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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Conduent Incorporated

(Name of Registrant as Specified In Its Charter)

 

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

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April 22, 2019

Dear Shareholders:

You are cordially invited to attend the annual meeting of shareholders of Conduent Incorporated on Tuesday, May 21, 2019 at 9:00 a.m., Eastern Time. The meeting will be held at Conduent Corporate Headquarters, 100 Campus Drive, Suite 200, Florham Park, New Jersey.

The attached notice of the 2019 Annual Meeting of Shareholders and proxy statement provide important information about the meeting and will serve as your guide to the business to be conducted at the meeting. We urge you to read the accompanying materials regarding the matters to be voted on at the meeting.

At the Annual Meeting of Shareholders, you will be asked to vote upon:

 

•

A proposal to elect nine directors;

 

•

A proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2019; and

 

•

A proposal to approve, on an advisory basis, the 2018 compensation of our named executive officers.

The Board of Directors unanimously recommends that you vote in favor of these proposals.

It is important that your shares be represented and voted at the Annual Meeting of Shareholders, regardless of whether or not you plan to attend in person. Therefore, you are urged to vote your shares using one of the methods described on page 1 under “How do I vote?”.

Thank you for your continued support of, and ongoing interest in, Conduent Incorporated.

For the Board of Directors,

 

 

William G. Parrett

Chairman of the Board

Notice of 2019 Annual Meeting of Shareholders

 

Date and Time:		Tuesday, May 21, 2019, at 9:00 a.m., Eastern Time
Location:		Conduent Corporate Headquarters 100 Campus Drive, Suite 200 Florham Park, New Jersey 07932
Purpose:		Our shareholders will be asked to:   (1) Elect 9 directors;   (2) Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2019;   (3) Approve, on an advisory basis, the 2018 compensation of our named executive officers; and   (4) Consider such other business as may properly come before the meeting.
Record Date:		March 27, 2019 — You are eligible to vote if you were a shareholder of record as of the close of business on this date.
Proxy Voting:		(1) Telephone;   (2) Internet; or   (3) Proxy Card.   For voting instructions, please review the accompanying proxy card.
Importance of Vote:		Whether or not you plan to attend, please submit your proxy as soon as possible to ensure that your shares are represented.

Important Notice Regarding the Availability of Proxy Materials for the

Annual Meeting of Shareholders to be Held on May 21, 2019.

The Proxy Statement and 2018 Annual Report are available at

www.envisionreports.com/CNDT or https://investor.conduent.com.

By order of the Board of Directors,

 

 

J. Michael Peffer

Executive Vice President, General Counsel and Secretary

April 22, 2019

TABLE OF CONTENTS

 

GENERAL INFORMATION ABOUT THE ANNUAL MEETING			1
The Annual Meeting			1
What is the purpose of the Annual Meeting?			1
Who is entitled to vote?			1
How do I vote?			1
How does the Board recommend that I vote?			2
How can I attend the Annual Meeting?			2
How many shares are required to be present to hold the Annual Meeting?			2
How many votes are required to approve each proposal?			3
What is a broker non-vote and how will it affect the voting?			3
May I change my vote?			3
Who will count the vote? Is my vote confidential?			3
How are proxies solicited?			4
How can I electronically access the proxy materials?			4
What are the deadlines and requirements for shareholder submission of proposals, director nominations and other business for the 2020 Annual Meeting?			4
How can I contact the Board?			4
What if multiple shareholders have the same address?			5
How may I get additional copies of the Annual Report and Proxy Statement?			5
Is there a list of shareholders entitled to vote at the Annual Meeting?			5
PROPOSAL 1 — ELECTION OF DIRECTORS			6
Biographies			6
Corporate Governance			12
Director Nomination Process			12
Board Leadership Structure			12
Risk Oversight			13
Director Independence			13
Certain Relationships and Related Person Transactions			14
BOARD OF DIRECTORS AND BOARD COMMITTEES			14
Committee Functions, Membership and Meetings			14
Board and Committee Meetings; Annual Meeting Attendance			17
Annual Director Compensation			17
SECURITIES OWNERSHIP			20
Ownership of Company Securities			20
Section 16(a) Beneficial Ownership Reporting Compliance			22
COMPENSATION DISCUSSION AND ANALYSIS			22
Compensation Committee Report			36
Summary Compensation Table			37

 

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Grants of Plan-Based Awards in 2018			39
Outstanding Equity Awards at 2018 Fiscal Year-End			41
Option Exercises and Stock Vested in 2018			42
Non-Qualified Deferred Compensation for the 2018 Fiscal Year			42
Potential Payments upon Termination or Change in Control			43
Equity Compensation Plan Information			46
OTHER INFORMATION			47
Indemnification Actions			47
Directors and Officers Liability Insurance and Indemnity			47
Non-GAAP Financial Measures			47
Non-GAAP Reconciliations			49
PROPOSAL 2 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			52
Principal Auditor Fees and Services			52
Audit Committee Report			53
PROPOSAL 3 — PROPOSAL TO APPROVE, ON AN ADVISORY BASIS, THE 2018 COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS			54

 

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PROXY STATEMENT

GENERAL INFORMATION ABOUT THE ANNUAL MEETING

 

 

The Annual Meeting

The 2019 Annual Meeting of Shareholders (the “Annual Meeting”) of Conduent Incorporated (the “Company,” “we,” “us,” or “our”) will be held on Tuesday, May 21, 2019, at 9:00 a.m., Eastern Time, at Conduent Corporate Headquarters, 100 Campus Drive, Suite 200, Florham Park, New Jersey.

 

 

What is the purpose of the Annual Meeting?

At the Annual Meeting, shareholders will consider and vote on the following matters:

 

1.

Election of the nine nominees named in this Proxy Statement to our Board of Directors (the “Board”), each for a term of one year.

 

2.

Ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019.

 

3.

Approval, on an advisory basis, of the 2018 compensation of our named executive officers.

Shareholders will also act on any other business that may properly come before the meeting. In addition, our management will report on the Company’s performance during fiscal 2018 and respond to questions from shareholders.

 

 

Who is entitled to vote?

Owners of our common stock, par value $0.01 per share (the “Common Stock”), as of the close of business on the record date, March 27, 2019 (the “Record Date”), are entitled to vote at the Annual Meeting. The shares owned as of that date include (1) shares you held directly in your name as the shareholder of record (registered shareholder) and/or (2) shares held in the name of a broker, bank or other holder of record for you as the beneficial owner (beneficial owner). Each share of Common Stock is entitled to one vote on each matter to be voted on. As of the Record Date, there were 210,392,926 shares of our Common Stock outstanding and entitled to vote.

 

 

How do I vote?

Beneficial owners will receive a separate voting instruction form from the bank, broker or other holder of nominee that must be followed in order for their shares to be voted.

Registered shareholders can vote in any one of four ways:

 

BY INTERNET				BY TELEPHONE
If you have Internet access, you may vote your shares by following the “Vote by Internet” instructions included in the Notice or on the enclosed proxy card. If you vote via the Internet, do not return your proxy card.				You may vote your shares by following the “Vote by Telephone” instructions on the enclosed proxy card. If you vote by telephone, do not return your proxy card.

BY MAIL		IN PERSON
You may vote by completing and signing the proxy card enclosed with this Proxy Statement and promptly mailing it in the enclosed postage-prepaid envelope. The shares you own will be voted according to your instructions on the proxy card you mail. If you sign and return your proxy card but do not indicate your voting instructions on one or more of the matters listed, the shares you own will be voted by the named proxies in accordance with the recommendations of our Board.		If you submit a proxy or voting instructions via the Internet, telephone or by mail, you do not need to vote at the Annual Meeting. We will pass out written ballots to any shareholder of record or authorized representative of a shareholder of record who wants to vote in person at the Annual Meeting instead of by proxy. Voting in person will revoke any proxy previously given. If you hold your shares through a broker, bank or nominee, you must obtain a proxy from your broker, bank or nominee to vote in person.

If you use your proxy to vote by Internet, telephone or mail, you authorize each of the two directors, whose names are listed on the accompanying proxy, to act as your proxies to represent you and vote your shares as you direct.

 

 

How does the Board recommend that I vote?

The Board recommends that you vote:

 

•

FOR the election of each of the nine director nominees;

 

•

FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and

 

•

FOR the approval, on an advisory basis, of the 2018 compensation of our named executive officers.

 

 

How can I attend the Annual Meeting?

All shareholders on the Record Date may attend. In order to be admitted to the meeting, please obtain an admission ticket in advance and bring a form of personal photo identification, such as a driver’s license. To obtain an admission ticket:

If you are a registered shareholder:

 

•

If you vote via the Internet or by telephone, you will be asked if you would like to receive an admission ticket.

 

•

If you vote by proxy card, please mark the appropriate box on the proxy card and an admission ticket will be sent to you.

If you are a beneficial owner:

 

•

Please request an admission ticket in advance by calling Shareholder Services at 973-526-7158 or by mailing a written request, along with proof of your ownership of Conduent Common Stock as of the Record Date, to Conduent Incorporated, Shareholder Services, 100 Campus Drive, Suite 200, Florham Park, New Jersey 07932. All calls and written requests for admission tickets must be received no later than the close of business on May 10, 2019.

You can find directions to the meeting online at www.envisionreports.com/CNDT. If you have any further questions regarding admission or directions to the Annual Meeting, please call Shareholder Services at 973-526-7158.

 

 

How many shares are required to be present to hold the Annual Meeting?

A quorum is necessary to hold a valid meeting of shareholders. For each of the proposals to be presented at the meeting, the presence at the meeting, in person or by proxy, of the holders of a majority of the shares of our Common Stock outstanding on the Record Date will constitute a quorum. As of the Record Date, there were 210,392,926 shares of our Common Stock outstanding. If you vote — including by Internet, telephone or proxy card — your shares will be counted towards the quorum for the Annual Meeting. Broker non-votes and abstentions are counted as present for the purpose of determining a quorum.

 

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How many votes are required to approve each proposal?

Election of Directors. Under our by-laws, directors are elected by majority vote, meaning that in an uncontested director election, the votes cast “for” the nominee’s election must exceed the votes cast “against” the nominee’s election, with abstentions and broker non-votes not counting as votes “for” or “against.” Our by-laws require that any incumbent nominee for director who receives a greater number of votes cast “against” his or her election than “for” his or her election shall tender his or her resignation promptly after such election. The independent directors will then evaluate and determine, based on the relevant facts and circumstances, whether to accept or reject the resignation. The Board’s explanation of its decision will be promptly disclosed on a Form 8-K filed with the Securities and Exchange Commission (“SEC”).

Other Items

The affirmative vote of a majority of the votes cast at the meeting will be required for approval of the following proposals, meaning these proposals will be approved if the number of votes cast “for” the proposal exceed the number of votes cast “against” the resolution:

 

•

Ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm

 

•

Approval, on an advisory basis, of the 2018 compensation of our named executive officers

Abstentions and broker non-votes are not counted as votes “for” or “against” for the purpose of determining the outcome of the other above matters. For additional information regarding broker non-votes, see below under What is a broker non-vote and how will it affect the voting?

Although the advisory vote on the 2018 compensation of our named executive officers is non-binding, the Board and Compensation Committee value the opinions of shareholders and will consider the outcome of the vote on this proposal when making future decisions regarding executive compensation.

At present, the Board does not intend to present any other matters at this meeting and knows of no matters other than these to be presented for shareholder action at the Annual Meeting. If any other matters properly come before the meeting, the persons named in the accompanying proxy intend to vote the proxies in accordance with their best judgment.

 

 

What is a broker non-vote and how will it affect the voting?

Under NYSE rules, brokers are not permitted to vote the shares they hold on behalf of beneficial owners without the beneficial owner’s voting instruction for matters that are deemed to be “non-routine.” A broker non-vote occurs with respect to non-routine matters when the beneficial owner of the shares fails to furnish timely voting instructions to the broker, and the broker is not permitted under applicable NYSE rules to vote the shares in its discretion. Election of directors and the advisory vote on executive compensation are considered non-routine matters. Shares constituting broker non-votes, while counted towards the quorum, are not counted as votes “for” or “against” for the purpose of determining whether shareholders have approved a non-routine matter. As a result, broker non-votes will have no impact on the outcome of these matters.

Ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm (sometimes referred to as our “independent auditors”) is a routine matter, and, therefore, brokers would have discretion to vote on this proposal without having received timely voting instructions. Accordingly, there will be no broker non-votes with respect to this proposal.

 

 

May I change my vote?

Yes. You may revoke your proxy at any time before the Annual Meeting by delivering a later dated proxy card, by a later telephone or on-line vote, by notifying the Secretary of the Company in writing that you have revoked your proxy or by attending the Annual Meeting and either giving notice of revocation or voting in person.

 

 

Who will count the vote? Is my vote confidential?

Representatives of Computershare will act as Inspector of Election, supervise the voting, decide the validity of proxies and receive and tabulate proxies. As a matter of policy, we keep confidential all shareholder meeting

 

3

proxies, ballots and voting tabulations that identify individual shareholders. In addition, the vote of any shareholder is not disclosed except as may be necessary to meet legal requirements.

 

 

How are proxies solicited?

The solicitation of proxies is made by our Board and will be conducted primarily by mail. We also request brokerage firms, nominees, custodians and fiduciaries to forward soliciting material to the beneficial owners of stock held of record and reimburse such persons for the cost of forwarding the material. We have engaged Innisfree M&A Incorporated to handle the distribution of soliciting material to, and the collection of proxies from, such entities. We will pay Innisfree M&A Incorporated a fee of $17,500, plus reimbursement of out-of-pocket expenses for this service. Proxies may also be solicited on our behalf by our directors, officers or employees by telephone, electronic or facsimile transmission or in person, without compensation. We bear the cost of preparing all proxy materials and proxy solicitation.

 

 

How can I electronically access the proxy materials?

You can access the proxy materials online at www.envisionreports.com/CNDT or https://investor.conduent.com. Shareholders may receive Proxy Statements, Annual Reports and other shareholder materials via electronic delivery. Registered shareholders can sign up for electronic delivery at www.computershare.com/investor. Beneficial owners can sign up for electronic delivery at http://enroll.icsdelivery.com/cndt or by checking the information provided in the proxy materials mailed to you by your bank or broker regarding the availability of this service. Opting to receive future proxy materials electronically by email will provide the Company cost savings relating to printing and postage and reduce the environmental impact of delivering documents to you.

 

 

What are the deadlines and requirements for shareholder submission of proposals, director nominations and other business for the 2020 Annual Meeting?

We expect to hold our 2020 Annual Meeting of Shareholders during the second half of May 2020 and to file and make available or mail, as applicable, our Proxy Statement for that meeting during the first half of April 2020. Under SEC proxy rules, if a shareholder wants us to include a proposal in our Proxy Statement and proxy card for the 2020 Annual Meeting of Shareholders, the proposal must be received by us no later than December 10, 2019.

Any shareholder wishing to make a nomination for director or wishing to introduce any business at the 2020 Annual Meeting of Shareholders (other than a proposal submitted for inclusion in the Company’s proxy materials) must provide the Company advance notice of such nominee or business which must be received by the Company no earlier than November 10, 2019 and no later than December 10, 2019. Any such notice must comply with requirements set forth in our by-laws. Nominations for director must be accompanied by a written consent of the nominee consenting to being named as a nominee and serving as a director if elected. Proposals and other items of business should be directed to Conduent Incorporated, 100 Campus Drive, Suite 200, Florham Park, NJ 07932, Attention: Corporate Secretary.

 

 

How can I contact the Board?

Under our Corporate Governance Guidelines, shareholders and other interested parties may contact the non-management members of the Board by contacting the Chairman of the Corporate Governance Committee using the “Contact the Board” link posted on our Company’s website at www.conduent.com/corporate-governance.

 

4

 

What if multiple shareholders have the same address?

To reduce the expenses of delivering duplicate proxy materials, we deliver a single Proxy Statement and Annual Report to multiple shareholders who reside in the same household unless we have received instructions otherwise. If (i) you and another shareholder residing in the same household each receive a set of printed proxy materials, and as a household wish to receive only one set of printed proxy materials or (ii) you share a household with another shareholder and received a single set of printed proxy materials and would like to receive separate copies of the proxy materials, you may request a change in delivery preferences. For registered shareholders, you may contact our transfer agent at 866-574-5496 or write them at Computershare, P.O. Box 505000, Louisville, KY 40233. For beneficial owners, you may call the bank, broker or other nominee where your shares are held in street name or call 800-542-1061.

 

 

How may I get additional copies of the Annual Report and Proxy Statement?

Additional paper copies of these documents are available upon request made to Conduent Incorporated, 100 Campus Drive, Suite 200, Florham Park, NJ 07932, Attention: Corporate Secretary. The Annual Report and Proxy Statement are also available on the Company’s website at https://investor.conduent.com or www.envisionreports.com/CNDT. There is no charge to receive any such materials by mail. You may request paper copies of the materials until one year after the date of the Annual Meeting.

 

 

Is there a list of shareholders entitled to vote at the Annual Meeting?

A list of registered shareholders entitled to vote at the Annual Meeting will be available at the Annual Meeting and for ten days prior to the Annual Meeting at our offices located at Conduent Corporate Headquarters, 100 Campus Drive, Suite 200, Florham Park, NJ 07932.

 

5

PROPOSAL 1 — ELECTION OF DIRECTORS

Shareholders annually elect directors to serve for one year and until their successors have been elected and qualified. Based on the director nomination process described below, the nine persons whose biographies appear below have been nominated by the Board to serve as directors based on the recommendation of the Corporate Governance Committee. Each nominee brings to us valuable experience from a variety of fields. The biographical information presents each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that he or she should serve as a director. All of our incumbent director nominees have demonstrated business acumen and an ability to exercise independent and sound judgment, as well as an understanding of the Company’s business environment and a commitment to serve the Company and our Board. We also value the significant experience of each of our nominees on other public company boards of directors and board committees.

All nominees are currently directors of the Company and were elected by our shareholders at the 2018 annual meeting of shareholders, except Scott Letier, who was elected to the Board effective December 18, 2018, and Jesse A. Lynn, who was elected to the Board effective April 18, 2019. Mr. Letier was elected to replace Paul S. Galant who tendered his resignation in accordance with the Company’s Corporate Governance Guidelines due to a substantial change in his position of principal employment. Mr. Lynn was elected to replace Michael Nevin, who tendered his resignation on April 8, 2019.

On December 31, 2016, the Company entered into a Joinder Agreement to a letter agreement, dated as of January 28, 2016, entered into by Xerox Corporation, our former parent company (“Xerox”), with Icahn Partners Master Fund LP, Icahn Partners LP, Icahn Onshore LP, Icahn Offshore LP, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings LP, Icahn Enterprises G.P. Inc., Beckton Corp., High River Limited Partnership, Hopper Investments LLC, Barberry Corp., Jonathan Christodoro and Carl C. Icahn (collectively, the “Icahn Group”) pursuant to which, among other things, Nicholas Graziano, Jesse A. Lynn and Courtney Mather were appointed to the Board (“Icahn Agreement”). Additionally, the Company is a third party beneficiary to a letter agreement, dated as of June 27, 2016, entered into by Xerox with the Icahn Group pursuant to which, among other things, the Icahn Group is required to vote in favor of the directors nominated by the Board at the Company’s 2019 Annual Meeting.

On December 18, 2018, the Company entered into a Shareholder Agreement with Darwin Deason (“Deason Agreement”) pursuant to which, among other things, Scott Letier was appointed to the Board and Darwin Deason is required to vote in favor of the directors nominated by the Board at the Company’s 2019 Annual Meeting.

The Board has determined that each of the nominees (other than Ashok Vemuri, Chief Executive Officer of the Company) is independent under NYSE Corporate Governance Rules and the Company’s more stringent independence standards. Although not anticipated, if for any reason, a nominee is unable to serve, the proxies may use their discretion to vote for a substitute nominated by the Board.

Biographies

The table below summarizes key qualifications, skills and attributes that each of our director nominees possesses which were most relevant to the decision to nominate him or her to serve on the Board. The lack of a mark does not mean the director nominee does not possess that qualification or skill or that other qualities were not also considered; rather, a mark indicates a specific area of focus or expertise on which the Board relies most heavily. Each director nominee’s biography below describes his or her qualifications and relevant experience in more detail.

 

6

Skills and Qualifications of our Board of Director Nominees

 

Experience, expertise or attribute

Vemuri

Graziano

Gregor

Letier

Lynn

Mather

Nutter

Parrett

Wilson

Services

X

X

X

X

Leadership

X

X

X

X

X

X

Global Business

X

X

X

Financial

X

X

X

X

X

X

X

X

Public Company

X

X

X

X

X

X

Boards & Corporate Governance

X

X

X

X

X

X

X

Business Operations

X

X

X

Diversity

X

X

X

X

In addition to the qualifications and skills referenced above, we have provided below the principal occupation and other information about the relevant experience, qualifications, attributes or skills that the Board has concluded qualify each of the nominees to serve as a director of the Company.

For purposes of the below biographies, Conduent securities owned means the Company’s Common Stock, including Deferred Stock Units (“DSUs”) issued under the Conduent Incorporated Equity Compensation Plan for Non-Employee Directors, as amended (the “Director Equity Plan”). For Mr. Vemuri, Rights refers to his outstanding restricted shares, restricted stock units and performance shares at target.

Unless otherwise noted, all Conduent securities owned are beneficially owned by the nominee. Beneficial ownership means he or she has or shares voting power and/or investment power with respect to the securities, even though another name (that of a broker, for example) may appear in the Company’s records. All ownership figures are as of February 28, 2019.

 

		Ashok Vemuri Age: 50        Director since: 2017 Conduent securities owned: 216,026 Common Stock; Rights: 710,875 Common Stock Occupation: Chief Executive Officer, Conduent Incorporated Other Directorships: The Kroger Co. (since 2019); Infosys (2011-2013); IGATE (2013-2015)

Other Background: Mr. Vemuri has served as our Chief Executive Officer since January 2017. He previously served as Chief Executive Officer of Xerox Business Services, LLC and as an Executive Vice President of Xerox Corporation from July 2016 to January 2017. Mr. Vemuri previously was President, Chief Executive Officer and a member of the Board of Directors of IGATE Corporation, a New Jersey-based global technology and services company now part of global technology and outsourcing company Capgemini, from 2013 to 2015. Before joining IGATE, Mr. Vemuri spent 14 years at Infosys Limited, a multinational consulting and IT services company, in a variety of leadership and business development roles, including Member of the Executive Council, Head of Americas, Global Head of Financial Services from 2003 to 2012 and Global Head of Manufacturing and Engineering Services from 2012 to 2013. Prior to joining Infosys in 1999, Mr. Vemuri worked in the investment banking industry at Deutsche Bank and Bank of America.

Mr. Vemuri brings to the Board unique operational, financial and client experience and a proven track record of leading growth and corporate transformations through his leadership positions with IGATE and Infosys.

 

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		Nicholas Graziano Age: 47        Director since: 2018 Conduent securities owned: 21,565 DSUs Occupation: Portfolio Manager, Icahn Capital LP Other Directorships: Herc Holdings Inc. (since 2018); Xerox Corporation (since 2018); Herbalife Nutrition LTD (since 2018); Fair Isaac Corporation (2008-2013); WCI Communities Inc. (2007-2009); InfoSpace Inc. (2007-2008). Carl Icahn has a non-controlling interest in each of Herc Holdings Inc.; Xerox Corporation; and Herbalife Nutrition LTD through the ownership of securities.

Other Background: Mr. Graziano has served as Portfolio Manager of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, since February 2018, and prior to joining Icahn Capital, was previously the Founding Partner and Chief Investment Officer of the hedge fund Venetus Partners LP from June 2015 to August 2017, where he was responsible for portfolio and risk management, along with day-to-day firm management. Prior to founding Venetus, Mr. Graziano was a Partner and Senior Managing Director at the hedge fund Corvex Management LP from December 2010 to March 2015. At Corvex, Mr. Graziano played a key role in investment management and analysis, hiring and training of analysts and risk management. Prior to Corvex, Mr. Graziano was a Portfolio Manager at the hedge fund Omega Advisors, Inc., where he managed a proprietary equity portfolio and made investment recommendations, from September 2009 until December 2010. Before Omega, Mr. Graziano served as a Managing Director and Head of Special Situations Equity at the hedge fund Sandell Asset Management, where he helped build and lead the special situations team responsible for managing a portfolio of concentrated equity and activist investments, from July 2006 to July 2009.

Mr. Graziano is a director nominee selected by the Icahn Group pursuant to the Icahn Agreement. He brings to the Board financial expertise and extensive experience offering strategic advice and guidance to companies from his management experience and his service as a director on various company boards.

 

		Joie Gregor Age: 69        Director since: 2017 Conduent securities owned: 36,791 DSUs Occupation: Former Managing Director for Leadership Development, Warburg Pincus LLC Other Directorships: ConAgra Brands, Inc. (since 2009)

Other Background: Ms. Gregor served as the first Managing Director for Leadership Development at Warburg Pincus LLC beginning in 2014 until her retirement in 2016. In this role, she provided organizational guidance and strategic direction across all firm investing areas and assisted with both pre- and post-investment opportunities, focusing on strategy, organizational structure, operating initiatives, and talent identification and development. She also worked within the firm on professional development and effective organizational alignment.

Prior to joining Warburg Pincus, Ms. Gregor served as the Assistant to the President of the United States for Presidential Personnel, a role she assumed in October 2007. Before joining the President’s senior staff, Ms. Gregor served as Vice Chairman of the executive search firm Heidrick & Struggles, Inc. beginning in 2002. After joining as a Partner in 1993, she served in a number of senior leadership roles, including President, North America, the firm’s largest business unit. She also served as Managing Partner of the firm’s New York office, and as a member of the firm’s Management Committee. Prior to her work in executive search, Ms. Gregor was with the IBM Corporation, where she held a variety of leadership positions of increasing responsibility over a 13-year period. Ms. Gregor also currently serves on the Board of Directors of a private company, TriMark USA.

 

8

Ms. Gregor brings the Board significant experience in human capital development, market development, finance and planning, product strategy, sales and service, and global account management from roles at Warburg Pincus, Heidrick & Struggles, IBM and other advisory positions for major organizations. She also brings her experience working closely with major public company boards to implement best practices in corporate governance, director selection and succession planning.

 

		Scott Letier Age: 58        Director since: 2018 Conduent securities owned: 2,000 Common Stock; 18,789 DSUs Occupation: Managing Director of Deason Capital Services, LLC, the family office for Darwin Deason Other Directorships: Xerox Corporation (since 2018). Darwin Deason has a non-controlling interest in Xerox Corporation through the ownership of securities.

Other Background: Scott Letier has been Managing Director of Deason Capital Services, LLC (“DCS”) since July 2014. Prior to joining DCS, Mr. Letier was the Managing Director of JFO Group, LLC, the family office for the Jensen family from September 2006 to July 2014. Mr. Letier has over 20 years of prior leadership roles serving as a private equity investment professional and chief financial officer, and began his career in the audit group at Ernst & Whinney (now Ernst & Young). Mr. Letier has served on numerous boards in the past, and in addition to Xerox Corporation, he currently serves on the Board of Directors for a number of private companies including: MV Transportation, Inc, the leading provider of paratransit services and the largest privately-owned passenger transportation contracting firm in the United States, Stellar Global, LLC, an Australian and U.S. based BPO/CRM Call Center Company, Colvin Resources Group, a Dallas based search and staffing firm, Grow 52, LLC (dba, Gardenuity), a tech enabled retailer, and serves on the fund advisory board of Griffis Residential, a Denver based multi-family real estate management and investment firm. Mr. Letier also serves as Treasurer, board member, executive committee member, and is Chairman of the audit and finance committees of the Dallas County Community College District Foundation. Mr. Letier is a Certified Public Accountant and has a BBA with a concentration in accounting from the Southern Methodist University – Cox School of Business.

Mr. Letier is a director selected by Darwin Deason pursuant to the Deason Agreement. With his over 20 years of prior leadership roles and service on other company boards and committees, Mr. Letier brings to the Board expertise relevant to Conduent, including his significant audit experience and his investment and financial expertise gained from serving as a private equity and investment professional and chief financial officer.

 

		Jesse A. Lynn Age: 48         Conduent securities owned: 0 Occupation: General Counsel, Icahn Enterprises L.P. Other Directorships: Herbalife Nutrition LTD. (since 2014); The Manitowoc Company, Inc. (2015-2018). Carl Icahn has a non-controlling interest in Herbalife Nutrition LTD through the ownership of securities.

Other Background: Mr. Lynn has been General Counsel of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, food packaging, metals, mining, real estate and home fashion, since 2014. From 2004 to 2014, Mr. Lynn was Assistant General Counsel of Icahn Enterprises. Prior to joining Icahn Enterprises, Mr. Lynn worked as an associate in the New York office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. in its business and finance department from 2000 until 2004. From 1996 until 2000, Mr. Lynn was an associate in the corporate group at Gordon Altman Butowsky Weitzen Shalov & Wein. Mr. Lynn has been a director of Herbalife Ltd., a nutrition company, since 2014. Mr. Lynn was previously a director of The Manitowoc Company, Inc., a capital goods manufacturer, from 2015 to 2018. Mr. Lynn has been a Board Observer at each of Xerox Corporation, a provider of document management solutions, since May 2018 and SandRidge Energy, Inc., an oil and natural gas company with a principal focus on exploration and production activities in the U.S. Mid-Continent and North Park Basin of Colorado, since June 2018. Carl C. Icahn has or previously had non-controlling interests in each of SandRidge, Xerox, Herbalife and Manitowoc through the ownership of securities. Mr. Lynn received a B.A. from the University of Michigan and a J.D. from the Boston University School of Law.

 

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Mr. Lynn is a director selected by the Icahn Group pursuant to the Icahn Agreement. He brings to the Board legal and finance expertise gained both in private practice as well as his positions with Icahn Enterprises and his experience as a director of other public companies.

 

		Courtney Mather Age: 42        Director since: 2017 Conduent securities owned: 44,650 DSUs Occupation: Portfolio Manager, Icahn Capital LP Other Directorships: Caesars Entertainment (since 2019); Cheniere Energy Inc. (since 2018); Newell Brands Inc. (since 2018); Herc Holdings Inc. (since 2016); TER Holdings I, Inc. (since 2016); Ferrous Resources Limited (since 2015); Freeport-McMoRan Inc. (2015-2019); Federal-Mogul Holdings Corporation (2015-2017); Viskase Companies Inc. (2015-2016); American Railcar Industries, Inc. (2014-2016); CVR Refining, LP (2014-2016); CVR Energy, Inc. (2014-2016). TER Holdings I, Inc., Ferrous Resources Limited, Federal-Mogul, American Railcar Industries, CVR Refining, CVR Energy and Viskase are each indirectly controlled by Carl C. Icahn. Mr. Icahn also has a non-controlling interest in each of Caesars Entertainment, Cheniere Energy Inc., Newell Brands Inc., Herc Holdings Inc. and Freeport-McMoRan Inc. through the ownership of securities.

Other Background: Mr. Mather has served as Portfolio Manager of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, since December 2016, and was previously Managing Director from 2014 to 2016. Prior to joining Icahn Capital, Mr. Mather was at Goldman Sachs & Co from 1998 to 2012, most recently as Managing Director responsible for Private Distressed Trading and Investing, where he focused on identifying and analyzing investment opportunities for both Goldman Sachs and clients. Mr. Mather received a B.A. from Rutgers College and attended the United States Naval Academy. Mr. Mather holds the Chartered Alternative Investment Analyst (CAIA), Chartered Financial Analyst (CFA) and Certified Financial Risk Manager (FRM) professional designations.

Mr. Mather is a director selected by the Icahn Group pursuant to the Icahn Agreement. He brings to the Board significant experience in finance and experience providing strategic advice and guidance to companies through his service as a director on various public company boards.

 

		Michael A. Nutter Age: 61        Director since: 2017 Conduent securities owned: 11,297 Common Stock; 25,494 DSUs Occupation: Former Mayor, Philadelphia, Pennsylvania Other Directorships: None

Other Background: Mr. Nutter was elected Mayor of Philadelphia, Pennsylvania in 2007, serving from 2008 until the conclusion of his second term in 2016. During his tenure as Mayor of Philadelphia, Mr. Nutter served as President of the United States Conference of Mayors from 2012 until 2013. Since the conclusion of his second mayoral term, he has served as a member of the Homeland Security Advisory Council, as chairman of the Airbnb Mayor’s Advisory Council, as the inaugural David N. Dinkins Professor of Professional Practice in Urban and Public Policy at Columbia University and in various other advisory, academic and media commentary positions consistent with his longstanding commitment to public policy, government and civic life. Prior to entering politics, Mr. Nutter held various roles of increasing responsibility at the financial services firm Pryor, Counts & Co.

Mr. Nutter brings to the Board nearly 25 years of financial stewardship and leadership experience as an elected official and public manager.

 

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		William G. Parrett Age: 73        Director since: 2017 Conduent securities owned: 44,650 DSUs Occupation: Chairman of the Board, Conduent Incorporated; Retired Chief Executive Officer, Deloitte Touche Tohmatsu Other Directorships: Oracle Corporation (since 2018); Blackstone Group LP (since 2007); Eastman Kodak Company (since 2007); UBS AG (2008 to May 2018); Thermo Fisher Scientific Inc. (2008 to May 2018)

Other Background: Mr. Parrett served as the Chief Executive Officer of Deloitte Touche Tohmatsu. He joined Deloitte in 1967 and served in a series of roles of increasing responsibility, including Managing Partner of Deloitte & Touche USA LLP. Mr. Parrett is a member of the Board of Directors of Eastman Kodak Company, where he chairs the finance and audit committee; Oracle Corporation, where he is a member of the finance and audit committee; and Blackstone Group LP, where he chairs the audit and the conflicts committees. Mr. Parrett is a past member of the Board of Trustees of Carnegie Hall, a Senior Trustee of the United States Council for International Business and a past Chairman of the Board of Trustees of United Way Worldwide. Mr. Parrett is a Certified Public Accountant with an active license.

Mr. Parrett brings to the Board extensive global business experience, strong management skills and extensive knowledge of complex financial and operational issues, demonstrated by his experience as Chief Executive Officer of Deloitte Touche Tohmatsu. He also brings to the Board public company governance experience through his membership on boards of other public companies.

 

		Virginia M. Wilson Age: 64        Director since: 2017 Conduent securities owned: 11,297 Common Stock; 25,494 DSUs Occupation: Former Senior Executive Vice President and Chief Financial Officer, Teachers Insurance and Annuity Association (TIAA) Other Directorships: None

Other Background: Ms. Wilson served as the Senior Executive Vice President and Chief Financial Officer of Teachers Insurance and Annuity Association (TIAA), a financial services organization that is a leading retirement provider for people who work in the academic, research, medical and cultural field, from 2010 to 2018. Prior to joining TIAA, she was Executive Vice President and Chief Financial Officer of Wyndham Worldwide Corporation, which was the holding company for Wyndham Hotels & Resorts, RCI and other hospitality brands, from 2006 to 2009. She has also served as a financial officer at Cendant, MetLife and Transamerica Life Insurance, and was an audit partner at Deloitte earlier in her career. Ms. Wilson is a Certified Public Accountant with an active license.

Ms. Wilson brings to the Board extensive financial experience, demonstrated by her role in overseeing financial management and planning, actuarial, tax, accounting, corporate services, sourcing and financial reporting functions for TIAA and her experience as a chief financial officer of a public company.

The Board recommends a vote

FOR

the election of the nine (9) Directors nominated by the Board

 

11

CORPORATE GOVERNANCE

The Company is committed to the highest standards of business integrity and corporate governance. All of our directors, executives and employees must act ethically. In addition, our directors must act in accordance with our Code of Business Conduct and Ethics for Members of the Board; our principal executive officer, principal financial officer and principal accounting officer, among others, must act in accordance with our Finance Code of Conduct; and all of our executives and employees must act in accordance with our Code of Business Conduct. Each of these codes of conduct, as well as our Corporate Governance Guidelines and the charters of our Audit, Compensation, Corporate Governance and Finance Committees can be accessed through our website at www.conduent.com/corporate-governance. They are also available to any shareholder who requests them in writing addressed to Conduent Incorporated, 100 Campus Drive, Suite 200, Florham Park, NJ 07932, Attention: Corporate Secretary. We will disclose any future amendments to, or waivers from, provisions of our Code of Business Conduct and Ethics for members of the Board and our Code of Business Conduct and our Finance Code of Conduct for our officers on our website as promptly as practicable, and consistent with the requirements of applicable SEC and NYSE rules. The Corporate Governance Committee of the Board periodically reviews and reassesses the adequacy of our overall corporate governance and Corporate Governance Guidelines.

Director Nomination Process

The Corporate Governance Committee considers candidates for Board membership recommended by Board members, management and shareholders (see below). The Corporate Governance Guidelines require that a substantial majority of the Board consist of independent directors and that management representation on the Board should be limited to senior Company management. There are no specific minimum qualifications that the Corporate Governance Committee believes must be met by prospective candidates; however, the Corporate Governance Committee applies the criteria set forth in our Corporate Governance Guidelines. These criteria include, among other things, the candidate’s broad perspective, integrity, independence of judgment, experience, expertise, diversity, ability to make independent analytical inquiries, understanding of the Company’s business environment and willingness to devote adequate time and effort to Board responsibilities. The Corporate Governance Committee does not assign specific weight to particular criteria and no particular criterion is necessarily applicable to all prospective nominees.

Our Corporate Governance Guidelines dictate that diversity should be considered by the Corporate Governance Committee in the director identification and nomination process. This means that the Corporate Governance Committee seeks nominees who bring a variety of business backgrounds, experiences and perspectives to the Board. We believe that the backgrounds and qualifications of the directors, considered as a group, should provide a broad diversity of experience, professions, skills, geographic representations, knowledge and abilities that will allow the Board to fulfill its responsibilities.

Shareholders who wish to recommend individuals for consideration by the Corporate Governance Committee may do so by submitting a written recommendation to the Secretary of the Company at Conduent Incorporated, 100 Campus Drive, Suite 200, Florham Park, NJ 07932. Submissions must include sufficient biographical information concerning the recommended individual, including age, employment and current board memberships (if any), for the Corporate Governance Committee to consider. The submission must be accompanied by the written consent of the nominee to stand for election if nominated by the Board and to serve if elected by the shareholders. All submissions are reviewed by the Corporate Governance Committee. Recommendations received no earlier than November 10, 2019 and no later than December 10, 2019 will be considered for nomination at the 2020 Annual Meeting of Shareholders.

Board Leadership Structure

We believe that the most effective board structure is one that emphasizes Board independence and ensures that the Board’s deliberations are not dominated by management while also ensuring that the Board and senior management act with a common purpose and in the best interest of the Company. At this time, we believe this balance is achieved through the appointment of an independent Chairman of the Board. Accordingly, William G. Parrett, an independent director, serves as Chairman of the Board. Under our Corporate Governance Guidelines, each regularly scheduled Board meeting must include an executive session of all directors and the CEO and a separate executive session attended only by the independent directors. In terms of our Board

 

12

composition, 89% of our directors qualify as independent directors, and each of our standing Board committees is comprised solely of independent directors, including our Corporate Governance Committee, which establishes our corporate governance policy and monitors the effectiveness of this policy at the Board level. You can find more information on our Board leadership structure in the Corporate Governance Guidelines posted on the Company’s website at www.conduent.com/corporate-governance.

Risk Oversight

Our Board has ultimate oversight responsibility for our Enterprise Risk Management (“ERM”) program. The Board oversees our ERM program primarily through the Audit Committee of the Board, which previews the ERM program, assessments and remediation plans for subsequent review by the Board. Our ERM program is designed to strengthen our risk-management capability by developing and implementing a governance structure, policy and standards necessary to identify, assess, monitor and manage all categories of business risk, including strategic, operational, compliance and financial reporting. The ERM program is also designed to preserve and create organizational value through effective control management and integration of risk practices into strategic planning and day to day decision making. Enterprise Risk Management operates within our Chief Compliance Office and is headed by the ERM director who chairs an Enterprise Risk Management Committee (“ERMC”). The ERMC is comprised of the Chief Financial Officer, General Counsel, Chief People Officer, Chief Information Officer, Chief Accounting Officer, Chief Compliance Officer, Chief Ethics Officer, Chief Privacy Officer, Sector Group Executives and Corporate Auditor. The ERMC reviews and establishes risk tolerances, prioritizes the remediation of risks, inspects risk mitigation plans and progress, identifies and addresses emerging risks, shares mitigation best practices across the Company and promotes risk mitigation practices within their lines of business.

Director Independence

A director is not considered independent unless the Board determines that he or she has no material relationship with the Company. The Board has adopted categorical standards to assist in both its determination and the Corporate Governance Committee’s recommendation as to each director’s independence. Under these categorical standards, a director will be presumed not to have a material relationship with the Company if:

 

1)

he or she satisfies the bright-line independence and other applicable requirements under the listing standards of the NYSE and all other applicable laws, rules and regulations regarding director independence, in each case from time to time in effect;

 

2)

he or she is not a current employee (and none of his or her “immediate family members” is employed as an “executive officer,” each as defined by the NYSE Corporate Governance Rules) of a company that has made payments to, or received payments from, the Company or any of its consolidated subsidiaries for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or one percent of such other company’s consolidated gross revenues; and

 

3)

in the event that he or she serves as an executive officer or director of a charitable organization, the Company and its consolidated subsidiaries donated less than five percent of that organization’s charitable receipts (provided that if within the preceding three years the Company and its consolidated subsidiaries donated annual aggregate contributions in excess of $1 million or two percent of the annual consolidated gross revenue of the charitable organization, such contributions must be disclosed in the Company’s Proxy Statement).

In addition, the Corporate Governance Committee reviews relationships involving members of the Board, their immediate family members and affiliates, and transactions in which members of the Board, their immediate family members and their affiliates have a direct or indirect interest in which the Company is a participant to determine whether such relationship or transaction is material and could impair a director’s independence. In making independence determinations, the Board considers all relevant facts and circumstances from the point of view of both the director and the persons or organizations with which the director has relationships. See “Certain Relationships and Related Person Transactions”.

As a result of the aforementioned review, our Board has determined that all of the nominees for election as directors at the 2019 Annual Meeting are independent under the NYSE Corporate Governance Rules and our Corporate Governance Guidelines, with the exception of Ashok Vemuri, our Chief Executive Officer.

 

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Certain Relationships and Related Person Transactions

Related Person Transactions Policy

The Board has adopted a policy addressing the Company’s procedures with respect to the review, approval and ratification of “related person transactions” that are required to be disclosed pursuant to Item 404(a) of Regulation S-K. The policy provides that any transaction, arrangement or relationship, or series of similar transactions, in which the Company will participate or has participated and a “related person” (as defined in Item 404(a) of Regulation S-K) has or will have a direct or indirect material interest, and where the amount involved exceeds $120,000 in the aggregate, is subject to review (each such transaction, a “Related Person Transaction”). In its review of Related Person Transactions, the Corporate Governance Committee reviews the material facts and circumstances of the transaction and takes into account certain factors, where appropriate, based on the particular facts and circumstances, including: (i) the nature of the “related person’s” interest in the transaction; (ii) the significance of the transaction to the Company and to the “related person”; and (iii) whether the transaction is likely to impair the judgment of the “related person” to act in the best interest of the Company.

No member of the Corporate Governance Committee may participate in the review, approval or ratification of a transaction with respect to which he or she is a “related person.”

During 2019, we hired the law firm of King and Spalding LLP (King & Spalding) to represent the Company in a lawsuit filed against the Company in 2019 (Nelson et.al v. Comerica Bank and Conduent Business Services LLC litigation). James C. Woolery, an equity partner at King & Spalding, is the brother-in-law of our Executive Vice President, General Counsel and Secretary, J. Michael Peffer. Mr. Peffer’s son is also an associate at King & Spalding. The Corporate Governance Committee reviewed and approved this relationship under our related party transaction policy.

Icahn Agreements and Deason Agreement

See above under “Proposal 1 – Election of Directors” for information regarding our interest in (1) agreements between Xerox and the Icahn Group and (2) the agreement with Darwin Deason.

Certain Employment Arrangements

We actively recruit qualified candidates for our employment needs. Relatives of our executive officers and other employees are eligible for hire. In 2018, no immediate family member of our current executive officers or directors was employed by the Company or one of its subsidiaries and received more than $120,000 in annual compensation (salary, incentive cash awards, equity awards and commissions).

BOARD OF DIRECTORS AND BOARD COMMITTEES

Committee Functions, Membership and Meetings

Our Board has four standing committees: Audit, Compensation, Corporate Governance and Finance. Set forth below is a list of the committees of our Board, a summary of the responsibilities of each committee, the number of committee meetings held during 2018 for each committee and a list of the members of each committee.

Audit Committee (10 meetings)

A copy of the charter of the Audit Committee is posted on the Company’s website at www.conduent.com/corporate-governance.

The responsibilities of the Audit Committee include:

 

•

directly appoint, compensate, retain and oversee the work of our independent auditor;

 

•

oversee the integrity of the Company’s financial statements;

 

•

oversee the Company’s compliance with legal and regulatory requirements;

 

•

oversee the Company’s risk assessment policies and practices, including the ERM process, and preview the ERM assessment and process for subsequent review by the Board;

 

•

assess independent auditor’s qualifications and independence;

 

•

assess performance of the Company’s independent auditors and the internal audit function;

 

14

•

review the Company’s audited financial statements, including the Company’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and recommend to the Board their inclusion in the Company’s Annual Report on Form 10-K; and

 

•

review and approve the Company’s Code of Business Conduct and Ethics.

The Audit Committee is also responsible for the preparation of the Audit Committee Report that is included in this Proxy Statement beginning on page 53.

Members: Joie A. Gregor; Nicholas Graziano; and Virginia M. Wilson

Chair: Ms. Wilson

The Board has determined that (1) all of the members of the Audit Committee are independent under the Company’s Corporate Governance Guidelines and under the applicable SEC and NYSE Rules and are financially literate and (2) Ms. Wilson and Mr. Graziano are “audit committee financial experts,” as defined in the applicable SEC rules. Designation or identification of a person as an audit committee financial expert does not impose any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit Committee and the Board in the absence of such designation or identification.

Compensation Committee (8 meetings)

A copy of the charter of the Compensation Committee is posted on the Company’s website at www.conduent.com/corporate-governance.

The responsibilities of the Compensation Committee include:

 

•

oversee development and administration of the Company’s executive compensation plans;

 

•

set the compensation of the CEO and other executive officers;

 

•

review and approve the performance goals and objectives with respect to the compensation of the CEO and other executive officers;

 

•

oversee the evaluation of the CEO and other executive officers;

 

•

have sole authority to retain and terminate the consulting firms engaged to assist the Compensation Committee in the evaluation of the compensation of the CEO and other executive officers;

 

•

oversee the work of the compensation consultants, including determination of compensation to be paid to any such consultant by the Company;

 

•

conduct an independence assessment of any compensation consultants, including consideration of the six independence factors required under SEC rules and NYSE listing standards; and

 

•

review and approve employment, severance, change-in-control, termination and retirement arrangements for executive officers.

The Compensation Committee is also responsible for reviewing and discussing the Compensation Discussion and Analysis (“CD&A”) with management, and has recommended to the Board that the CD&A be included in this Proxy Statement (beginning on page 22) and incorporated by reference in the Company’s 2018 Annual Report on Form 10-K. The CD&A discusses the material aspects of the Company’s compensation objectives, policies and practices. The Compensation Committee’s report appears on page 36 of this Proxy Statement.

The Compensation Committee has not delegated its authority with respect to executive compensation decisions. The Compensation Committee has, however, delegated authority under the Company’s equity plan to the CEO to grant equity awards to employees who are not executive officers. The CEO is also responsible for setting the compensation of, reviewing performance goals and objectives for, and evaluating officers who are not executive officers.

Executive officer compensation decisions are made by the Compensation Committee after discussing recommendations with the CEO and the Chief People Officer. The Chief Financial Officer confirms the Company’s financial results used by the Compensation Committee to make compensation decisions. The Chief Financial Officer attends Compensation Committee meetings to discuss financial targets and results for the

 

15

Annual Performance Incentive Plan and the Executive Long-Term Incentive Program as described in the CD&A. The Compensation Committee meets in executive session to review and approve compensation actions for the CEO.

The Compensation Committee has retained Frederic W. Cook & Co. (“F.W. Cook”) as an independent consultant to the Compensation Committee. F.W. Cook provides no services to management and provides an annual letter to the Compensation Committee regarding its independence, which the Compensation Committee reviews and determines whether there is any conflict of interest. Based on its review for 2018, the Compensation Committee determined that F.W. Cook’s work has not raised any conflict of interest and that such firm is independent. The consultant’s responsibilities are discussed on page 26 of this Proxy Statement.

Members: Joie A. Gregor and William G. Parrett

Chair: Ms. Gregor

The Board has determined that all of the members of the Compensation Committee are independent under the Company’s Corporate Governance Guidelines and the applicable NYSE rules and that each Committee member is a “non-employee director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934 (“Exchange Act”).

Compensation Committee Interlocks and Insider Participation

During 2018, Mr. Galant, Ms. Gregor, Mr. Mather, Mr. Nevin and Mr. Parrett served on our Compensation Committee. No member of the Compensation Committee was or is an officer or employee of the Company or any of its subsidiaries. In addition, during the last fiscal year, none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officer served on our Board or Compensation Committee.

Corporate Governance Committee (5 meetings)

A copy of the charter of the Corporate Governance Committee is posted on the Company’s website at www.conduent.com/corporate-governance.

The responsibilities of the Corporate Governance Committee include:

 

•

identify and recommend to the Board individuals to serve as directors of the Company and on Board committees;

 

•

develop and recommend to the Board director qualification criteria and establish procedures for evaluating the suitability of director nominees;

 

•

advise the Board regarding Board composition, procedures and committees;

 

•

develop, recommend to the Board and annually review the corporate governance principles applicable to the Company;

 

•

review significant environmental and corporate social responsibility matters;

 

•

administer the Company’s Related Person Transactions Policy;

 

•

evaluate and recommend director compensation to the Board; and

 

•

oversee the annual Board and committee evaluation processes.

The Corporate Governance Committee recommends to the Board nominees for election as directors of the Company and considers the performance of incumbent directors in determining whether to recommend their nomination.

Members: Nicholas Graziano; Michael A. Nutter and William G. Parrett

Chair: Mr. Nutter

The Board has determined that all of the members of the Corporate Governance Committee are independent under the Company’s Corporate Governance Guidelines and the applicable NYSE rules.

Finance Committee (5 meetings)

A copy of the charter of the Finance Committee is posted on the Company’s website at www.conduent.com/corporate-governance.

 

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The responsibilities of the Finance Committee include:

 

•

review the Company’s cash position, capital structure, status of credit ratings and strategies, financing strategies and insurance coverage and report to the full Board with respect thereto as appropriate;

 

•

review and make recommendations to the management and the full Board as appropriate with respect to the Company’s dividend policy and capital allocation policy;

 

•

review the adequacy of the funding of the Company’s funded retirement plans and welfare benefits plans (other than those plans maintained pursuant to a collective agreement that names the Joint Administrative Board as the governing plan fiduciary) in terms of the Company’s corporate purposes;

 

•

review the Company’s policy on derivatives;

 

•

approve, at least annually, whether the Company and its subsidiaries shall enter into swap and security-based swap transactions that are not cleared with a Commodity Exchange Act registered clearing organization in reliance on the exemptions provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules and regulations thereunder (the “Dodd Frank Act”);

 

•

Review and approve the three year strategic plan and the annual capital budget; and

 

•

Review and approve (1) acquisitions in excess of $75M or involving the issuance of Company stock and (2) dispositions of assets or stock of a subsidiary in excess of $50M.

Members: Scott Letier; Courtney Mather; Michael A. Nutter; and Virginia M. Wilson (Mr. Parrett was reassigned by the Board from the Finance Committee to the Compensation Committee on December 18, 2018 and the Board appointed Mr. Letier to the Finance Committee on his election to the Board on that date.)

Chair: Mr. Mather.

The Board has determined that all of the members of the Finance Committee are independent under the Company’s Corporate Governance Guidelines and the applicable NYSE rules.

Board and Committee Meetings; Annual Meeting Attendance

Board and Committee Meeting Attendance: 11 meetings of the Board of Directors were held in 2018. The number of meetings held by each of our Board committees is noted above under “Committee Functions, Membership and Meetings.” All incumbent directors attended at least 95% of the total number of meetings of the Board and Board committees on which they served. We believe that attendance at meetings is only one means by which directors may contribute to the effective management of the Company and that the contributions of all directors have been substantial and are highly valued.

Annual Meeting Attendance Policy: The Company’s policy generally is for all members of the Board to attend the Annual Meeting of Shareholders. All nominees who were serving as directors at the time attended the 2018 Annual Meeting of Shareholders.

Annual Director Compensation

Our Board, upon the review and recommendation of our Corporate Governance Committee, previously adopted a compensation program for our non-employee directors effective January 1, 2018. The following is a brief summary of the material elements of the program.

Cash Compensation

Under the program, non-employee directors receive $80,000 per year as an annual cash retainer for their service on the Board. In addition, non-employee directors receive additional cash retainers for the following roles:

 

•

The Non-Executive Chairman receives $125,000 per year;

 

•

The Chair of the Audit Committee receives $25,000 per year and each other member of the Audit Committee receives $15,000 per year;

 

•

The Chair of the Compensation Committee receives $20,000 per year and each other member of the Compensation Committee receives $12,000 per year;

 

•

The Chair of the Corporate Governance Committee receives $15,000 per year and each other member of the Corporate Governance Committee receives $10,000 per year, and

 

17

•

The Chair of the Finance Committee receives $15,000 per year and each other member of the Finance Committee receives $10,000 per year.

All directors are also reimbursed for reasonable expenses incurred in connection with service on the Board or any of its Committees.

Equity Compensation

Under the program, each non-employee director is automatically eligible for an annual equity award granted in the form of DSUs under the Director Equity Plan. A DSU is a bookkeeping entry that represents the right to receive one share of our Common Stock at a future date. DSUs are vested on the date of grant and include the right to receive dividend equivalents, which are credited in the form of additional DSUs, at the same time and in approximately the same amounts that the holder of an equivalent number of shares of our Common Stock would be entitled to receive in dividends. For 2018, our non-employee directors received a grant of DSUs with a grant date fair value of $190,000. If a director separates from service prior to year-end, DSU grants include a clawback provision allowing for recovery of DSUs granted during the year of separation from service on a pro rata basis.

Deferral of Retainer Fees

Board members can elect to receive up to 100% of their $80,000 annual cash retainer in the form of DSUs which are deferred for a specified number of years following grant, as determined by the director, or until any earlier separation from service.

Director Stock Ownership Guidelines

The program includes stock ownership guidelines that require directors to own Common Stock in a minimum amount equal to 6 times the annual cash retainer ($80,000 x 6 = $480,000) within 3 years of adoption of the guidelines (or within 3 years of appointment to the Board for directors elected after 2017). Directors are required to hold all shares of Common Stock granted to the director until compliance with the guidelines are met.

2018 Director Compensation Table

The following table shows the compensation paid by Conduent for the fiscal year ended December 31, 2018 to its non-employee directors. Ashok Vemuri, Chief Executive Officer, is not included in this table because he is an employee of the Company and receives no additional compensation for his service as a director. The compensation received by Mr. Vemuri as an employee is shown in the 2018 Summary Compensation Table.

 

Name		Fees Earned or Paid in Cash ($)		Stock Awards ($)(1)		All Other Compensation ($)		Total ($)
Nicholas Graziano (2)		$  55,417		$110,842		—			$166,259
Paul S. Galant (2)		$  92,000		$190,000		—			$282,000
Joie Gregor		$115,000		$190,000		—			$305,000
Vincent J. Intrieri (4)		$  52,500		$190,000		—			$242,500
Scott Letier (2)		$    7,500		$  15,833		—			$  23,333
Courtney Mather		$  92,000(3)		$190,000		—			$282,000
Michael Nevin(5)		$  95,000		$190,000		—			$285,000
Michael A. Nutter		$105,000		$190,000		—			$295,000
William G. Parrett		$225,000(3)		$190,000		—			$415,000
Virginia M. Wilson		$115,000		$190,000		—			$305,000

 

(1)

This column reflects the aggregate grant date fair value of the annual equity grant made to non-employee directors in the form of DSUs ($190,000) in January 2018 and computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Compensation—Stock Compensation.

 

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(2)

Messrs. Graziano, Galant and Letier did not serve on the Board for the full year. Mr. Graziano joined the Board and received a prorated grant of DSUs on June 1, 2018. Mr. Galant resigned from the Board effective December 18, 2018, and Mr. Letier joined the Board on December 18, 2018. Mr. Letier’s cash was paid and his DSUs were awarded in January 2019.

 

(3)	Messrs. Mather and Parrett elected to defer $80,000 of annual cash retainer reflected in the Fees Earned or Paid in Cash column in the form of DSUs.

 

(4)	Mr. Intrieri did not stand for reelection at the 2018 Annual Meeting. A prorated portion of Mr. Intrieri’s DSUs was forfeited in accordance with its terms.

 

(5)	Mr. Nevin resigned from the Board effective April 8, 2019.

The total number of all DSUs held by each director as of December 31, 2018 is as follows: Mr. Graziano, 5,758; Ms. Gregor, 20,984; Mr. Letier, 0 (Mr. Letier’s DSUs for his 2018 service were awarded in January 2019); Mr. Mather, 25,515; Mr. Nevin, 20,984; Mr. Nutter, 20,984; Mr. Parrett, 25,515; and Ms. Wilson, 20,984.

 

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SECURITIES OWNERSHIP

Ownership of Company Securities (1)

We are not aware of any person who, or group which, owns beneficially more than 5% of any class of the Company’s equity securities as of December 31, 2018, except as set forth below.

 

Title of Class		Name and Address of Beneficial Owner		Amount and Nature of Beneficial Ownership				Percent of Class
Common Stock		FMR, LLC (2) 245 Summer St. Boston, MA 02210			21,646,167				10.244	%
Common Stock		Mr. Carl C. Icahn (3) c/o Icahn Capital LP 767 Fifth Avenue, 47th Floor New York, NY 10153			24,586,540				11.64	%
Common Stock		The Vanguard Group (4) 100 Vanguard Blvd. Malvern, PA 19355			16,507,528				7.81	%
Common Stock		Mr. Darwin A. Deason (5) 5956 Sherry Ln., Suite 800 Dallas, TX 75225			12,320,307				5.8	%

 

 

(1)

The words “group” and “beneficial” are as defined in regulations issued by the SEC. Beneficial ownership under such definition means possession of sole voting power, shared voting power, sole dispositive power or shared dispositive power. The information provided in this table is based solely upon the information contained in the most recent Schedule 13G or 13G/A (or in the case of Mr. Icahn and Mr. Deason, the most recent Schedule 13D/A) filed by the named entity with the SEC.

 

(2)

Based on a Schedule 13G/A filed with the SEC on February 11, 2019 by FMR LLC (“FMR”) to report FMR’s beneficial ownership of Common Stock as of January 31, 2019. FMR has sole voting power for 120,324 shares of Common Stock, sole dispositive power for 21,646,167 shares of Common Stock and has no shared voting power or shared dispositive power for any shares of Common Stock. Based on a Schedule 13G filed with the SEC on February 8, 2019 by FMR, FMR beneficially owned 20,887,388 shares of Common Stock (9.885%) as of December 31, 2018.

 

(3)	Based on a Schedule 13D/A filed with the SEC on December 3, 2018 by Carl C. Icahn to report his beneficial ownership as of that date.

Represents shares of Common Stock held by the following group of entities associated with Carl C. Icahn: High River Limited Partnership (“High River”), Hopper Investments LLC (“Hopper”), Barberry Corp. (“Barberry”), Icahn Partners Master Fund LP (“Icahn Master”), Icahn Offshore LP (“Icahn Offshore”), Icahn Partners LP (“Icahn Partners”), Icahn Onshore LP (“Icahn Onshore”), Icahn Capital LP (“Icahn Capital”), IPH GP LLC (“IPH”), Icahn Enterprises Holdings L.P. (“Icahn Enterprises Holdings”), Icahn Enterprises G.P. Inc. (“Icahn Enterprises GP”) and Beckton Corp. (“Beckton”)(collectively, the “Reporting Persons”). The principal business address of (i) each of High River, Hopper, Barberry, Icahn Offshore, Icahn Partners, Icahn Master, Icahn Onshore, Icahn Capital, IPH, Icahn Enterprises Holdings, Icahn Enterprises GP and Beckton is White Plains Plaza, 445 Hamilton Avenue - Suite 1210, White Plains, NY 10601, and (ii) Mr. Icahn is c/o Icahn Associates Holding LLC, 767 Fifth Avenue, 47th Floor, New York, NY 10153.

High River has sole voting power and sole dispositive power with regard to 4,917,308 shares of Common Stock. Each of Hopper, Barberry and Mr. Icahn has shared voting power and shared dispositive power with regard to such shares of Common Stock. Icahn Master has sole voting power and sole dispositive power with regard to 8,156,433 shares of Common Stock. Each of Icahn Offshore, Icahn Capital, IPH, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Mr. Icahn has shared voting power and shared dispositive power with regard to such shares of Common Stock. Icahn Partners has sole voting power and

 

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sole dispositive power with regard to 11,512,799 shares of Common Stock. Each of Icahn Onshore, Icahn Capital, IPH, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Mr. Icahn has shared voting power and shared dispositive power with regard to such shares of Common Stock.

Each of Hopper, Barberry and Mr. Icahn, by virtue of their relationships to High River, may be deemed to indirectly beneficially own the shares of Common Stock which High River directly beneficially owns. Each of Hopper, Barberry and Mr. Icahn disclaims beneficial ownership of such shares of Common Stock for all other purposes. Each of Icahn Offshore, Icahn Capital, IPH, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Mr. Icahn, by virtue of their relationships to Icahn Master, may be deemed to indirectly beneficially own the shares of Common Stock which Icahn Master directly beneficially owns. Each of Icahn Offshore, Icahn Capital, IPH, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Mr. Icahn disclaims beneficial ownership of such shares of Common Stock for all other purposes. Each of Icahn Onshore, Icahn Capital, IPH, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Mr. Icahn, by virtue of their relationships to Icahn Partners, may be deemed to indirectly beneficially own the shares of Common Stock which Icahn Partners directly beneficially owns. Each of Icahn Onshore, Icahn Capital, IPH, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Mr. Icahn disclaims beneficial ownership of such shares of Common Stock for all other purposes.

 

(4)

Based on a Schedule 13G filed with the SEC on February 11, 2019 by The Vanguard Group (“Vanguard”). Vanguard has sole voting power for 90,210 shares of Common Stock, sole dispositive power for 16,412,551 shares of Common Stock, shared voting power for 23,520 shares of Common Stock and shared dispositive power for 94,977 shares of Common Stock.

 

(5)

Based on a Schedule 13D/A filed with the SEC on December 19, 2018 by Darwin A. Deason to report his beneficial ownership of Common Stock as of December 18, 2018. Mr. Deason has sole voting power and sole dispositive power for 12,320,307 shares of Common Stock and has no shared voting power or shared dispositive power for any shares of Common Stock. Mr. Deason’s shares of Common Stock include 5,393,256 shares of Common Stock issuable upon the conversion of 120,000 shares of Conduent Series A Convertible Perpetual Preferred Stock that he holds.

Shares of Common Stock of the Company owned beneficially by the directors and nominees for director, each of the current executive officers named in the Summary Compensation Table and all directors and current executive officers as a group, as of February 28, 2019, were as follows. These individuals have sole voting and dispositive power with respect to the reported shares.

 

Name of Beneficial Owner		Amount Beneficially Owned
Ashok Vemuri		820,049
David Amoriell		187,705
Jeffrey Friedel		250,605
Nicholas Graziano		5,758
Joie A. Gregor		11,297
Scott Letier		2,000
Jesse A. Lynn		0
Courtney Mather		13,675
Michael A. Nutter		11,297
William G. Parrett		13,675
J. Michael Peffer		294,859
Brian Webb-Walsh		305,149
Virginia M. Wilson		11,297
All directors and executive officers as a group (14)		1,930,256

 

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Percent Owned by Directors and Executive Officers: Each director and executive officer beneficially owned less than 1% of the aggregate number of shares of Common Stock outstanding as of February 28, 2019. The amount beneficially owned by all directors and executive officers as a group also amounted to less than 1%.

Amount Beneficially Owned: The numbers shown are the shares of Common Stock considered beneficially owned by the directors and executive officers in accordance with SEC rules and includes shares held indirectly.

Shares of Common Stock which executive officers, directors and nominees have a right, within 60 days of February 28, 2019, to acquire upon the exercise of options or rights or upon vesting of performance shares, DSUs or restricted stock units are also required to be included for purposes of determining beneficial ownership. None of our executive officers, directors or nominees hold any Company securities which are exercisable or scheduled to vest within 60 days of February 28, 2019 with the exception of DSUs as follows: Graziano, 5,758; Gregor, 11,297; Mather, 13,675; and Parrett, 13,675.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act (“Section 16”) requires the Company’s directors, executive officers and persons who own more than ten percent of the Common Stock of the Company, to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of Common Stock of the Company. Based solely on review of these reports, or written representations from these persons that no other reports were required to be filed with the SEC, the Company believes that all reports for the Company’s directors, executive officers and ten percent shareholders that were required to be filed under Section 16 during the fiscal year ended December 31, 2018 were timely filed with the exception of one Form 4 reporting one transaction filed jointly by Carl C. Icahn, High River Limited Partnership, Icahn Partners LP and Icahn Partners Master Fund LP.

COMPENSATION DISCUSSION AND ANALYSIS

In this Compensation Discussion and Analysis (“CD&A”), we discuss the compensation philosophy, programs and practices adopted by the Compensation Committee of the Board of Directors of Conduent (the “Compensation Committee”) for our named executive officers and review the various objectives and elements of our executive compensation program, its alignment with performance and the 2018 compensation decisions regarding our named executive officers.

For purposes of this CD&A and the disclosure that follows, the following are our named executive officers for 2018:

 

•

Ashok Vemuri, Chief Executive Officer

 

•

Brian Webb-Walsh, Executive Vice President & Chief Financial Officer

 

•

David Amoriell1, President

 

•

James Michael Peffer, Executive Vice President, General Counsel & Secretary

 

•

Jeffrey Friedel, Executive Vice President, Chief People Officer

¹ Mr. Amoriell retired from the Company on January 11, 2019.

EXECUTIVE SUMMARY

Conduent continued to make progress in 2018 by transforming in meaningful ways and positioning itself for sustainable, profitable growth in the future. We achieved success on a number of fronts, including strengthening our balance sheet, completing the program to divest our non-core businesses, exceeding the goals under our 3-year transformation program, completing the tender offer of our senior unsecured high-yield notes, and completing the Company’s first acquisition. However, due to continued pressure on revenue growth and operational challenges during the third and fourth quarters of fiscal 2018, we achieved lower than target financial performance on two measures: revenue and adjusted EBITDA. As a result, the named executive officers achieved lower than target variable compensation payouts commensurate with our results. We are addressing the challenges that we faced in 2018 head-on and have made significant investments in technology modernization and standardization to support our long-term strategy and focus on digital interactions. We

 

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ended the year with a strong balance sheet, a portfolio of core businesses and offerings, a refreshed sales team and go-to-market strategy, and the right team to lead the organization to the next phase – our pivot to growth.

2018 Financial Achievements

 

•

Revenue of $5,393 million

 

•

Net income from continuing operations of $(416) million

 

•

Adjusted net income2 of $230 million

 

•

Adjusted EBITDA2 of $640 million, up 7.0% year-over-year, excluding impact from ASC 606 and divestitures

 

•

$283 million of cash flow from operations and $218 million of adjusted free cash flow2

2018 Operational Achievements

 

•

Exceeded 3-year transformation initiative targets; achieved ~$730 million of cumulative savings

 

•

Completed divestiture plan of $1 billion of non-core business revenue

 

•

Divested four businesses (Commercial Vehicle Operations, Off-Street Parking, Actuarial and HR Consulting, and select Local Government Services) in 2018 for aggregate proceeds of ~$700 million in cash

 

•

Announced an agreement to sell a select portfolio of our stand-alone customer care contracts and completed the sale of those contracts in early 2019

 

•

Paid down $476 million of high-interest notes from our spin-off

 

•

Invested in platform and IT infrastructure technology

 

•

Acquired Health Solutions Plus in January 2019 (leading digital healthcare core administrative processing system)

² Please see “Non-GAAP Financial Measures” and “Non-GAAP Reconciliations” on pages 47-51 in this Proxy Statement for information on our non-GAAP financial measures.

Shareholder Say on Pay

Our executive compensation is subject to an annual advisory vote of shareholders at our Annual Meeting. The Compensation Committee considers the outcome of say on pay votes when making compensation decisions for our named executive officers. At the 2018 Annual Meeting of Shareholders, 98.7% of shares voted were in favor of our executive compensation. Our Board and the Compensation Committee greatly value the benefits of maintaining a dialogue with our shareholders and understanding their views. The executive management team of Conduent established and participated in various shareholder engagement activities in 2018. Conduent’s investor relations function proactively engages with our shareholders to provide updates on the performance of the Company and solicit feedback on various topics.

OUR EXECUTIVE COMPENSATION PROGRAM

Compensation Philosophy

Our Executive Compensation Programs are designed to attract, motivate, reward and retain the world class talent necessary to drive our business strategy, creating shareholder value. Our programs are designed to follow these principles:

 

•

provide competitive compensation to attract and retain executives critical to our long-term success;

 

•

align executive and shareholder interests using both short-term and long-term financial and strategic objectives that build a sustainable Company;

 

•

recognize and reward collective accountability and individual contribution to ensure enterprise results;

 

•

instill high standards of corporate governance and best practices; and

 

•

mitigate excess risk taking and/or behavior that is inconsistent with the Company’s strategic plans and high ethical standards.

 

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Checklist of Compensation Practices

 

What We Do				What We Don’t Do
✓		Deliver a significant portion of compensation through long-term incentives tied directly to shareholder value creation.		X		Permit re-pricing of underwater stock options.
✓		Balance short- and long-term incentives with multiple performance metrics.		X		Provide defined-benefit pension plan or SERPs to executives (only all-employee 401(k) plan).
✓		Maintain pay-recoupment policy that allows claw back of compensation earned because of fraudulent or illegal conduct.		X		Provide excessive perquisites or termination payments.
✓		Maintain stock ownership requirements for all our named executive officers.		X		Allow hedging or pledging of Company stock.
✓		Conduct an annual review of programs to ensure they do not encourage risks that have a material adverse effect on the Company.		X		Permit tax gross-ups on change in control or other severance payments.
✓		Maintain non-competition and non-solicitation agreements with our named executive officers that prohibit competing against Conduent and soliciting our customers or current employees after termination.		X		Maintain written employment contracts with our executive officers (other than our Chief Executive Officer’s offer letter)
✓		Employ an Independent Consultant under the direction of the Compensation Committee.		X		Allow single-trigger vesting change in control arrangements.

2018 Total Direct Compensation Targets for Named Executive Officers

The Compensation Committee approved the annual target compensation levels for all executive officers. To reinforce the Company’s pay for performance philosophy, 86% of our CEO’s targeted total director compensation, and on average 70% for our other named executive officers, is variable and “at risk.” Additionally, 53% of targeted total direct compensation for our Chief Executive Officer and, on average, 46% for our other named executive officers is subject to achievement of performance goals.

 

Executive		Title		Base Salary					Target Short- Term Incentive (% of Salary)					Target Long- Term Incentive (Grant Date Value on 4/1/18)
Ashok Vemuri		Chief Executive Officer (CEO)			$	1,000,000					150	%			$	5,000,000
Brian Webb-Walsh		Executive Vice President and   Chief Financial Officer (CFO)			$	450,000					75	%			$	975,000
Dave Amoriell		President			$	536,000					75	%			$	800,000
J. Michael Peffer		Executive Vice President,   General Counsel and Secretary			$	500,000					75	%			$	800,000
Jeffrey Friedel		Executive Vice President, Chief   People Officer			$	425,000					75	%			$	500,000

The table does not reflect the special one-time strategic leadership grant awarded to Messrs. Vemuri and Webb-Walsh. Additional information regarding these awards can be found under “Strategic Leadership RSU Grant” on page 31.

 

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The charts below reflect the 2018 pay mix for our named executive officers and the portion of their targeted total direct compensation that is variable pay. Basing this variable compensation upon financial results and share price directly aligns our executives with shareholder value creation.

 

 

CEO - Pay Mix		All Other Named Executive Officers – Pay Mix

Linking Pay with Performance

Short-Term Incentives

Each of our named executive officers participated in the Annual Performance Incentive Program (“APIP”) which focused on the business priorities for 2018. The 2018 performance measures and weightings for APIP were: Adjusted EBITDA (50%), Revenue (at constant currency) (40%) and an M&A Strategic Goal (10%). For 2018, the Committee determined to use an M&A Goal as a performance metric to replace Revenue Productivity to more closely align our named executive officers’ incentive compensation with our strategic priorities.

Additional information regarding short-term incentives can be found under “2018 Compensation for the Named Executive Officers—Short-Term Incentives.”

Long-Term Incentives

In early 2018, the Compensation Committee reviewed peer group data and approved a Long-Term Incentive Program (“LTIP”) that aligned with the interests of shareholders and the Company. The 2018 annual LTIP award includes a mix of 50% performance-based awards (Performance Stock Units) and 50% time-based awards (Restricted Stock Units). This approach balances the need to motivate and drive future behavior while being retentive and fostering stock ownership. Performance Stock Units are measured over three years. Performance for each year is measured against pre-established annual goals and performance achievement is averaged over the three-year performance period (2018—2020). Vesting occurs at the end of the three-year performance period. Restricted Stock Units are subject to three-year ratable vesting.

The Compensation Committee approved annual LTIP awards with a grant date of April 1, 2018. Officers participated at their individual LTIP target level. The 2018 performance measures and weightings are as follows: Adjusted Profit Before Tax (“PBT”) (50%) and Free Cash Flow, as adjusted (50%). Additional information regarding long-term incentives can be found under “2018 Compensation for the Named Executive Officers—Long-Term Incentives.”

In addition to the annual LTIP award, Messrs. Vemuri and Webb-Walsh each received a one-time Restricted Stock Unit award in recognition of their strategic leadership in establishing Conduent as a successful stand-alone company and exceeding transformational goals.

PROCESS FOR DETERMINING COMPENSATION

Role of the Compensation Committee

The Compensation Committee administers the executive compensation program for our named executive officers on behalf of our Board and shareholders. All members of the Compensation Committee are independent directors in accordance with applicable SEC and NYSE standards, including heightened independence requirements for Compensation Committee members. The biographies of the Compensation Committee members appear beginning on page 7 of this Proxy Statement.

 

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The Compensation Committee retains an independent consultant for the purpose of reviewing and providing guidance related to executive compensation programs. The Compensation Committee’s responsibilities are discussed beginning on page 15 of this Proxy Statement. A complete description of the Compensation Committee’s responsibilities and functions appears in its charter, which can be found on our website at www.conduent.com/corporate-governance.

The Compensation Committee evaluates many factors when designing and establishing the executive compensation plans and targets. In determining the appropriate compensation levels, the Compensation Committee considers the scope and impact of the executive’s role within the organization, experience, sustained performance and future potential. The Committee also reviews the compensation levels of similarly positioned executives at peer companies, general industry compensation data, and internal pay considerations.

Role of the CEO

While the Compensation Committee is ultimately responsible for making all compensation decisions affecting compensation of our named executive officers, the CEO participates in the process by:

 

•

Periodically discussing the performance of the Company and each executive officer with the Compensation Committee.

 

•

Making recommendations on the components of compensation for the other executive officers.

After receiving input from the CEO, the Compensation Committee makes its own assessments and formulates compensation amounts for each of our executive officers, including our named executive officers, ensuring that the total compensation for each is appropriate and competitive.

Role of the Independent Consultant

The Compensation Committee has retained the services of an independent compensation consulting firm, Frederic W. Cook & Co., Inc. (the “Consultant”), to assist with its responsibilities. The Consultant reports only to the Compensation Committee and has not performed any other work for Conduent since being retained as an independent consultant to the Compensation Committee, except in its capacity as an independent advisor to the Corporate Governance Committee on non-employee director compensation matters. As provided in its charter, the Compensation Committee has the authority to determine the scope of the Consultant’s services and may terminate the Consultant’s engagement at any time.

During 2018, the Consultant provided the following services:

 

•

regularly updated the Compensation Committee on trends in executive compensation, including providing proactive advice on emerging trends and best practices;

 

•

reviewed officer compensation levels and overall performance compared to a peer group made up of organizations with which Conduent is likely to compete for business, investor capital and/or executive talent;

 

•

reviewed incentive compensation designs for short-term and long-term programs;

 

•

advised the Compensation Committee on peer group companies for pay and performance comparisons;

 

•

reviewed the Compensation Discussion and Analysis and related compensation tables for inclusion in this Proxy Statement;

 

•

reviewed Compensation Committee meeting materials with management before distribution;

 

•

attended Compensation Committee meetings, including meetings in executive session, as requested by the Compensation Committee chair; and

 

•

offered independent analysis and input on CEO compensation.

 

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Peer Group

The Compensation Committee approved a peer group of companies with whom Conduent competes for business, investor capital and/or executive talent. The peer group is used to benchmark compensation for our named executive officers as well as for general pay practices and trends. The 2018 peer group consisted of the following companies:

 

Aon plc.		CGI Group Inc.		Genpact Limited
Automatic Data Processing, Inc.		Cognizant Technology Solutions Corp.		IQVIA Holdings Inc.
CACI International Inc.		Convergys Corporation		MAXIMUS, Inc.
Cerner Corporation		DXC Technology Company		Paychex, Inc.

In November 2018, the Committee approved a new peer group for 2019 which the Committee believes more closely aligns with Conduent, considering the Company’s current industry profile, size and market capitalization.

The 2019 peer group will consist of the following companies: Booz Allen Hamilton Holding Corporation, CACI International Inc., Cerner Corporation, CGI Group Inc., Cognizant Technology Solutions Corporation, Fidelity National Information Services, Inc., First Data Corporation, Genpact Limited, Global Payments Inc., IQVIA Holdings Inc., Leidos Holdings, Inc., MAXIMUS, Inc., Roper Technologies, Inc. and Willis Towers Watson Public Limited Company.

Competitive Market Information

In 2018, the Compensation Committee received a report comparing the compensation of its named executive officers with the compensation of executives in comparable positions at our peer group companies based on the most recent proxy filings (primarily used for the CEO, CFO and General Counsel) as well as general industry survey data to recognize the limitations of proxy data (Willis Tower’s Watson CDB General Industry Executive Compensation survey). This comparison included compensation data for these elements of pay:

 

•

base salary;

 

•

short-term incentives;

 

•

total target cash compensation (base salary plus target short-term incentives);

 

•

target long-term incentives; and

 

•

total direct compensation (total target cash compensation plus target long-term incentives).

The competitive market data is prepared, analyzed and presented to the Compensation Committee by the Committee’s Consultant. The market pay range is viewed as a competitive reference point, but that data is not used to match a specific percentile of the market. Emphasis is placed on total direct compensation. In 2018, the Compensation Committee reviewed total direct compensation against the market data using the 50^th percentile as a reference point. The Compensation Committee exercises discretion in setting individual compensation levels to reflect an assessment of the executive’s impact, responsibilities and expected contributions to Conduent, as well as potential for advancement.

2018 COMPENSATION FOR THE NAMED EXECUTIVE OFFICERS

2018 Total Direct Compensation

Total direct compensation includes base salary, target annual short-term incentives and target annual long-term incentives, including Performance Stock Units at target. The majority of our named executive officers’ compensation is provided under our variable incentive compensation programs. Variable pay increases with responsibility while long-term incentive compensation represents the greatest component of pay. The 2018 total direct compensation of our named executive officers can be found under the heading “Executive Summary—2018 Total Direct Compensation Targets for Named Executive Officers.” For further information regarding the process the Compensation Committee used to determine compensation for our named executive officers, please see above under “Process for Determining Compensation.”

 

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More complete compensation information appears in the “Summary Compensation Table” on page 37.

Base Salary

Base salary is the fixed pay element of our compensation program that reflects the level and scope of responsibility within the Company. The Compensation Committee reviews each named executive officer’s base salary annually as well as in connection with a promotion or other change in responsibility. The 2018 base salaries for our named executive officers were unchanged from 2017.

Short-Term Incentives

The Annual Performance Incentive Plan (“APIP”) provides for short-term incentive awards that reward performance against our annual operating plan, paid in the form of cash to our named executive officers and other eligible employees. Each year, the Compensation Committee reviews the target short-term incentive award opportunity, scaled to the executive’s level of responsibility and stated as a percentage of base salary, and the maximum payout opportunity.

The following chart reflects Conduent’s process for setting short-term incentive awards. This process typically takes place in the first quarter of the year.

 

 

Short-Term Incentive Target Award Opportunity for the Named Executive Officers

The annual short-term incentive target award opportunity for each of our named executive officers takes into account many factors, including scope of responsibility, expected contributions, internal pay equity and competitive executive compensation practices. If an executive’s role or responsibilities change after the terms of the award are approved, the Compensation Committee is permitted to adjust the short-term incentive target award opportunity at that time.

The 2018 APIP target award opportunities for our named executive officers remain unchanged from 2017.

Short-Term Incentive Performance Measures

The Compensation Committee established the APIP for 2018 pursuant to which each named executive officer is entitled to receive an incentive payout assuming Conduent attains certain pre-established performance goals. In 2018, the performance goals for the APIP were based on Adjusted EBITDA, Revenue and an M&A strategic goal. For this purpose, Adjusted EBITDA represents income or loss before income taxes adjusted for interest expense, depreciation and amortization, restructuring and related costs, (gain) loss on divestitures and

 

28

transaction costs, litigation costs (recoveries), net, loss on extinguishment of debt, other (income) expenses and legacy charges/credits such as New York Medicaid Management Information System (NY MMIS) and Health Enterprise (HE). Revenue is measured at constant currency which excludes the impact of changes in the translation of foreign currencies into U.S. Dollars and certain other discrete adjustments. The M&A strategic goal required completion of three of five planned divestitures.

Results of performance may be adjusted plus or minus 20% on a discretionary basis to recognize individual performance, but in no event would an APIP payout exceed the maximum payout (200%). With respect to our financial performance measures, payout for achieving threshold performance is 50% of target, payout for achieving target performance is 100% of target and payout for achieving maximum performance is 200% of target. Performance results and payouts are interpolated between these points. There is no required payout for business performance below threshold levels.

The measures, weightings, goals and target and maximum payout ranges set by the Compensation Committee for 2018 (in millions) were as follows:

 

Performance Measure		Weighting		Target (100% payout)		Maximum (200% payout)
Adjusted EBITDA		50%		$721		$ 739
Revenue (at constant currency)		40%		$5,739		$5,800
M&A Strategic Goal		10%		Completing 3 of 5   planned divestitures		Completing 4 or more planned   divestitures and qualitative   assessment

 

These goals were aligned with Conduent’s 2018 operating plan at the time they were established and designed to be challenging yet achievable.

Determining Short-Term Incentive Award Payouts

After the end of the fiscal year the CFO confirms the financial results and communicates the results to the Compensation Committee. Subject to the Compensation Committee’s review and approval, any material unusual charges or gains are reviewed with the Compensation Committee for possible impact on APIP calculations.

Each performance measure is assessed and calculated independently. The weighted results of each measure are added together to determine overall performance results. Payouts are made proportionately for achievement at levels between the goals. Even if pre-established performance measures are achieved, the Compensation Committee retains discretion to determine a lesser short-term incentive than the calculated incentive payout, or no short-term incentive at all, as it deems appropriate. The Compensation Committee also retains its discretion to increase or decrease an APIP award (plus or minus 20% as described above) based on individual performance, provided that the named executive officer’s award may never exceed their maximum payout target.

2018 Performance for Short-Term Incentive Award Payouts

Performance results for 2018 against the APIP performance measures (in millions) were:

 

Performance Measures		Target				Actual (as adjusted)								Performance     Achievement		Weighting		Payout Percentage
Adjusted EBITDA (1)			$   721				$   700							63%		50%		32%
Revenue (2) (at constant currency)			$5,739				$5,658							0%		40%		0%
M&A Strategic Goal (3)			3 of 5				4 of 5							200%		10%		20%
														Final Calculated Payout =>				52%

 

(1)	Adjusted EBITDA: $700M, reflects reported adjusted EBITDA of $640M and partial year adjustments for divestitures completed in 2018, and impacts from certain strategic contract exits.

 

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(2)	Revenue (at constant currency): $5,658M, reflects reported adjusted revenue of $5,393 adjusted for currency, and partial year adjustments for divestitures completed in 2018, and impacts from certain strategic contract exits.

 

(3)	M&A Strategic Goal: The Company successfully completed 4 out of 5 planned divestitures in 2018, with a 5th divestiture closed in February 2019. The Compensation Committee also considered that the Company completed an acquisition supporting our core business in January 2019.

Following the certification of the financial results for 2018, the Compensation Committee reviewed the achievement of the performance measures on APIP. Based on this, the Committee approved a 52% payout factor.

Our named executive officers received payouts at or below the approved payout factor, as set forth below, except for Mr. Webb-Walsh, who was increased to 62% reflecting his contribution in Real Estate consolidation and Finance transformation projects and Mr. Friedel who was increased to 57% reflecting his contribution to the successful Accushoring^™, effort.

 

Executive		2018 APIP Target ($)					2018 APIP Actual   Payout ($)
Ashok Vemuri				$1,500,000					$780,000
Brian Webb-Walsh				$   337,500					$210,600
Dave Amoriell				$   402,000					$188,136
J. Michael Peffer				$   375,000					$195,000
Jeffrey Friedel				$   318,750					$182,325

 

*	Accushoring™, allowing the company to use talent anywhere in the world and giving it the flexibility to leverage human capital from locations with the best balance of skill, availability and costs.

Given Conduent’s 2018 achievements, the Compensation Committee concluded the APIP payments resulted in reasonable and appropriate performance-related incentive payments to our named executive officers. The annual incentives paid to our named executive officers in 2019 for 2018 performance are shown in the “Summary Compensation Table.” Additional information about the short-term incentive opportunities is shown in the “Grants of Plan-Based Awards in 2018” table.

Long-Term Incentives

We provide long-term incentives to reward our named executive officers for sustained performance, as a retention incentive and to align executive’s interests with shareholders to drive long-term value creation. Awards are intended to encourage a strong ownership stake in the Company to drive superior performance on long-term Company objectives. The Committee considers peer data, relative impact of the executive’s position, responsibilities and role at Conduent and each named executive officer’s performance when determining long-term incentive awards.

Long-Term Incentive Program and Performance Measures

Long-term incentive awards are made pursuant to the Conduent Incorporated Performance Incentive Plan. Restricted Stock Units vest ratably over a three-year period.

Performance Stock Units are measured over a three-year performance period. Performance for each year is measured against pre-established annual goals and performance achievement is averaged over the three-year performance period (2018—2020). The 2018 performance measures and weightings are as follows: Adjusted PBT (50%) and Free Cash Flow, as adjusted (50%). Adjusted PBT is defined as income or loss before income taxes as reported on the Consolidated Statements of Income (Loss), less amortization of intangible assets; restructuring and related costs; (gain) loss on divestitures and transaction costs; litigation costs (recoveries), net; loss on extinguishment of debt and other (income) expenses, net, business and assets, currency (gains) losses, net, litigation matters and all other expenses, net. Free Cash Flow is defined as cash flow from operating activities as reported on the Consolidated Statements of Cash Flows, less cost of additions to land, buildings and equipment and cost of additions to internal use software and vendor financed capital lease additions plus proceeds from sales of land, building and equipment, partial year adjustments for divestitures

 

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and tax payments related to divestitures completed in 2018. Adjusted Free Cash Flow is defined as the free cash flow from above plus deferred compensation payments, transaction costs and other identified items. The entire award vests at the end of the three-year performance period, subject to Compensation Committee certification of performance results.

Once vested, Restricted Stock Units and Performance Stock Units are paid out in the form of shares of Conduent Common Stock. Any dividends during the vesting period would be accrued and paid on vesting in an amount equal to the dividends the executive would have earned from owning the same amount of Conduent Common Stock which vested under the award throughout the vesting period.

Although equity awards generally are granted on a regular annual cycle, the Compensation Committee may grant off-cycle equity awards for special purposes, such as new hire, promotion, retention, and recognition.

Compensation Committee Actions Relating to LTIP Awards

During the first fiscal quarter of 2018, the Compensation Committee approved LTIP grants for our named executive officers. As part of this approval, the Committee established performance goals and award values, a payout range of 50% to 200% of target and an April 1, 2018 grant date. Additional information regarding the 2018 LTIP awards can be found in the “Summary Compensation Table” and the “Grants of Plan-Based Awards in 2018” table.

The 2018 LTIP award was granted in 50% Performance Stock Units and 50% Restricted Stock Units. The target number of units granted to our named executive officers in April 2018 was determined by dividing the approved target award value by the closing price of Conduent Common Stock on the grant effective date.

For 2018 Restricted Stock Units, one-third vested on 12/31/18, and the balance will vest one-third on 12/31/19 and one-third on 12/31/20, subject to continued employment. The performance period for the 2018 Performance Stock Units is January 1, 2018 – December 31, 2020. Performance for each year is measured against pre-established annual goals and performance achievement is averaged over the three-year performance period. The entire award does not vest until the end of the three-year performance period on December 31, 2020 with payout in the first quarter of 2021, following Compensation Committee certification of the performance results.

The payout for achieving threshold performance is 50%, the payout for achieving target performance is 100%, and the payout for achieving maximum performance is 200%. Payouts are made proportionately for achievement at levels between these goals. There is no payout if performance falls below each of the threshold goals established by the Compensation Committee.

 

				Payout Range
Performance Measures		Weighting		Threshold		Target		Maximum
Adjusted PBT		50%		50%		100%		200%
Free Cash Flow, as adjusted		50%		50%		100%		200%

The performance goals were aligned with Conduent’s 2018 three-year financial model at the time the goals were established. Target performance levels are challenging but achievable with a level of performance that is in line with the Board-approved operating plan, whereas maximum performance levels represent stretch goals which can only be achieved with exceptional performance.

Strategic Leadership RSU Grant

Messrs. Vemuri and Webb-Walsh each received a one-time Restricted Stock Unit award in recognition of their leadership in establishing Conduent as a successful stand-alone company and exceeding transformational goals. Mr. Vemuri received an award of 12,875 Restricted Stock Units, vesting one-third on 12/31/18, one-third on 12/31/19 and one-third on 12/31/20. Mr. Webb-Walsh received an award of 10,000 Restricted Stock Units, vesting 50% on 12/31/18, 25% on 12/31/19 and 25% on 12/31/2020.

PERFORMANCE RESULTS AND PAYOUTS UNDER PRIOR EQUITY AWARDS

2017 – 2019 Strategic Initiative Grant

In 2017, the Committee approved a special stock award (“Strategic Initiative Grant” or “SIG”) for each of the named executive officers. The key program objectives were to strengthen the alignment of management with

 

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shareholders, accelerate the growth of stock ownership levels among the new officer team, motivate and promote the successful and expedited business turnaround, facilitate cultural change and talent upgrade, and retain key executives. The SIG was granted in 50% performance-based awards (performance shares) and 50% time-based awards (restricted shares). The performance shares include two cost-transformation and two client-outcome metrics, all equally weighted. These measures are: Cost Transformation – Information Technology (25%), Cost Transformation – Real Estate, General & Administrative (25%), Service Line Penetration (25%) and New Business Signing Growth (25%). Information Technology, Real Estate and General & Administrative represent substantial optimization and savings opportunities. Service Line Penetration measures the ability to cross-sell additional service lines to the top commercial clients. New Business Signings growth measures the total contract value of new business signings based on Compound Annual Growth Rate (CAGR) over the 2016 baseline.

Although the goals reflected three-year cumulative performance (2017 – 2019), there was an opportunity for up to 50% of the award to be earned and paid at the end of the second year (December 31, 2018). While the performance targets reflect challenging three-year goals aligned with the Company’s multi-year transformation plan, the Compensation Committee believed it would benefit Conduent and shareholders to further incentivize management to expedite the achievement of these critical milestones. Performance against goals will be measured again at the end of 2019 and the payout earned will be reduced by the awards that vested at the end of 2018.

The measures, weightings and threshold to maximum payout ranges set by the Compensation Committee for the SIG are as follows:

 

				Payout Range
Performance Measure		Weighting		Threshold		Target		Maximum
Cost Transformation – IT		25%		50%		100%		200%
Cost Transformation – Real Estate and G&A		25%		50%		100%		200%
Service Line Penetration		25%		50%		100%		200%
New Business Signings		25%		50%		100%		200%

The performance results and payout against these goals effective December 31, 2018 were as follows:

 

Performance Measure		Performance    Achievement    in 2018		Weighting		Payout    Percentage		Payout    for 2018		Payout    for 2019
Cost Transformation – IT		200%		25%		50%		25%		25%
Cost Transformation – Real Estate and G&A		200%		25%		50%		25%		25%
Service Line Penetration		0%		25%		0%		0%		TBD
New Business Signings		0%		25%		0%		0%		TBD
Final Calculated Payout =>								50%		TBD

The Outstanding Equity Awards at 2018 Fiscal Year-End table provides additional information regarding the results of our performance through 2018 year-end with respect to outstanding performance based stock awards. The Option Exercises and Stock Vested in 2018 table provides additional information regarding the portion of our Strategic Initiative Grants (“SIG”) awarded on April 1, 2017, which partially vested on December 31, 2018.

SAVINGS PLANS

Conduent Savings Plan (401(k))

All our named executive officers are eligible to participate in the Conduent Savings Plan in the same manner as all U.S. employees. After one year of service, participants are eligible for a 100% match on 3% of eligible pay saved, subject to IRS-qualified plan compensation limits and highly compensated threshold limits and may not receive 401(k) benefits in excess of these limits. Mr. Vemuri, Mr. Webb-Walsh, Mr. Amoriell, Mr. Peffer and Mr. Friedel elected to save in the Conduent Savings Plan in 2018, and all received a Company matching

 

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contribution under the plan. The Company does not maintain any non-qualified deferred compensation plans or other retirement plans.

PERQUISITES AND OTHER BENEFITS

General Benefits

We generally maintain medical and dental coverage, life insurance, accidental death insurance and disability benefits programs or plans for all of our employees, as well as customary vacation, leave of absence and other similar policies. Our named executive officers are eligible to participate in these programs and plans on the same basis as all other salaried employees, except as otherwise disclosed.

Perquisites

In August 2018, the Compensation Committee reviewed and approved our limited perquisites which are intended to support the health, safety and productivity of our named executive officers. Conduent does not provide tax gross-ups in connection with perquisites (except in relation to relocation per the U.S. relocation policy).

In 2018, all named executive officers were eligible to receive Company-paid financial and tax planning assistance of up to $15,000 per year. Financial planning by experts reduces the amount of time and attention that named executive officers devote to their personal finances. To safeguard their health, all named executive officers were also eligible to receive an annual physical examination through our preferred provider or reimbursement of up to $5,000 for the cost of a physical should the named executive officer chose to use their own physician. In addition, to assist with managing financial security, all named executive officers were eligible for annual credit monitoring up to $350. Mr. Vemuri also receives home security benefits. The Company also holds corporate club memberships in the names of Messrs. Vemuri, Walsh and Peffer primarily for business purposes, although personal use is permitted. The Company pays the annual dues and other fixed costs associated with club membership, but all costs attributable directly to personal use of the club membership, such as meals and other incidentals, are reimbursed by the executive. The total cost to Conduent for providing perquisites and personal benefits to the named executive officers during 2018 are shown in the “Summary Compensation Table.”

CHANGE-IN-CONTROL BENEFITS

The Compensation Committee approved the Executive Change in Control Severance Plan (“CIC Plan”), effective October 1, 2017. All named executive officers were covered under the CIC Plan as of January 1, 2018. The CIC Plan replaced prior individual change in control agreements entered into with Xerox prior to January 1, 2017 with a consistent and standardized design. The CIC Plan provides certain enhanced benefits to key management employees who the Company determines are most likely to be impacted by a change in control (primarily the Company’s executive officers), so that they can continue to exercise their judgment and legal responsibilities without the potential for distraction and bias that can arise from concerns regarding their personal circumstances.

Eligible employees are selected by the Compensation Committee to participate in the CIC Plan. The CIC Plan provides eligible employees with severance payments and benefits in the event that an eligible employee’s employment with the Company is terminated and such termination is a “qualifying termination” within the period beginning 90 days prior to a “change in control” and ending, for our CEO, 24-months following, or for any other participant, one year immediately following, a “change in control.” A “qualifying termination” means a participant’s termination of employment (a) by the employer company for any reason other than “cause”, “disability” or death or (b) by the eligible employee for “good reason”. The severance payments and benefits to be provided, subject to the employee’s execution of a release of claims, are as follows:

 

(1)

A lump sum payment, in cash, equal to the sum of (a) unpaid salary with respect to any paid time off accrued but not taken as of the date of termination, (b) accrued but unpaid salary through the date of termination and (c) any earned but unpaid annual incentive bonus from the fiscal year immediately preceding the year in which the date of termination occurs;

 

(2)

A lump sum payment, in cash, equal to the product of (a) the participant’s annual rate of base salary in effect on the date that notice of termination is given and the annual target bonus applicable to the participant for the year in which notice of termination is given, multiplied by (b) a “factor” which in the case of each of our named executive officers is two;

 

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(3)

Participant shall continue to be entitled to receive all benefits payable under any other plan or agreement relating to retirement benefits or to compensation previously earned and not yet paid; and

 

(4)

Participant shall continue to be eligible to participate in the medical, dental and health care reimbursement account coverage in effect at the date of termination as if the participant had continued in employment for the lesser of (a) the severance period or (b) twelve months. The severance period is based on the “factor” used for the lump sum payment calculation noted in (2) above, and if the severance period exceeds twelve months, the participant will receive a cash lump-sum payment equal to the projected value of the employer portion of the premiums for medical and dental benefits for the time period between the end of the twelve months and the remainder of the severance period. For each of our named executive officers, the severance period is two years. Accordingly, our named executive officers would be eligible to participate in medical, dental and health care reimbursement coverage for twelve months and would receive a lump sum cash payment to cover the employer premiums between the end of the twelve months and the end of their severance period.

Conduent does not provide excise tax reimbursement on severance payments.

Additional information and the amount of the estimated payments and benefits payable to the named executive officers assuming a change in control of Conduent and a qualifying termination of employment is presented in the “Potential Payments Upon Termination or Change in Control” table.

EMPLOYMENT AND SEPARATION

Named executive officers serve at the will of the Board. This enables the Board to remove a named executive officer whenever it is in the best interests of Conduent, with full discretion of the Compensation Committee to decide on an appropriate severance package (except in the case of the CEO, who is entitled to certain severance benefits as per his offer letter, or in the case of a change in control). When a named executive officer is removed from his or her position, the Compensation Committee exercises its business judgment in considering whether to approve a severance arrangement in light of all relevant circumstances, including how long the officer was with the Company, past accomplishments and the reasons for separation. If the Compensation Committee does not approve a special severance arrangement for a named executive officer whose position has been eliminated, that officer will be covered under the Company’s U.S. Executive Severance Policy, as applicable.

For separations due to the elimination of the executive’s position, the U.S. Executive Severance Policy entitles executives, including our named executive officers, to 26 weeks of base pay, paid out over the severance period, with continued health benefits (excluding disability and 401(k) participation). This payment is contingent upon signing a release of claims against Conduent as may be required.

GOVERNANCE OF THE EXECUTIVE COMPENSATION PROGRAMS

Risk Assessment

The Compensation Committee believes that its programs encourage positive behavior while balancing risk and reward, consistent with the interests of its shareholders. Conduent management conducts risk assessments each year and presents the findings to the Compensation Committee. Based on the assessment of programs covering its employees and executives for 2018, the Compensation Committee determined that its compensation plans, programs and practices do not motivate behavior that is reasonably likely to have a material adverse impact on Conduent, based on the following factors:

Key Program Features:

 

•

Program weighted towards long-term incentives

 

•

Balanced mix of performance measures (financial and operational) approved by the Compensation Committee in advance

 

•

Financial goals tied to the operating plan approved by the Board

 

•

Payout limitations/caps

 

•

Overlapping performance periods for long-term incentives

 

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Risk Mitigators:

 

•

Independent Compensation Committee oversight

 

•

Officer stock ownership guidelines

 

•

Pay recoupment policy

 

•

Anti-hedging policy

Ownership Requirements

The Company maintains a stock ownership policy for the named executive officers in order to ensure they build and maintain a meaningful level of stock ownership. The stock ownership guidelines are as follows:

 

•

Ownership requirements of 5x, 3x and 1x base salary, for the CEO, CEO’s direct reports and all other officers, respectively.

 

•

Required to meet the applicable level of ownership by the end of the fifth full calendar year after becoming an executive.

 

•

If executive fails to reach compliance within five years, there will be a mandatory retention of 50% of all vested shares (net of taxes) until the threshold is achieved.

 

•

CEO has the authority to permit discretionary hardship exceptions from the ownership and holding requirements (the Board has the authority to permit discretionary hardship exceptions for the CEO).

The following types of awards will count toward the guidelines described above: Common Stock held outright and unvested Restricted Stock and Restricted Stock Units. The following types of equity awards will not count toward the stock ownership guidelines: unexercised stock options, unearned Performance Stock Units and any cash-settled units. Once stock ownership levels are achieved, named executive officers are required to continue to hold that amount of stock as long as they remain with Conduent.

Trading, Hedging and Pledging

Our executive officers are prohibited from engaging in short-swing trading and trading in puts and calls with respect to our Common Stock. In addition, our executive officers are prohibited from using any strategies or products to hedge against potential changes in the value of our Common Stock.

Under our insider trading policy, our executive officers may purchase or sell Conduent securities only during “window” periods, which are generally the periods commencing on the second business day following the date of each quarterly earnings announcement and ending on the close of business on the 15th day of the month before the end of the then-current quarter. The only exception to this restriction is for our named executive officers who have entered into trading plans pursuant to SEC Rule 10b5-1.

As a result, our executive officers are effectively precluded from pledging our Common Stock as collateral, including holding our Common Stock in a margin account, since their stock can only be sold during “window” periods and trading plans pursuant to SEC Rule 10b5-1, and therefore is not available to be sold at any time.

Compensation Recovery Policy (Clawbacks)

Under the Conduent Performance Incentive Plan, if the Compensation Committee deems a named executive officer to have engaged in activity that is detrimental to Conduent, it may cancel any awards granted to that individual. In addition, if such a determination is made before any change in control of Conduent, the Compensation Committee may rescind any payment or delivery of any equity and annual cash incentive award that occurred within the six months preceding the detrimental activity. For this purpose, detrimental activity may include a violation of a non-compete agreement with Conduent, disclosing confidential information (except for reporting and other communications protected by “whistleblower” provisions of the Dodd- Frank Wall Street Reform and Consumer Protection Act), soliciting an employee to terminate employment with Conduent, or soliciting a customer to reduce its level of business with Conduent. If a payment or award is rescinded, the named executive officer will be expected to pay Conduent the amount of any gain realized or payment received in a manner the Compensation Committee or its delegate requires.

Conduent’s stock award agreements include a clawback provision that applies if an accounting restatement is required to correct any material non-compliance with financial reporting requirements. Under this provision,

 

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Conduent can recover, for the three prior years, any excess incentive-based compensation (the excess over what would have been paid under the accounting restatement) from executive officers or former executive officers.

In addition, the Compensation Committee implemented a compensation recovery policy that is applicable to our named executive officers. If an accounting restatement is required to correct any material non-compliance with financial reporting requirements under relevant securities laws, Conduent may recover from the executive officer or former executive officer any incentive-based compensation paid to him or her during the three-year period preceding the date on which Conduent is required to prepare the accounting restatement that was in excess of what would have been paid based on the restated results. Conduent may implement any policy or take any action with respect to the recovery of excess incentive-based compensation that Conduent determines to be necessary or advisable in order to comply with the requirements of the Dodd-Frank Act, including the recoupment of shares of Common Stock issued upon the vesting of a long-term incentive award.

CERTAIN TAX IMPLICATIONS OF EXECUTIVE COMPENSATION

Section 162(m) of the Internal Revenue Code generally limits to $1 million per year the federal income tax deduction available to corporations for compensation paid in any fiscal year to the corporation’s named executive officers and certain former named executive officers included in the Summary Compensation Table in the corporation’s proxy statement. Pursuant to Section 162(m), as in effect for 2017, compensation in excess of $1 million per year paid to Conduent’s CEO and three other highest paid executive officers (other than the CFO) was not deductible unless it qualified as “performance-based” compensation. The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, eliminated the exception for “performance-based” compensation with respect to 2018 and future years. As a result, Conduent expects that compensation over $1 million per year paid to any named executive officer, including our CFO (and any person who was a named executive officer for any year beginning with 2017), will be nondeductible under Section 162(m).

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with Conduent management. Based upon its review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and be included in the Proxy Statement for the 2019 Annual Meeting of Shareholders.

Joie A. Gregor, Chair

William Parrett

 

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SUMMARY COMPENSATION TABLE

The Summary Compensation Table below provides compensation information for the Company’s Chief Executive Officer, Chief Financial Officer and three other most highly compensated executive officers who served during the fiscal year ended December 31, 2018 (collectively referred to as named executive officers).

 

Name & Principal Position		Year					Salary ($) (A)					Bonus ($) (B)					Stock Awards ($) (C)					Option Awards ($) (D)					Non-Equity Incentive Plan Compensation ($) (E)					Change in Pension Value and NQDC Earnings ($) (F)					All Other Compensation ($) (G)					Total ($)
Ashok Vemuri, Chief Executive Officer				2018   2017   2016					1,000,000   1,000,000   503,846					-   -   1,750,000					5,239,984   9,614,470   2,500,004					-   -   -					780,000   1,200,000   702,865					-   -   -					46,033   28,588   22,192					7,066,017   11,843,058   5,478,907
Brian Webb-Walsh, Executive Vice President and Chief Financial Officer				2018   2017   2016					450,000   450,000   333,750					100,000   -   -					1,161,384   3,911,486   500,000					-   -   -					210,600   324,000   187,256					-   -   29,004					39,289   119,732   34,753					1,961,273   4,805,218   1,084,763
David Amoriell, President				2018   2017   2016					536,000   536,000   532,869					300,000   -   -					799,992   3,736,470   800,005					-   -					188,136   361,800   359,944					-   -					20,075   11,852   11,663					1,844,203   4,646,122   1,704,481
J. Michael Peffer, Executive Vice President, General Counsel and Secretary				2018   2017					500,000   500,000					-					799,992   3,736,470					-					195,000   337,500					-					31,970   50,647					1,526,962   4,624,617
Jeffrey Friedel, Executive Vice President, Chief People Officer				2018   2017					425,000   407,769					150,000					499,999   3,436,476					-					182,325   243,250					-					10,006   8,620					1,117,330   4,246,115

 

Compensation reported in this table is in U.S. dollars and rounded to the nearest dollar.

 

(A)	Amounts shown represent base salary earned in fiscal year 2018.

 

(B)

Amounts shown for Messrs. Webb-Walsh and Amoriell represent payouts received in January 2018 under the 2016 Separation Retention Program granted by Xerox in 2016 prior to the spin-off. Payouts made to the named executive officers under the 2018 Annual Performance Incentive Plan (2018 APIP) appear as “Non-Equity Incentive Plan Compensation” in column (E).

 

(C)

Included in this column are the aggregate grant date fair values of equity awards made to our named executive officers in fiscal year 2018 as computed in accordance with FASB ASC Topic 718. For additional information, refer to Note 16 in the Company’s audited financial statements for the fiscal year ended December 31, 2018, included in the 2018 Annual Report on Form 10-K filed with the SEC on February 28, 2019. These amounts reflect an estimate of the grant date fair value and may not be equivalent to the actual value recognized by the named executive officer.

Three-year Performance Stock Unit awards under the 2018 LTIP were granted on April 1, 2018. The grant date value of these awards is based on the probable outcome of the performance conditions as of the grant date, or target, as follows: Mr. Vemuri - $2,499,997; Mr. Webb-Walsh - $487,492; Mr. Amoriell - $399,996; Mr. Peffer - $399,996; and Mr. Friedel - $250,000. The grant date fair value of these awards assuming maximum performance achievement is as follows: Mr. Vemuri - $4,999,994; Mr. Webb-Walsh - $974,985; Mr. Amoriell - $799,970; Mr. Peffer - $799,970; and Mr. Friedel - $499,999.

Restricted Stock Unit awards under the 2018 LTIP were granted on April 1, 2018 as follows: Mr. Vemuri - $2,499,997; Mr. Webb-Walsh - $487,492; Mr. Amoriell - $399,996; Mr. Peffer - $399,996; and Mr. Friedel - $250,000.

The Strategic Leadership RSU grants for Mr. Vemuri and Mr. Webb-Walsh were granted on April 1, 2018 as follows: Mr. Vemuri received an award of 12,875 Restricted Stock Units with a grant date fair value of

 

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$239,990, and Mr. Webb-Walsh received an award of 10,000 Restricted Stock Units with a grant date fair value of $186,400.

 

(D)	There were no stock options granted in 2018.

 

(E)	Included in this column are payments to our named executive officers under the 2018 APIP based on 2018 performance.

 

(F)	Conduent does not have a defined benefit pension plan, and no above-market earnings were credited under the Supplemental Savings Plan. The pension information shown for Mr. Webb-Walsh in 2016 reflects his Xerox pension benefits prior to the spin-off.

 

(G)	The table below provides additional data on the amounts included under the “All Other Compensation” column.

 

Name		Year					Life Insurance Premiums Paid by Registrant ($) (1)					Tax Related Reimbursements ($) (2)					401(K)    Match    ($) (3)					Miscellaneous ($) (4)					Total All Other Compensation ($)
Ashok Vemuri		2018 2017 2016					1,242    810    371					- - -					8,250 - -					36,541 27,778 21,821					46,033   28,588   22,192
Brian Webb-Walsh		2018 2017 2016					480    480      80					- 26,553 -					8,250 7,581 9,289					30,559 85,118 25,384					39,289 119,732   34,753
David Amoriell		2018 2017 2016					3,564 3,564 3,564					- - -					8,250 8,264 8,099					8,261        24 -					20,075   11,852   11,663
J. Michael Peffer		2018 2017					2,322 2,322					-   8,125					8,250 8,100					21,398 32,100					31,497   50,647
Jeffrey Friedel		2018 2017					1,035    971					- -					3,433 -					5,538   7,649					10,006     8,620

 

 

(1)	This column includes imputed income for group life insurance for 2018.

 

(2)	There were no tax gross-ups in connection with relocation expenses for our named executive officers in 2018.

 

(3)	This column includes Company matches paid under the Conduent 401(k) Savings Plan.

 

(4)

Amounts in this column for 2018 include financial and tax planning assistance for Mr. Vemuri, Mr. Webb-Walsh, Mr. Amoriell, Mr. Peffer and Mr. Friedel; home security for Mr. Vemuri; executive physicals for Messrs. Vemuri, Peffer and Friedel; identity theft protection for Messrs. Vemuri, Amoriell and Friedel; and corporate club memberships held in the names of Messrs. Vemuri, Walsh and Peffer primarily for business purposes, although personal use is permitted the Company pays the annual dues and other fixed costs associated with club membership, but all costs attributable directly to personal use of the club membership, such as meals and other incidentals, are reimbursed by the executive.

 

38

GRANTS OF PLAN-BASED AWARDS IN 2018

The following table provides additional detail for each of the named executive officers on potential amounts payable under the 2018 APIP and LTIP, as presented in the “Summary Compensation Table.” Threshold, target and maximum award opportunities are provided. No stock options were awarded in fiscal year 2018.

 

Name		Award (A)		Grant       Date       (A)		Approval       Date       (A)		Estimated Future Payout Under Non-Equity Incentive Awards (B)								Estimated Future Payout Under Equity Incentive Awards (C)						All Other    Stock Awards: Number of Shares or Units (#)(D)		Grant Date Fair Value of Stock Awards ($)(E)
								Threshold       ($)		Target    ($)		Maximum    ($)				Threshold    (#)		Target    (#)		Maximum    (#)
Ashok Vemuri								75,000		1,500,000		3,000,000				-		-		-		-		-
		Strategic RSU		4/1/18		3/7/18		-		-		-				-		-		-		12,875		239,990
		LTIP RSU		4/1/18		3/7/18		-		-		-				-		-		-		134,120		2,499,997
		LTIP PSU		4/1/18		3/7/18		-		-		-				33,530		134,120		268,240		-		2,499,997
Brian Webb-Walsh								16,875		337,500		675,000				-		-		-		-		-
		Strategic RSU		4/1/18		3/7/18		-		-		-				-		-		-		10,000		186,400
		LTIP RSU		4/1/18		3/7/18		-		-		-				-		-		-		26,153		487,492
		LTIP PSU		4/1/18		3/7/18		-		-		-				6,538		26,153		52,306		-		487,492
David Amoriell								20,100		402,000		804,000				-		-		-		-		-
		LTIP RSU		4/1/18		3/7/18		-		-		-				-		-		-		21,459		399,996
		LTIP PSU		4/1/18		3/7/18		-		-		-				5,365		21,459		42,918		-		399,996
J. Michael Peffer								18,750		375,000		750,000				-		-		-		-		-
		LTIP RSU		4/1/18		3/7/18		-		-		-				-		-		-		21,459		399,996
		LTIP PSU		4/1/18		3/7/18		-		-		-				5,365		21,459		42,918		-		399,996
Jeffrey Friedel								15,938		318,750		637.500				-		-		-		-		-
		LTIP RSU		4/1/18		3/7/18		-		-		-				-		-		-		13,412		250,000
		LTIP PSU		4/1/18		3/7/18		-		-		-				3,353		13,412		26,824		-		250,000

 

 

(A)

RSU refers to Restricted Stock Units subject to service-based vesting conditions and PSU refers to Performance Stock Units subject to service-based and performance-based vesting conditions. The “Grant Date” is the effective date of the LTIP awards. The “Approval Date” is the date on which the Compensation Committee took action to approve these awards.

 

(B)

These columns reflect the threshold, target and maximum payout opportunities for the performance measures under the 2018 APIP set by the Compensation Committee. The actual APIP payout, which was based on 2018 performance and paid in April 2019, is presented in the “Summary Compensation Table” in column (E). The APIP measures and weightings for 2018 were Adjusted EBITDA (50%), Revenue (40%) and M&A Strategic Goal (10%). Please refer to the section entitled “Short-Term Incentives” in the CD&A for additional information on the 2018 APIP payout opportunity, measures and weightings that applied to each of our named executive officers. The target value reflects payout if target performance was achieved on all performance measures. The maximum value reflects payout if maximum or higher performance was achieved on all performance measures. The threshold value reflects 5% of target based on minimum achievement on the M&A strategic goal with no other performance measures being achieved. See column (E) of the “Summary Compensation Table” for additional information regarding the actual payout of these awards.

 

(C)

The threshold, target and maximum payout opportunities for the 2018 LTIP awards were set by the Compensation Committee. The number of units at target for these awards was determined by dividing the approved values of the respective awards by the closing stock price on the grant date and rounding the number of shares down to the nearest share. The closing stock price on the grant date was $18.64.

Performance Stock Units awarded under the 2018 LTIP are earned by achieving three-year cumulative performance goals between threshold and maximum. The performance measures and weightings for the 2018 LTIP are Adjusted Profit before Tax (50%) and Free Cash Flow as adjusted (50%). The performance period for the 2018 LTIP is January 1, 2018 through December 31, 2020. Performance Stock Units that are earned will vest at the end of the three-year performance period, following Compensation Committee certification of performance results.

 

39