

The following table sets forth, as of March 1, 2021, the record date for the Meeting, information as to our common stock beneficially owned by (1) each of our directors, all of whom, other than Samuel P. Bell, III, are director nominees, (2) each Named Executive Officer named in the Summary Compensation Table, (3) all of our directors and current executive officers as a group and (4) any person or entity whom we know to be the beneficial owner of more than five percent of the outstanding shares of our common stock.

 

Name of Beneficial Owner(1)		Amount and Nature of Beneficial Ownership(2)(3)		Percent of Total
J. Hyatt Brown(4)		40,993,958		14.46%
Samuel P. Bell, III		74,938		*
Hugh M. Brown(5)		45,888		*
J. Powell Brown(6)		3,274,134		1.15%
Lawrence L. Gellerstedt III		4,184		*
James C. Hays		348,195		*
Theodore J. Hoepner		111,688		*
James S. Hunt		17,602		*
Toni Jennings		47,362		*
Timothy R.M. Main		25,526		*
H. Palmer Proctor, Jr.(7)		34,006		*
Wendell S. Reilly		227,588		*
Chilton D. Varner		71,109		*
J. Scott Penny(8)		659,530		*
Anthony T. Strianese		288,637		*
Chris L. Walker		186,936		*
R. Andrew Watts		228,586		*
All current directors and executive officers as a group (20 persons)(9)		48,247,961		17.02%
BlackRock Inc.(10)
55 East 52nd Street
New York, NY 10055		27,475,696		9.69%
The Vanguard Group, Inc.(11)
100 Vanguard Boulevard
Malvern, PA 19355		24,488,374		8.64%

 

*	Less than 1%.
(1)	Unless otherwise indicated, the address of such person is c/o Brown & Brown, Inc., 300 N. Beach St., Daytona Beach, Florida 32114.
(2)	Beneficial ownership of shares, as determined in accordance with applicable SEC rules, includes shares as to which a person has or shares voting power and/or investment power, or as to which a person has the right to acquire beneficial ownership within the next 60 days. We have been informed that all shares shown are held of record with sole voting and investment power, except as otherwise indicated.
(3)	The number and percentage of shares owned by the following persons include the indicated number of shares owned through our 401(k) plan as of March 1, 2021: Mr. Powell Brown - 41,246; Mr. Watts - 0; Mr. James Hays - 585; Mr. Penny - 19,285; Mr. Strianese - 0; Mr. Walker - 0; and all current directors and executive officers as a group - 71,356.

 

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Other Important Information

 

	The number and percentage of shares owned by the following persons also include the indicated number of unvested shares which such persons have been granted under our PSP as of March 1, 2021: Mr. Powell Brown - 70,960; Mr. Watts - 0; Mr. Penny - 34,632; Mr. Strianese - 30,304; Mr. Walker - 0; and all current directors and executive officers as a group - 159,108. These PSP shares have voting and dividend rights due to satisfaction of the first condition of vesting based on stock price performance, but the holders thereof currently have no power to sell or dispose of the shares, and the shares are subject to forfeiture.
	In addition, the number and percentage of shares owned by the following persons also include the indicated number of unvested shares which such persons have been granted under our 2010 SIP as of March 1, 2021 and for which the first condition of vesting has been satisfied: Mr. Powell Brown - 564,224; Mr. Watts - 125,285; Mr. Penny - 55,126; Mr. Strianese - 86,138; Mr. Walker - 86,137; and all current directors and executive officers as a group - 1,052,830. These 2010 SIP shares have voting and dividend rights due to satisfaction of the first condition of vesting, but the holders thereof currently have no power to sell or dispose of the shares, and the shares are subject to forfeiture.
	In addition, the number and percentage of shares owned by the following persons include the indicated number of unvested shares which such persons have been granted under our 2010 SIP and 2019 SIP in the form of time-based only grants as of March 1, 2021: Mr. Powell Brown - 102,553; Mr. Watts - 31,803; Mr. Penny - 20,334; Mr. Strianese - 24,377; Mr. Walker - 26,660; and all current directors and executive officers as a group - 295,314. These time-based only grants have voting and dividend rights, but the holders thereof have no power to sell or dispose of the shares, and the shares are subject to forfeiture in the event that the recipient does not continue to be employed with us for a specified number of years following the date of grant.
(4)	Of the shares beneficially owned by Mr. Hyatt Brown, 40,802,044 are held of record by Ormond Riverside, Limited Partnership, of which Swakopmund, Inc. is the General Partner that has voting and investment power over such shares. Swakopmund, Inc. is 100% owned by the Swakopmund Trust of 2009, a revocable trust created by Mr. Hyatt Brown, who is the sole trustee thereof and retains the sole voting and investment powers with respect to all the shares of Swakopmund, Inc. An additional 55,914 shares are beneficially owned jointly with Mr. Hyatt Brown’s spouse, and these shares have shared voting and investment power, and an additional 136,000 shares are held in an IRA account.
(5)	Mr. Hugh Brown’s ownership includes 800 shares owned by his spouse, as to which he disclaims beneficial ownership.
(6)	Mr. Powell Brown’s ownership includes 30,558 shares owned by children living in his household, as to which he disclaims beneficial ownership.
(7)	Mr. Proctor’s ownership includes 448 shares owned by his spouse, as to which he disclaims beneficial ownership.
(8)	Mr. Penny’s ownership includes 192 shares owned by children living in his household, as to which he disclaims beneficial ownership, and 357,056 shares owned jointly with spouse.
(9)	Includes amounts beneficially owned by all our current directors and executive officers as of March 1, 2021, as a group.
(10)	The amount shown is derived from a Schedule 13G/A filed by BlackRock, Inc. (“BlackRock”) on January 29, 2021 reporting beneficial ownership as of December 31, 2020. According to the Schedule 13G/A, BlackRock has sole voting power over 25,758,638 shares, shared voting power over 0 shares, sole dispositive power over 27,475,696 shares, and shared dispositive power over 0 shares.
(11)	The amount shown is derived from a Schedule 13G/A filed by The Vanguard Group (“Vanguard”) on February 10, 2021 reporting beneficial ownership as of December 31, 2020. According to the Schedule 13G/A, Vanguard has sole voting power over 0 shares, shared voting power over 266,381 shares, sole dispositive power over 23,914,766 shares, and shared dispositive power over 573,608 shares.

 

Delinquent Section 16(a) Reports

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and persons who own more than ten percent (10%) of our outstanding shares of common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, executive officers and 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file.

 

Based solely on our review of such reports and written representations from reporting persons, we believe that during 2020, our directors, officers and 10% beneficial owners timely complied with all applicable filing requirements, except that Chilton D. Varner, Director, was inadvertently late in reporting 16 separate “small acquisitions” of the Company’s common stock (as defined in Exchange Act Rule 16a-6) made between August 16, 2016 and November 20, 2019 in connection with her election to re-invest dividends paid on beneficially owned shares of the Company’s common stock, which should have been filed on Form 5s for 2016, 2017, 2018, and 2019.

 

Annual Meeting and Proxy Solicitation Information

 

These proxy materials are made available to shareholders in connection with the solicitation of proxies by the Board of Directors of Brown & Brown, Inc. to be voted at the Annual Meeting of Shareholders, to be held virtually at 9:00 a.m. (EDT) on Wednesday, May 5, 2021, and at any postponements or adjournments. The close of business on March 1, 2021 has been fixed as the record date for the determination of shareholders entitled to notice of and to vote at the Meeting. At the close of business on the record date, we had outstanding 283,486,455 shares of $0.10 par value common stock, entitled to one vote per share. These proxy materials were first mailed to shareholders of record on March 23, 2021.

 

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Other Important Information

 

Notice of Internet Delivery

 

As permitted by SEC rules, Brown & Brown, Inc. is making this Proxy Statement and its Annual Report available to its shareholders electronically via the Internet. If you received a Notice by mail, you will not receive a printed copy of the proxy materials in the mail (unless you request them, as described below and explained in the Notice). Instead, the Notice instructs you on how to access and review all of the important information contained in the Proxy Statement and Annual Report. The Notice also instructs you on how you may vote online. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions in the Notice for requesting the materials.

 

Attending the Virtual Annual Meeting

 

Both shareholders of record and shareholders who hold their shares in “street name” will need to register to be able to attend the Annual Meeting via live audio webcast, submit their questions during the meeting, and vote their shares electronically at the Annual Meeting by following the instructions below.

 

If you are a shareholder of record, you must:

 

•	Follow the instructions provided on your proxy card to first register at http://www.viewproxy.com/bbinsurance/2021/htype.asp by 11:59 p.m. (EDT) on May 2, 2021. You will need to enter your name, phone number, and email address as part of the registration, following which you will receive an email confirming your registration, as well as the password to attend the Annual Meeting.
•	On the day of the Annual Meeting, if you have properly registered, you may enter the Annual Meeting by logging in using the link and password you received via email in the registration confirmation you received when you registered at http://www.viewproxy.com/bbinsurance/2021/htype.asp.
•	If you wish to vote your shares electronically at the Annual Meeting, you will need to visit www.AALvote.com/BRO during the Annual Meeting while the polls are open (you will need the virtual control number included on your proxy card).

 

If your shares are held in a “street name,” you must:

 

•	Register at http://www.viewproxy.com/bbinsurance/2021/htype.asp by 11:59 p.m. (EDT) on May 2, 2021.

 

You will need to enter your name, phone number, and email address, and provide a copy of the legal proxy (which may be uploaded to the registration website or sent via email to VirtualMeeting@viewproxy.com) as part of the registration if you plan to vote at the meeting, following which you will receive an email confirming your registration and a virtual control number if you plan to vote at the meeting, as well as the password to attend the Annual Meeting.

 

Please note, if you do not provide a copy of the legal proxy, you may still attend the Annual Meeting by showing proof of ownership but will be unable to vote your shares electronically at the Annual Meeting.

 

•	On the day of the Annual Meeting, if you have properly registered, you may enter the Annual Meeting by logging in using the link and password you received via email in the registration confirmation you received when you registered at http://www.viewproxy.com/bbinsurance/2021/htype.asp.
•	If you wish to vote your shares electronically at the Annual Meeting, you will need to visit www.AALvote.com/BRO during the Annual Meeting while the polls are open (you will need the virtual control number assigned to you in your registration confirmation email).

 

Further instructions on how to attend the Annual Meeting via live audio webcast, including how to vote your shares electronically at the Annual Meeting are posted on http://www.viewproxy.com/bbinsurance/2021/htype. asp under Frequently Asked Questions (FAQ). The Annual Meeting live audio webcast will begin promptly at 9:00 a.m. (EDT) on May 5, 2021. We encourage you to access the meeting prior to the start time. Online check-in will begin at 8:30 a.m. (EDT), and you should allow ample time for the check-in procedures.

 

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Other Important Information

 

Technical Difficulties

 

We will have technicians ready to assist you with any technical difficulties you may have accessing the Annual Meeting live audio webcast. Please be sure to check in by 8:30 a.m. (EDT) on May 5, 2021, the day of the Annual Meeting, so we may address any technical difficulties before the Annual Meeting live audio webcast begins. If you encounter any difficulties accessing the Annual Meeting live audio webcast during the check-in or meeting time, please email VirtualMeeting@viewproxy.com or call (866) 612-8937.

 

Voting Your Shares; Required Votes

 

Shares represented by duly executed proxies in the accompanying form that we receive prior to the Meeting will be voted at the Meeting. If you specify in the proxy a choice with respect to any matter to be acted upon, the shares represented by such proxy will be voted as specified. If your proxy card is signed and returned without specifying a vote or an abstention, the shares represented by such proxy will be voted according to the recommendation of the Board of Directors.

 

The Board of Directors knows of no other matters that may be brought before the Meeting. However, if any other matters are properly presented for action, it is the intention of the named proxies to vote on them according to their best judgment.

 

If your shares are held in “street name,” a stock brokerage account, or by a bank or other nominee, you have the right to provide instructions on voting as requested by your broker, bank or nominee. Under the NYSE’s rules, your broker, bank or nominee is permitted to vote your shares on the second proposal concerning the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accountants for the fiscal year ending December 31, 2021 even if your broker, bank or nominee has not been given specific voting instructions as to this matter. Your broker, bank or nominee is not permitted to vote your shares on the first, third or fourth proposals.

 

After you have returned a proxy, you may revoke it at any time before it is voted by taking one of the following actions: (i) giving written notice of the revocation to our Corporate Secretary at 300 N. Beach St., Daytona Beach, Florida 32114, or by email to annualmeeting@bbins.com; (ii) executing and delivering a proxy with a later date; or (iii) voting in person at the Meeting. Votes cast by proxy or in person at the Meeting will be tabulated by Alliance Advisors, LLC, and by one or more inspectors of election appointed at the Meeting, who will also determine whether a quorum is present for the transaction of business. A quorum is present when a majority in interest of all the common stock outstanding is represented by shareholders present in person or by proxy.

 

Shares of the common stock represented by proxies received by the Company (whether through the return of the enclosed proxy card, by telephone or over the Internet), where the shareholder has specified his or her choice with respect to the proposals described in this Proxy Statement (including the election of directors), will be voted in accordance with the specification(s) so made. If your proxy is properly executed but does not contain voting instructions, or if you vote via telephone or the Internet without indicating how you want to vote with respect to any item, your shares will be voted “FOR” the election of all nominees for the Board of Directors; “FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2021; and “FOR” the advisory vote to approve Named Executive Officer compensation.

 

A valid proxy also gives the individuals named as proxies authority to vote in their discretion when voting the shares on any other matters that are properly presented for action at the Meeting.

 

If the shares you own are held in “street name” by a broker or other nominee entity and you provide instructions to the broker or nominee as to how to vote your shares, your broker or other nominee entity, as the record holder of your shares, is required to vote your shares according to your instructions. Under the

 

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Other Important Information

 

NYSE rules, certain proposals, such as the ratification of the appointment of the Company’s registered public accountants, are considered “routine” matters, and brokers and other nominee entities generally may vote on such matters on behalf of beneficial owners who have not furnished voting instructions. For “non-routine” matters, such as the election of directors and the “say on pay” advisory vote, brokers and other nominee entities may not vote unless they have received voting instructions from the beneficial owner. A “broker non-vote” occurs when a broker or other nominee entity does not vote on a particular proposal because it does not have authority under the NYSE rules to vote on that particular proposal without receiving voting instructions from the beneficial owner.

 

Broker non-votes, as well as properly executed proxies marked “ABSTAIN,” will be counted for purposes of determining whether a quorum is present at the Meeting.

 

For information regarding the voting standard for Proposal 1, see “Vote Required; Majority Voting; Board Recommendation,” above. In order to pass, each of Proposals 2 and 3 must receive the affirmative vote of a majority of the votes cast on the Proposal. A broker non-vote will not have an effect on these proposals. An abstention will not have an effect on Proposals 1, 2 or 3.

 

Proxies may be solicited by our officers, directors, and regular supervisory and executive employees, none of whom will receive any additional compensation for their services. Also, Alliance Advisors, LLC may solicit proxies on our behalf at an approximate cost of $8,500, plus reasonable expenses. Such solicitations may be made personally or by mail, facsimile, telephone, messenger or via the Internet. We will pay persons holding shares of common stock in their names or in the names of nominees, but not owning such shares beneficially, such as brokerage houses, banks, and other fiduciaries, for the expense of forwarding solicitation materials to their principals. We will pay all of the costs of solicitation of proxies.

 

Our executive office is located at 300 N. Beach St., Daytona Beach, Florida 32114 (telephone number (386) 252-9601).

 

Proposals of Shareholders

 

Pursuant to applicable requirements of the Securities Exchange Act of 1934, proposals of shareholders intended to be presented at the 2022 Annual Meeting of Shareholders must be received by us no later than November 23, 2021, in order to be considered for inclusion in our Proxy Statement and form of proxy/voting instruction related to that meeting. Such proposals will need to be in writing and comply with SEC regulations regarding the inclusion of shareholder proposals in Company-sponsored proxy materials. In addition, the proxy solicited by the Board of Directors for the 2022 Annual Meeting of Shareholders will confer discretionary authority to vote on any shareholder proposal presented at that Meeting, unless we are provided with written notice of such proposal by February 6, 2022.

 

In addition, the Company’s By-Laws require that for any shareholder proposal or director nomination to be properly presented at the 2022 Annual Meeting of Shareholders, whether or not also submitted for inclusion in the Company’s proxy statement, the shareholder proposal or director nomination must comply with the requirements set forth in the By-Laws, and the Company must receive written notice of the matter no earlier than January 5, 2022 and no later than February 4, 2022. Each such written notice must contain the information set forth in the By-Laws.

 

Any shareholder proposals or nominations should be sent to our Corporate Secretary at 300 N. Beach St., Daytona Beach, Florida 32114.

 

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Other Matters

 

Our 2020 Annual Report to Shareholders (the “Annual Report”) accompanies this Proxy Statement. We will provide to any shareholder, upon the written request of such person, a copy of our Annual Report on Form 10-K, including the financial statements and the exhibits thereto, for the fiscal year ended December 31, 2020, as filed with the SEC pursuant to Rule 13a-1 under the Securities Exchange Act of 1934, as amended. Any such request should be directed to Brown & Brown, Inc., 300 N. Beach St., Daytona Beach, Florida 32114 Attention: Corporate Secretary. No charge will be made for copies of such Annual Report on Form 10-K; however, a reasonable charge will be made for copies of the exhibits.

 

Only one copy of this Proxy Statement and the accompanying Annual Report is being delivered to shareholders who share an address, unless we have received contrary instructions from one or more of such shareholders. We will promptly deliver a separate copy of this Proxy Statement and the accompanying Annual Report to any shareholder at a shared address to which a single copy of these documents has been delivered upon our receipt of a written or oral request from that shareholder directed to the address shown above, or to us at (386) 252-9601. Any shareholder sharing a single copy of the Proxy Statement and Annual Report who wishes to receive a separate mailing of these materials in the future, or any shareholders sharing an address and receiving multiple copies of these materials who wish to share a single copy of these documents in the future, should also notify us at the address and telephone number shown above.

 

The material referred to in this Proxy Statement under the captions “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Report of the Audit Committee” shall not be deemed soliciting material or otherwise deemed filed, and shall not be deemed to be incorporated by any general statement of incorporation by reference in any filings made under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

 

By Order of the Board of Directors

 

Robert W. Lloyd

Corporate Secretary

 

Daytona Beach, Florida

March 23, 2021

 

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Annex A Information Regarding Non-GAAP Financial Measures

 

This Proxy Statement contains references to Organic Revenue, Organic Revenue growth, Adjusted EBITDAC, Adjusted EBITDAC Margin, and Adjusted EPS which are non-GAAP financial measures. These measures are not in accordance with, or an alternative to the GAAP information provided in the financial statements contained in our Annual Report on Form 10-K. A reconciliation of this non-GAAP financial information to our GAAP information is contained in this Annex A.

 

Organic Revenue and Organic Revenue growth. We view Organic Revenue and Organic Revenue growth as important indicators when assessing and evaluating our performance on a consolidated basis and for each of our segments because they allow us to determine a comparable, but non-GAAP, measurement of revenue growth that is associated with the revenue sources that were a part of our business in both the current and prior year and that are expected to continue in the future. We believe presenting these non-GAAP financial measures allows readers of our financial statements to measure, analyze and compare our consolidated growth, and the growth of each of our segments, in a meaningful and consistent manner.

 

Adjusted EBITDAC and Adjusted EBITDAC Margin. We view Adjusted EBITDAC and Adjusted EBITDAC Margin as important indicators when assessing and evaluating our performance because it allows us to determine a comparable, but non-GAAP, measurement of our operating margins in a meaningful and consistent manner.

 

Adjusted EPS. Adjusted EPS means our earnings per share, excluding the impact of the change in estimated acquisition earn-out payables and any other items (for example, extraordinary, nonrecurring items) that the Compensation Committee determines to be appropriately disregarded for all grants subject to a vesting condition of Adjusted EPS. We believe that Adjusted EPS provides a meaningful representation of our operating performance and is also presented to improve the comparability of our results between periods by eliminating the impact of certain items that have a high degree of variability.

 

We present such non-GAAP supplemental financial information, as we believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments. This supplemental financial information should be considered in addition to, not in lieu of, our Consolidated Financial Statements.

 

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Reconciliation of Total Commissions and Fees to Organic Revenue Growth and Organic Revenue Growth – Adjusted

 

The reconciliation of total commissions and fees, included in the Consolidated Statement of Income, to Organic Revenue for the year ended December 31, 2020, is as follows:

 

(in thousands, except		Total Commissions and Fees								Total Net				Total Net Growth				Contingents								GSCs								Total Core Commissions and Fees(2)								Acquisition Revenues				Divested Business				Organic				Revenue(3)				Organic Revenue				Organic Revenue Growth
percentages)		2020				2019				Change				%				2020				2019				2020				2019				2020				2019				2020				2019				2020				2019				Growth				%
Retail(1)			1,470,093				1,364,755				105,338				7.7	%			35,785				34,150				15,128				11,056				1,419,180				1,319,549				79,580				11,772				1,339,600				1,307,777				31,823				2.4	%
National Programs			609,842				516,915				92,927				18.0	%			27,278				17,517				(238	)			10,566				582,802				488,832				34,173				377				548,629				488,455				60,174				12.3	%
Wholesale Brokerage			352,161				309,426				42,735				13.8	%			7,871				7,499				1,304				1,443				342,986				300,484				25,861				—				317,125				300,484				16,641				5.5	%
Services			174,012				193,641				(19,629	)			(10.1	)%			—				—				—				—				174,012				193,641				1,484				—				172,528				193,641				(21,113	)			(10.9	)%
Total Company			2,606,108				2,384,737				221,371				9.3	%			70,934				59,166				16,194				23,065				2,518,980				2,302,506				141,098				12,149				2,377,882				2,290,357				87,525				3.8	%

 

The reconciliation of total commissions and fees, included in the Consolidated Statement of Income, to Organic Revenue growth and Organic Revenue growth – adjusted, which excludes a one-time, non-cash increase of approximately $8 million in the commissions and fees earned by one of the businesses in our National Programs Segment in 2018 resulting solely from our implementation of the New Revenue Standard (the “2018 Programs Business New Revenue Standard Adjustment”), for the year ended December 31, 2019 is as follows:

 

(in thousands, except		Total Commissions and Fees								Total Net				Total Net Growth				Contingents								GSCs								Total Core Commissions and Fees(2)								Acquisition Revenues				Divested Business				Organic Revenue(3)								Organic Revenue				Organic Revenue Growth
percentages)		2019				2018				Change				%				2019				2018				2019				2018				2019				2018				2019				2018				2019				2018				Growth				%
Retail(1)			1,364,755				1,040,574				324,181				31.2	%			34,150				24,517				11,056				8,535				1,319,549				1,007,522				272,383				7,743				1,047,166				999,779				47,387				4.7	%
National Programs			516,915				493,878				23,037				4.7	%			17,517				23,896				10,566				76				488,832				469,906				5,721				790				483,111				469,116				13,995				3.0	%
Wholesale Brokerage			309,426				286,364				23,062				8.1	%			7,499				7,462				1,443				1,350				300,484				277,552				3,628				1,268				296,856				276,284				20,572				7.4	%
Services			193,641				189,041				4,600				2.4	%			—				—				—				—				193,641				189,041				16,541				—				177,100				189,041				(11,941	)			(6.3	)%
Total Company			2,384,737				2,009,857				374,880				18.7	%			59,166				55,875				23,065				9,961				2,302,506				1,944,021				298,273				9,801				2,004,233				1,934,220				70,013				3.6	%
2018 Programs Business New Revenue Standard Adjustment			—				(8,134	)			8,134				(100	)%			—				—				—				—				—				(8,134	)			—				—				—				(8,134	)			8,134
Total Company - Adjusted			2,384,737				2,001,723				383,014				19.1	%			59,166				55,875				23,065				9,961				2,302,506				1,935,887				298,273				9,801				2,004,233				1,926,086				78,147				4.1	%

 

The reconciliation of total commissions and fees, included in the Consolidated Statement of Income, to Organic Revenue for the year ended December 31, 2018, is as follows:

 

(in thousands, except		Total Commissions and Fees								Total Net				Total Net Growth				Contingents								GSCs								Total Core Commissions and Fees(2)								New Revenue Standard				Acquisition Revenues				Divested Business				Organic				Revenue(3)				Organic Revenue				Organic Revenue Growth
percentages)		2018				2017				Change				%				2018				2017				2018				2017				2018				2017				2018				2018				2017				2018				2017				Growth				%
Retail(1)			1,040,574				942,039				98,535				10.5	%			24,517				23,377				8,535				9,108				1,007,522				909,554				(1,254	)			73,405				1,270				935,371				908,284				27,087				3.0	%
National Programs			493,878				479,017				14,861				3.1	%			23,896				20,123				76				31				469,906				458,863				7,973				7,289				114				454,644				458,749				(4,105	)			(0.9	)%
Wholesale Brokerage			286,364				271,141				15,223				5.6	%			7,462				8,686				1,350				1,231				277,552				261,224				(935	)			2,514				106				275,973				261,118				14,855				5.7	%
Services			189,041				165,073				23,968				14.5	%			—				—				—				—				189,041				165,073				10,307				7,969				—				170,765				165,073				5,692				3.4	%
Total Company			2,009,857				1,857,270				152,587				8.2	%			55,875				52,186				9,961				10,370				1,944,021				1,794,714				16,091				91,177				1,490				1,836,753				1,793,224				43,529				2.4	%

 

(1)	The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 16 of the Notes to the Consolidated Financial Statements, which includes corporate and consolidation items.
(2)	Total core commissions and fees is defined as total commissions and fees less (i) profit-sharing contingent commissions (revenues from insurance companies based upon the volume and the growth and/or profitability of the business placed with such companies during the prior year (“Contingents”))

 

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	and less (ii) guaranteed supplemental commissions (commissions from insurance companies based solely upon the volume of the business placed with such companies during the current year (“GSCs”)).
(3)	“Organic Revenue,” which is a non-GAAP financial measure, is defined as total core commissions and fees less (i) the first twelve months of commission and fee revenues generated from acquisitions, less (ii) divested business (net commissions and fees generated from offices, and books of business sold by the Company) with the associated revenue removed from the corresponding period of the prior year, and less (iii) for the calculation of Organic Revenue in 2018, the impact of the New Revenue Standard.

 

For 2020, National Programs Segment Organic Revenue growth was adjusted to (i) exclude the impact of certain offices within the National Programs Segment for which Chris L. Walker, Executive Vice President and President - National Programs Segment, did not have responsibility in 2020, and (ii) to include the impact of certain offices within the Services Segment for which Mr. Walker did have responsibility in 2020 (collectively, the “2020 Office-Based Adjustments”). The growth rate for National Programs Segment Organic Revenue -adjusted, which is a non-GAAP financial measure, for the year ended December 31, 2020, is as follows:

 

(in thousands, except		Total Commissions and Fees								Total Net				Total Net Growth				Contingents								GSCs								Total Core Commissions and Fees(1)								Acquisition Revenues				Divested Business				Organic Revenue(2)								Organic Revenue				Organic Revenue Growth
percentages)		2020				2019				Change				%				2020				2019				2020				2019				2020				2019				2020				2019				2020				2019				Growth				%
National Program			609,842				516,915				92,927				18.0	%			27,278				17,517				(238	)			10,566				582,802				488,832				34,173				377				548,629				488,455				60,174				12.3	%
2020 Office-Based Adjustments			13,095				16,731				(3,637	)			(21.7	)%			(122	)			(667	)			1				(3	)			13,217				17,402				—				—				13,218				17,402				(4,185	)
National Programs - Adjusted			622,937				533,646				89,290				16.7	%			27,156				16,850				(237	)			10,563				596,019				506,234				34,173				377				561,847				505,857				55,989				11.1	%

 

(1)	Total core commissions and fees, which is a non-GAAP financial measure, is defined as total commissions and fees, less (i) Contingents, and less (ii) GSCs.
(2)	“Organic Revenue,” which is a non-GAAP financial measure, is defined as total core commissions and fees less (i) the first twelve months of commission and fee revenues generated from acquisitions, less (ii) divested business (net commissions and fees generated from offices, and books of business sold by the Company) with the associated revenue removed from the corresponding period of the prior year, and less (iii) for the calculation of Organic Revenue in 2018, the impact of the New Revenue Standard.

 

For 2019, National Programs Segment Organic Revenue growth was adjusted to (i) exclude the impact of certain offices within the National Programs Segment for which Chris L. Walker, Executive Vice President and President - National Programs Segment, did not have responsibility in 2019, (ii) to include the impact of certain offices within the Services Segment for which Mr. Walker did have responsibility in 2019 (collectively, the “2019 Office-Based Adjustments”), and (iii) to exclude 2018 Programs Business New Revenue Standard Adjustment. The growth rate for National Programs Segment Organic Revenue - adjusted, which is a non-GAAP financial measure, for the year ended December 31, 2019, is as follows:

 

(in thousands, except		Total Commissions and Fees								Total Net				Total Net Growth				Contingents								GSCs								Total Core Commissions and Fees(1)								Acquisition Revenues				Divested Business				Organic Revenue(2)								Organic Revenue				Organic Revenue Growth
percentages)		2019				2018				Change				%				2019				2018				2019				2018				2019				2018				2019				2018				2019				2018				Growth				%
National Programs			516,915				493,878				23,037				4,7	%			17,517				23,896				10,566				76				488,832				469,906				5,721				790				483,111				469,116				13,995				3.0%
2019 Office-Based Adjustments			16,731				25,902				(9,171	)			(35.4	)%			(667	)			(1,032	)			(3	)			(2	)			17,402				26,937				—				—				17,402				26,937				(9,535	)
2018 Programs Business New Revenue Standard Adjustment			—				(8,134	)			8,134				(100	)%			—				—				—				—				—				(8,134	)			—				—				—				(8,134	)			8,134
National Programs - Adjusted			533,646				511,647				22,000				4.3	%			16,850				22,864				10,563				74				506,234				488,709				5,721				790				500,513				487,919				12,594				2.6%

 

(1)	Total core commissions and fees, which is a non-GAAP financial measure, is defined as total commissions and fees, less (i) Contingents, and less (ii) GSCs.
(2)	“Organic Revenue,” which is a non-GAAP financial measure, is defined as total core commissions and fees less (i) the first twelve months of commission and fee revenues generated from acquisitions, less (ii) divested business (net commissions and fees generated from offices, and books of business sold by the Company) with the associated revenue removed from the corresponding period of the prior year, and less (iii) for the calculation of Organic Revenue in 2018, the impact of the New Revenue Standard.

 

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Annex A Information Regarding Non-GAAP Financial Measures

 

Reconciliation of Income Before Income Taxes to Adjusted EBITDAC and Reconciliation of Income Before Income Taxes Margin to Adjusted EBITDAC Margin

 

The reconciliation of income before income taxes, included in the Consolidated Statement of Income, to Adjusted EBITDAC for the years ended December 31, 2020 and 2019, and the reconciliation of Income Before Income Taxes Margin, included in the Consolidated Statement of Income, to Adjusted EBITDAC Margin for the years ended December 31, 2020 and 2019 is as follows:

 

		For the Year Ended December 31,
(in thousands, unaudited)		2020				2019
Income Before Income Taxes			624,099				525,929
Amortization			108,523				105,298
Depreciation			26,276				23,417
Interest			58,973				63,660
Change in estimated acquisition earn-out payables			(4,458	)			(1,366	)
EBITDAC(1)			813,413				716,938
Income Before Income Taxes Margin(2)			23.9	%			22.0	%
EBITDAC Margin(3)			31.1	%			30.0	%
Loss/(Gain) on disposal			(2,388	)			(10,021	)
Non-cash stock-based compensation expense impact in excess of budget			4,809				3,300
Legal Matters			6,550				4,750
Adjusted EBITDAC(4)			822,384				714,967
Adjusted EBITDAC Margin(4)			31.5	%			29.9	%

 

(1)	“EBITDAC,” which is a non-GAAP financial measure, is defined as income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables.
(2)	Income Before Income Taxes Margin is calculated as the Company’s income before income taxes, as reported, divided by total revenues, as reported.
(3)	“EBITDAC Margin,” which is a non-GAAP financial measure, is defined as EBITDAC divided by total revenues.
(4)	“Adjusted EBITDAC” and “Adjusted EBITDAC Margin,” which are both non-GAAP financial measures, are defined as EBITDAC and EBITDAC Margin, respectively, in each case adjusted to exclude (i) the positive impact of the net gain on disposal resulting from sales of books of business, (ii) the negative impact of the Company’s non-cash stock-based compensation expense in excess of what was reflected in the Company’s Board-approved annual budget, and (iii) the negative impact of the Legal Matters.

 

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Annex A Information Regarding Non-GAAP Financial Measures

 

Reconciliation of Diluted Net Income Per Share to Adjusted EPS

 

The reconciliation of diluted earnings per share, included in the Consolidated Statement of Income, to Adjusted EPS for the 12-month periods ended December 31, 2019, 2018, and 2017, is as follows:

(in thousands, except for diluted net income per share and Adjusted EPS, unaudited)

 

														Adjustments
Calendar Year		Diluted Net Income Per Share				Weighted Average Number of Shares Outstanding- Diluted				Net Income Attributable to Common Shares ($)				Tax Reform Act ($)				Change in Estimated Acquisition Earnout Payables (Pre-Tax) ($)				After-Tax Effect of Adjustments ($)(1)				After-Tax Adjustments(2)				Adjusted Net Income Attributable to Common Shares				Adjusted EPS(3)
2017			1.40				277,586				389,884				(117,984	)			9,200				5,701								277,601				1.00
2018			1.22				275,521				335,958								2,969				2,197				(14,388	)			323,766				1.18
2019			1.40				274,616				385,641								(1,366	)			(1,035	)			3,599				388,205				1.41
																																		$	3.59

 

(1)	After-tax effect of adjustments calculated using the Company’s effective tax rate for the respective year.
(2)	The after-tax adjustments are: (1) for 2018, an adjustment to exclude the positive impact of the New Revenue Standard; and (2) for 2019, an adjustment to exclude the negative impact of the 2019 Legal Matter in 2019.
(3)	A non-GAAP financial measure.

 

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ANNUAL MEETING OF SHAREHOLDERS

BROWN & BROWN, INC.

 

 

Virtual Meeting

 

THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS FOR

THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 5, 2021, 9:00 A.M. (EDT)

 

The undersigned hereby appoints Robert W. Lloyd and R. Andrew Watts and each of them as proxies with full power of substitution, with all the powers the undersigned would possess if personally present, to vote all shares of Common Stock of Brown & Brown, Inc. which the undersigned is entitled to vote at the Annual Meeting of Shareholders and any adjournment(s) thereof.

 

The Annual Meeting of Shareholders will be held virtually. In order to attend the meeting, you must register at http://www.viewproxy.com/bbinsurance/2021/htype.asp by 11:59 P.M. (EDT) on May 2, 2021. On the day of the Annual Meeting of Shareholders, if you have properly registered, you may enter the meeting by clicking on the link provided and the password you received via email in your registration confirmation. Further instructions on how to attend and vote at the Annual Meeting of Shareholders are contained in the Proxy Statement in the section titled “Attending the Virtual Annual Meeting.”

 

(Continued and to be signed on the reverse side)

 

PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED.

 

 

All shareholders who wish to attend the Virtual Meeting, must register at:
www.viewproxy.com/bbinsurance/2021/htype.asp

 

The deadline for registration is May 2, 2021 at 11:59 P.M. (EDT)

 

NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS:

The Notice of Meeting, Proxy Statement, and Annual Report to Shareholders are available at www.viewproxy.com/bbinsurance/2021

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The Board of Directors recommends a vote FOR all director nominees and FOR Proposals 2 and 3:

1.	Election of Directors.

 

 

 

PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED.

 

VIRTUAL CONTROL NUMBER

 

PROXY VOTING INSTRUCTIONS

 

Please have your 11-digit control number ready when voting by Internet or Telephone

 

INTERNET Vote Your Proxy on the Internet:   Go to www.AALvote.com/BRO   Have your proxy card available when you access the above website. Follow the prompts to vote your shares.

TELEPHONE Vote Your Proxy by Phone: Call 1 (866) 804-9616   Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares.

MAIL Vote Your Proxy by Mail:   Mark, sign, and date your proxy card, then detach it, and return it in the postage-paid envelope provided.