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.           )

 

 

 

 

 

SOUTH STATE CORPORATION

520 Gervais Street

Columbia, South Carolina 29201

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To be held April 20, 2017

TO THE SHAREHOLDERS:

Notice is hereby given that the Annual Meeting of the Shareholders (the “Annual Meeting”) of South State Corporation, a South Carolina corporation (the “Company”), will be held at the Company’s headquarters in the Orangeburg Conference Room on the second floor, 520 Gervais Street, Columbia, South Carolina at 2:00 p.m., on April 20, 2017, for the following purposes:

Only record holders of Common Stock of the Company at the close of business on February 21, 2017, are entitled to notice of and to vote at the Annual Meeting or any adjournment thereof.

You are cordially invited and urged to attend the Annual Meeting in person. Whether or not you plan to attend the Annual Meeting in person, you are requested to promptly vote by telephone, internet, or by mail on the proposals presented, following the instructions on the Proxy Card for whichever voting method you prefer. If you vote by mail, please complete, date, sign, and promptly return the enclosed proxy in the enclosed self-addressed, postage-paid envelope. If you need assistance in completing your proxy, please call the Company at 800-277-2175. If you are a record shareholder, attend the meeting, and desire to revoke your proxy and vote in person, you may do so. In any event, a proxy may be revoked by a record shareholder at any time before it is exercised.

By Order of the Board of Directors

William C. Bochette, III

Secretary

Columbia, South Carolina

March 6, 2017

SOUTH STATE CORPORATION

520 Gervais Street

Columbia, South Carolina 29201

 

PROXY STATEMENT

FOR THE ANNUAL MEETING OF SHAREHOLDERS

to be Held April 20, 2017

This Proxy Statement is furnished to shareholders of South State Corporation, a South Carolina corporation (herein, unless the context otherwise requires, together with its subsidiaries, the “Company”), in connection with the solicitation of proxies by the Company’s Board of Directors for use at the 2017 Annual Meeting of Shareholders to be held at the Company’s headquarters in the Orangeburg Conference Room on the second floor, 520 Gervais Street, Columbia, South Carolina at 2:00 p.m., on April 20, 2017 or any adjournment thereof (the “Annual Meeting”), for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. Directions to the Company’s headquarters may be obtained by contacting Linda Auten at 803-231-5037.

Solicitation of proxies may be made in person or by mail, telephone or other means by directors, officers and regular employees of the Company. The Company may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of the common stock, par value $2.50 per share (the “Common Stock”), of the Company held of record by such persons, and the Company will reimburse the reasonable forwarding expenses. The cost of solicitation of proxies will be paid by the Company. This Proxy Statement was first mailed to shareholders on or about March 9, 2017.

The Company’s principal executive offices are located at 520 Gervais Street, Columbia, South Carolina 29201. The Company’s mailing address is P.O. Box 1030, Columbia, South Carolina 29202, and its telephone number is 800-277-2175.

ANNUAL REPORT

The Annual Report to Shareholders (which includes the Company’s Annual Report on Form 10-K containing, among other things, the Company’s fiscal year ended December 31, 2016 financial statements) accompanies this proxy statement. Such Annual Report to Shareholders does not form any part of the material for the solicitation of proxies.

REVOCATION OF PROXY

Any record shareholder returning the accompanying proxy may revoke such proxy at any time prior to its exercise (a) by giving written notice to the Company of such revocation, (b) by voting in person at the meeting, or (c) by executing and delivering to the Company a later dated proxy. Attendance at the Annual Meeting will not in itself constitute revocation of a proxy. Any written notice or proxy revoking a proxy should be sent to South State Corporation, P.O. Box 1030, Columbia, South Carolina 29202, Attention: William C. Bochette, III. Written notice of revocation or delivery of a later dated proxy will be effective upon receipt thereof by the Company.

QUORUM AND VOTING

The Company’s only voting security is its Common Stock, each share of which entitles the holder thereof to one vote on each matter to come before the Annual Meeting. At the close of business on February 21, 2017 (the “Record Date”), the Company had issued and outstanding 29,230,734 shares of Common Stock, which were held of record by approximately 18,000 persons. Only shareholders of record at the close of business on the Record Date are entitled to notice of and to vote on matters that come before the Annual Meeting. Notwithstanding the Record Date specified above, the Company’s stock transfer books will not be closed and shares of the Common Stock may be transferred subsequent to the Record Date. However, all votes must be cast in the names of holders of record on the Record Date.

The presence in person or by proxy of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. If a share is represented for any purpose at the Annual Meeting by the presence of the registered owner or a person holding a valid proxy for the registered owner, it is deemed to be present for the purposes of establishing a quorum. Therefore, valid proxies which are marked “Abstain” or “Withhold” or as to which no vote is marked, including proxies submitted by brokers who are the record owners of shares but who lack the power to vote such shares (so-called “broker non-votes”), will be included in determining the number of votes present or represented at the Annual Meeting. If a quorum is not present or represented at the Annual Meeting, the shareholders entitled to vote, present in person or represented by proxy, have the power to adjourn the Annual Meeting from time to time until a quorum is present or represented. If any such adjournment is for a period of less than 30 days, no notice, other than an announcement at the Annual Meeting, is required to be given of the adjournment. If the adjournment is for 30 days or more, notice of the adjourned Annual Meeting will be given in accordance with the

Company’s Bylaws. Directors, officers and regular employees of the Company may solicit proxies for the reconvened Annual Meeting in person or by mail, telephone or other means. At any such reconvened Annual Meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the Annual Meeting as originally noticed. Once a quorum has been established, it will not be destroyed by the departure of shares prior to the adjournment of the Annual Meeting.

Provided a quorum is established at the Annual Meeting, directors will be elected by a majority of the votes cast at the Annual Meeting.  Shareholders of the Company do not have cumulative voting rights.

All other matters to be considered and acted upon at the Annual Meeting require that the number of shares of Common Stock voted in favor of the matter exceed the number of shares of Common Stock voted against the matter, provided a quorum has been established. Abstentions, broker non-votes and the failure to return a signed proxy will have no effect on the outcome of such matters.

Brokers are members of the New York Stock Exchange (the “NYSE”) which allows its member-brokers to vote shares held by them for their customers on matters the NYSE determines are routine, even though the brokers have not received voting instructions from their customers. If the NYSE does not consider a matter routine, then your broker is prohibited from voting your shares on the matter unless you have given voting instructions on that matter to your broker.  Because the NYSE does not consider Proposals No. 1, 2, 3 and 4 to be routine matters, it is important that you provide instructions to your bank or broker if your shares are held in street name so that your vote with respect to each of these matters is counted.  If you do not give your bank or broker voting instructions with respect to Proposals No. 1, 2, 3 and 4, your bank or broker may not vote on these matters.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE SHAREHOLDER MEETING TO BE HELD ON April 20, 2017

This Proxy Statement and the Company’s 2016 Annual Report to Shareholders (which includes its 2016 Annual Report on Form 10-K) are available at http://www.envisionreports.com/SSB.

ACTIONS TO BE TAKEN BY THE PROXIES

Each proxy, unless the shareholder otherwise specifies therein, will be voted according to the recommendations of the Board of Directors as follows:

 

In each case where the shareholder has appropriately specified how the proxy is to be voted, it will be voted in accordance with his or her specifications.  As to any other matter of business that may be brought before the Annual Meeting, a vote may be cast pursuant to the accompanying proxy in accordance with the best judgment of the persons voting the same. However, the Board of Directors does not know of any such other business.

SHAREHOLDER PROPOSALS AND COMMUNICATIONS

Any shareholder of the Company desiring to include a proposal pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (the Exchange Act) in the Company’s 2018 proxy statement for action at the 2018 Annual Meeting of Shareholders must deliver the proposal to the executive offices of the Company no later than November 9, 2017, unless the date of the 2017 Annual Meeting of Shareholders is more than 30 days before or after April 21, 2018, in which case the proposal must be received a reasonable time before we begin to print and send our proxy materials.  Only proper proposals that are timely received and in compliance with Rule 14a-8 will be included in the Company’s 2018 proxy statement.

Under our Bylaws, shareholder proposals not intended for inclusion in the Company’s 2018 proxy statement pursuant to Rule 14a-8 but intended to be raised at the 2018 Annual Meeting of Shareholders, including nominations for election of director(s) other than the Board’s nominees, must be received no earlier than 120 days and no later than 90 days prior to the first anniversary of the 2017 Annual Meeting of Shareholders and must comply with the procedural, informational and other requirements outlined in our Bylaws. To be timely for the 2018 Annual Meeting of Shareholders, a shareholder proposal must be delivered to the Secretary of the Company, P.O. Box 1030, Columbia, South Carolina 29202, no earlier than December 21, 2017 and no later than January 20, 2018.

The Company does not have a formal process by which shareholders may communicate with the Board of Directors. Historically, however, the chairman of the Board or the Governance Committee has undertaken responsibility for responding to questions and concerns expressed by shareholders.  In the view of the Board of Directors, this approach has been sufficient to ensure that questions and concerns raised by shareholders are adequately addressed.  Any shareholder desiring to communicate with the Board may do so by writing to the Secretary of the Company at P.O. Box 1030, Columbia, South Carolina 29202.

BENEFICIAL OWNERSHIP OF CERTAIN PARTIES

The following table sets forth the number and percentage of outstanding shares that exceed 5% beneficial ownership (determined in accordance with Rule 13d‑3 under the Securities Exchange Act of 1934) by any single person or group, as known by the Company:

BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth, as of February 21, 2017, the number and percentage of outstanding shares of Common Stock beneficially owned by (i) each director and nominee for director of the Company, (ii) each executive officer named in the Summary Compensation Table, and (iii) all executive officers and directors of the Company as a group. Unless otherwise indicated, the mailing address for each beneficial owner is care of South State Corporation, P.O. Box 1030, Columbia, South Carolina 29202.

 

PROPOSAL NO. 1:  ELECTION OF DIRECTORS

The Articles of Incorporation of the Company provide for a maximum of twenty directors; to be divided into three classes with each director serving a three-year term, with the classes as equal in number as possible. The Board of Directors has currently established the number of directors at fourteen.

Robert R. Hill, Jr., Paula Harper Bethea, Martin B. Davis, Thomas J. Johnson, and Grey B. Murray, all of whom currently are directors of the Company and whose terms expire at the Annual Meeting, have been nominated by the Board of Directors for re-election by the shareholders. If re-elected, Mrs. Bethea and Messrs. Hill and Johnson will serve as directors of the Company for a three-year term, expiring at the 2020 Annual Meeting of Shareholders of the Company.

Martin B. Davis was appointed to the Board of Directors effective May 13, 2016. Under South Carolina law, Mr. Davis’ term expires at the Annual Meeting, and we ask that you re-elect Mr. Davis to our Board of Directors. If re-elected, Mr. Davis will serve as director of the Company for a three-year term, expiring at the 2020 Annual Shareholders Meeting of the Company.

Grey B. Murray was appointed to the Board of Directors effective January 3, 2017. Under South Carolina law, Mr. Murray’s term expires at the Annual Meeting, and we ask that you re-elect Mr. Murray to our Board of Directors. If re-elected, Mr. Murray will serve as director of the Company for a two-year term, expiring at the 2019 Annual Shareholders Meeting of the Company.

Under our current Bylaws, in the event that a director attains age 72 during his or her term of office, he or she shall serve only until the next shareholders’ meeting after his or her 72nd birthday. As a result, M. Oswald Fogle will retire effective as of the Annual Meeting. The Board of Directors has determined not to fill the vacancy caused by Mr. Fogle’s retirement at this time. Therefore, following the Annual Meeting, the Board will be reduced to thirteen directors. Mr. Fogle served as a director of the Company since 2001. The Company appreciates Mr. Fogle’s contribution to the Company during his service as a director.

The Board of Directors unanimously recommends that shareholders vote “FOR” the director nominees.

The table below sets forth for each director his or her name, age, when first elected and current term expiration, business experience for at least the past five years, and the qualifications that led to the conclusion that the individual should serve as a director.

 

 

FAMILY RELATIONSHIPS

There are no family relationships among any of the directors and executive officers of the Company.

THE BOARD OF DIRECTORS AND COMMITTEES

During 2016, the Board of Directors of the Company held eight meetings. All directors attended at least 85% of the aggregate of (a) the total number of meetings of the Board of Directors held during the period for which he or she served as a director, and (b) the total number of meetings held by all committees of the Board of Directors of the Company on which he or she served.

There is no formal policy regarding attendance at annual shareholder meetings; however, such attendance has always been strongly encouraged.  All of the directors attended the 2016 Annual Shareholders Meeting.

The Board of Directors has adopted a Code of Ethics that is applicable to, among other persons, the Company’s chief executive officer, chief financial officer, principal accounting officer and all managers reporting to these individuals who are responsible for accounting and financial reporting. The Code of Ethics is located on the Company’s website at https://www.southstatebank.com/ under Investor Relations. We will disclose any future amendments to, or waivers from, provisions of these ethics policies and standards on our website promptly as practicable, as and to the extent required under NASDAQ Stock Market listing standards and applicable SEC rules.

The Board of Directors of the Company maintains executive, audit, compensation, governance, risk, and wealth management and trust committees. The composition and frequency of meetings for these committees during 2016 were as follows:

The Board of Directors of the Company maintains executive, audit, compensation, governance, and risk committees. The composition for these committees for the year 2017 is as follows:

 

 

Executive Committee—The Board of Directors of the Company may, by resolution adopted by a majority of its members, delegate to the executive committee the power, with certain exceptions, to exercise the authority of the Board of Directors in the management of the affairs and property of the Company. The Executive Committee has the authority to recommend and approve new policies and to review and approve present policies or policy updates and changes.   The Executive Committee charter can be found on the Company’s website at https://www.southstatebank.com/ under Investor Relations.

Audit Committee—The Board of Directors has determined that all members of the Audit Committee are independent directors under the independence requirements of The NASDAQ Stock Market. The Board of Directors has also determined that Kevin P. Walker is an “Audit Committee financial expert” for purposes of the rules and regulations of the SEC adopted pursuant to the Sarbanes‑Oxley Act of 2002. The primary function of the Audit Committee is to assist the Board of Directors of the Company in overseeing (i) the Company’s accounting and financial reporting processes generally, (ii) the audits of the Company’s financial statements and (iii) the Company’s systems of internal controls regarding finance and accounting. In such role, the Audit Committee reviews the qualifications, performance, effectiveness and independence of the Company’s independent accountants and has the authority to appoint, evaluate and, where appropriate, replace the Company’s independent accountants. The Audit Committee also oversees the Company’s internal audit department and consults with management regarding the internal audit process and the effectiveness and reliability of the Company’s internal accounting controls. The Board of Directors has adopted a charter for the Audit Committee, a copy of which is located on the Company’s website at https://www.southstatebank.com/ under Investor Relations.

Compensation Committee—The Board of Directors has determined that all members of the Compensation Committee are independent directors under the independence requirements of The NASDAQ Stock Market applicable to directors who do not serve on the Audit Committee. The Compensation Committee, among other functions, has overall responsibility for evaluating, and approving or recommending to the Board for approval, the director and officer compensation plans, policies and programs of the Company. The full Board of Directors is then responsible for approving or disapproving compensation paid to the CEO and each of the other executive officers of the Company. The committee, which currently consists of five independent directors, is required to be made up of no fewer than three independent directors who are recommended by the Chairman of the Board of Directors and approved by the Board. The Compensation Committee’s processes and procedures for considering and determining executive compensation are described below under “Compensation Discussion and Analysis.” The Compensation Committee charter can be found on the Company’s website at https://www.southstatebank.com/ under Investor Relations.

Governance Committee—The Board of Directors has determined that all members of the Governance Committee are independent directors under the independence requirements of The NASDAQ Stock Market applicable to directors who do not serve on the Audit Committee. The Governance Committee identifies and recommends individuals qualified to become Board members, reviews the corporate governance practices employed by the Company and recommends changes thereto, and assists the Board in its periodic review of the Board’s performance.   The Governance Committee charter can be found on the Company’s website at https://www.southstatebank.com/ under Investor Relations.

The Governance Committee acts as the nominating committee for the purpose of recommending to the Board of Directors nominees for election to the Board. The Governance Committee has not established any specific, minimum qualifications that must be met for a person to be nominated to serve as a director, and the Governance Committee has not identified any specific qualities or skills that it believes are necessary to be nominated as a director. The Governance Committee charter provides that potential candidates for the Board are to be reviewed by the Governance Committee and that candidates are selected based on a number of criteria, including a proposed nominee’s independence, age, skills, occupation, diversity, experience and any other factors beneficial to the Company in the context of the needs of the Board. The Governance Committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director nominee, Governance Committee members consider and discuss diversity, among other factors, with a view toward the needs of the Board of Directors as a whole. The Governance Committee members generally conceptualize diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities or attributes that contribute to Board heterogeneity when identifying and recommending director nominees. The Governance Committee believes that the inclusion of

diversity as one of many factors considered in selecting director nominees is consistent with the Committee’s goal of creating a Board of Directors that best serves the needs of the Company and the interest of its shareholders.

The Governance Committee has performed a review of the experience, qualifications, attributes and skills of the Board’s current membership, including the director nominees for election to the Board of Directors and the other members of the Board, and believes that the current members of the Board, including the director nominees, as a whole possess a variety of complementary skills and characteristics, including the following:

Each individual director has qualifications and skills that the Governance Committee believes, together as a whole, create a strong, well-balanced Board. The experiences and qualifications of our directors are found in the table on pages 6-9.

The Governance Committee will consider director nominees identified by its members, other directors, officers and employees of the Company and other persons, including shareholders of the Company. The Governance Committee will consider nominees for director recommended by a shareholder if the shareholder provides the committee with the information described in Paragraph 7 under the caption “Committee Authority and Responsibilities” of the Governance Committee’s charter.

The required information regarding a director nominee is also discussed in general terms within the first paragraph of the “Shareholder Proposals and Communications” section on page 2 of this proxy statement.

Risk Committee—The Risk Committee of the Board of Directors of the Company provides assistance to the Board of Directors in fulfilling its responsibility to the Company and its shareholders by striving to identify, assess, and monitor key business risks that may impact the Company’s operations and results.  The charter for this committee can be found at https://www.southstatebank.com/ under Investors Relations.

While the Risk Committee oversees and reviews the Company’s risk functions to monitor key business risks, management is ultimately responsible for designing, implementing, and maintaining an effective risk management program to identify, plan for, and respond to the Company’s material risks. The Risk Committee charter acknowledges that the Audit Committee of the Board is primarily responsible for certain risks, including accounting and financial reporting.  Although the Risk Committee does not have primary responsibility for the risks which are subject to the jurisdiction of the Audit Committee, it is anticipated that on occasion certain results from audit functions will be reviewed by the Risk Committee.

Code of Ethics—The Board of Directors of the Company and the Board of Directors of the bank have adopted a Code of Ethics to provide ethical guidelines for the activities of agents, attorneys, directors, officers, and employees of the Company and its subsidiaries.  The Code of Ethics will promote, train, and encourage adherence in business and personal affairs to a high ethical standard and will also help to maintain the Company as an institution that serves the public with honesty, integrity and fair-dealing. The Code of Ethics is designed to comply with the Sarbanes-Oxley Act of 2002, and certain other laws that provide guidelines in connection with possible breaches of fiduciary duty, dishonest efforts to undermine financial institution transactions and the intent to corrupt or reward a Company employee or other Company representative. A copy of the Code of Ethics can be found on the Company’s website at https://www.southstatebank.com/ under Investor Relations.

Board of Directors’ Corporate Governance Guidelines—The Board of Directors of the Company and the Board of Directors of the bank have each adopted certain guidelines governing the qualifications, conduct and operation of the Board. Among other things, these guidelines outline the duties and responsibilities of each director, and establish certain minimum requirements for director training. Each director is required to read, review and sign the corporate governance guidelines on an annual basis. A copy of these guidelines can be found on the Company’s website at https://www.southstatebank.com/ under Investor Relations.

 

Board Leadership Structure and Role in Risk Oversight

We are focused on the Company’s corporate governance practices and value independent Board oversight as an essential component of strong corporate performance to enhance shareholder value. Our commitment to independent oversight is demonstrated by the fact that, except for three directors (our Chief Executive Officer, our Chief Financial Officer and Chief Operating Officer, and our Chairman of the Board) all of our directors are independent. In addition, all of the members of our Board’s Audit, Compensation, Risk and Governance Committees are deemed independent based on a Board evaluation.

See the discussion entitled Certain Relationships and Related Transactions on page 57 for additional information concerning Board independence.

Our Board believes that it is preferable for Mr. Horger to serve as Chairman of the Board because of his strong institutional knowledge of the Company’s business, history, industry, markets, organization and executive management gained in his 20 years of experience in a leadership position on the Board.  We believe it is the Chief Executive Officer’s responsibility to manage the Company and the Chairman’s responsibility to guide the Board as the Board provides leadership to our executive management.  As directors continue to have more oversight responsibility than ever before, we believe it is beneficial to have separate individuals in the role of Chairman and Chief Executive Officer. Traditionally, the Company has maintained the separateness of the roles of the Chairman and the Chief Executive Officer.  In making its decision to continue to have a separate individual as Chairman, the Board considered the time and attention that Mr. Hill is required to devote to managing the day-to-day operations of the Company.  We believe that this Board leadership structure is appropriate in maximizing the effectiveness of Board oversight and in providing perspective to our business that is independent from executive management.

The Board of Directors oversees risk through the various Board standing committees, principally the Audit Committee and the Risk Committee, which report directly to the Board.  Our Audit Committee is primarily responsible for overseeing the Company’s accounting and financial reporting risk management processes on behalf of the full Board of Directors.  The Audit Committee focuses on financial reporting risk and oversight of the internal audit process.  It receives reports from management at least quarterly regarding the Company’s assessment of risks and the adequacy and effectiveness of internal control systems, and also reviews credit and market risk (including liquidity and interest rate risk), and operational risk (including compliance and legal risk).  Our Chief Credit Officer and Chief Financial Officer meet with the Audit Committee on a quarterly basis in executive sessions to discuss any potential risks or control issues involving management.  Our Chief Risk Officer and Director of Risk Management meets with the Risk Committee each quarter to identify, assess, and monitor key business risks that may impact the Company’s operations and results.

Each of the Board’s standing committees, as described above, is involved to varying extents in the following:

The full Board of Directors focuses on the risks that it believes to be the most significant facing the Company and the Company’s general risk management strategy. The full Board of Directors also seeks to ensure that risks undertaken by the Company are consistent with the Board of Directors’ approved risk management strategies. While the Board of Directors oversees the Company’s risk management, management is responsible for the day-to-day risk management processes. We believe this division of responsibility is the most effective approach for addressing the risks facing our Company and that our Board leadership structure supports this approach.

We recognize that different Board leadership structures may be appropriate for companies in different situations. We will continue to reexamine our corporate governance policies and leadership structures on an ongoing basis in an effort to ensure that they continue to meet the Company’s needs.

 

 

PROPOSAL NO. 2: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION

 

The Securities and Exchange Commission rules adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) require the Company to provide shareholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our named executives officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission.

 

As described in greater detail under the heading “Compensation Discussion and Analysis,” the Company seeks to align the interests of our named executive officers with the interests of our shareholders.  The Company's compensation programs are designed to reward our named executive officers for the achievement of strategic and operational goals and the achievement of increased shareholder value, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking.  The Company believes its compensation policies and procedures are competitive, focused on pay for performance principles and strongly aligned with the interest of the Company's shareholders.  The Company also believes that both it and its shareholders benefit from responsive corporate governance policies and constructive and consistent dialogue.  The proposal described below, commonly known as a “Say-on-Pay” proposal, gives you as a shareholder the opportunity to express your views regarding the compensation of the named executive officers by voting to approve or not approve such compensation as described in this Proxy Statement.

 

This vote is advisory, which means that it is not binding on the Company, the Board of Directors or the Compensation Committee.  The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. 

 

The Board of Directors asks our shareholders to vote in favor of the following resolution at the Annual Meeting:

 

“RESOLVED, that the compensation paid to the Company's named executive officers, as disclosed in the Company’s Proxy Statement for the 2017 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and any related material disclosed in the proxy statement, is hereby APPROVED.”

 

The Board of Directors unanimously recommends that shareholders vote FOR the approval of the resolution related to compensation of named executive officers.

 

 

PROPOSAL NO. 3: ADVISORY, NON-BINDING VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

The Securities and Exchange Commission rules adopted under the Dodd-Frank Act require that, at least once every six calendar years, the Company provide shareholders with the opportunity to vote, on a non-binding, advisory basis, for their preference as to how frequently the Company should conduct an advisory Say-on-Pay vote.  Shareholders may indicate whether they would prefer that the Company conduct future Say-on-Pay votes every year, every other year, or every three years.  Shareholders also may abstain from casting a vote on this proposal.

 

The Board of Directors has determined that a Say-on-Pay vote that occurs once every year is the most appropriate alternative for the Company and, therefore, the Board of Directors recommends that you vote in favor of conducting a Say-on-Pay vote every year.  The Board of Directors believes that a Say-on-Pay vote occurring every year allows our shareholders to provide timely input regarding the compensation of the Company’s named executive officers and is consistent with the Company’s efforts to engage in an ongoing dialogue with shareholders on executive compensation and corporate governance matters.

 

This vote is advisory, which means that it is not binding on the Company, the Board of Directors or the Compensation Committee.  The Company recognizes that the shareholders may have different views as to the best approach and looks forward to hearing from the shareholders as to their preferences on the frequency of the Say-on-Pay vote.  The Board of Directors and the Compensation Committee will carefully review the outcome of the frequency vote; however, when considering the frequency of future Say-on-Pay votes, the Board of Directors may decide that it is in the Company's and the shareholders' long-term best interest to hold a Say-on-Pay vote more or less frequently than the frequency receiving the most votes cast by our shareholders.

 

The proxy card provides shareholders with the opportunity to choose among four options (holding the Say-on-Pay vote every year, every other year, or every three years, or abstain from voting).  Shareholders are not being asked to approve or disapprove the recommendation of the Board of Directors.

 

The Board of Directors unanimously recommends that shareholders vote FOR the option of “ANNUALLY” as the preferred frequency for Say-on-Pay votes.

 

 

PROPOSAL NO. 4: TO APPROVE THE 2012 OMNIBUS STOCK AND PERFORMANCE PLAN, AS AMENDED AND RESTATED

 

The Company’s 2012 Omnibus Stock and Performance Plan (the “2012 Plan”) was adopted by the Board of Directors on March 16, 2012 and subsequently approved by the shareholders of the Company on April 24, 2012. We are asking our shareholders to approve the 2012 Plan, as amended and restated, a copy of which is included in this Proxy Statement as Appendix A (the “A&R 2012 Plan”), in order to re-approve the material terms of the performance goals that relate to awards granted under the 2012 Plan that are intended to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and to approve an amendment to the 2012 Plan to include a limit on equity compensation payable under the 2012 Plan to our non-employee directors as described below. Other than the amendment to include a limit on equity compensation payable under the 2012 Plan to our non-employee directors described below under “Limits on Director Compensation,” the terms of the A&R 2012 Plan are identical in all material respects to the terms of the 2012 Plan that shareholders approved on April 24, 2012. We are not asking shareholders to approve an increase in the number of shares available under the 2012 Plan or any change to the 2012 Plan other than to include a limit on equity compensation payable under the 2012 Plan to our non-employee directors. The following discussion should be reviewed along with, and is qualified in its entirety by reference to, the full text of the A&R 2012 Plan.

BACKGROUND FOR THE PROPOSAL

Section 162(m) Re-approval of Performance Goals.  The 2012 Plan is intended to allow awards under the 2012 Plan to qualify as tax-deductible performance-based compensation under Section 162(m) of the Code. Section 162(m) generally places a $1 million annual limit on a company's tax deduction for compensation paid to certain senior executives (sometimes referred to as “covered employees”), other than compensation that satisfies the applicable requirements for a performance-based compensation exception. The Company’s covered employees include its Chief Executive Officer and each of its other three most highly-paid executive officers, other than the Chief Financial Officer. A performance-based award made under the 2012 Plan is eligible for this performance-based compensation exception provided that certain Section 162(m) requirements are met. One of these requirements relates to shareholder approval (and, in certain cases, re-approval) of the material terms of the performance goals underlying the performance-based award.

The performance goals in the 2012 Plan were originally approved by shareholders in 2012. In order for certain performance-based awards that may be made in the future under the 2012 Plan to be eligible for the performance-based compensation exception under Section 162(m), among other things Section 162(m) requires re-approval of those performance goals after five years if the compensation committee has retained discretion to vary the targets under the performance goals from year to year. The Compensation Committee has retained discretion to vary the targets under the performance goals from year to year. Accordingly, the Company is seeking re-approval of the performance goals included in the 2012 Plan in order to preserve the Company’s ability to grant certain awards in the future that qualify as tax-deductible performance-based compensation under Section 162(m).

Limits on Director Compensation.  As described in “Director Compensation” on page 55, our non-employee directors currently receive compensation in the form of equity grants under the 2012 Plan and cash fees. We are asking our shareholders to approve the A&R 2012 Plan which will limit the grant-date fair value of equity grants that can be made to individual non-employee directors under the 2012 Plan to $200,000 per calendar year; provided, however, that the limitation described in this sentence shall be determined without regard to awards granted to a non-employee director in a capacity other than as a non-employee director of the Company. We believe this amendment is appropriate in order to ensure that the equity compensation that our non-employee directors receive is within limits that our shareholders have had an opportunity to review and approve. However, if the A&R 2012 Plan is not approved by shareholders, the proposed limits on director compensation contained in the A&R 2012 Plan will not be effective, but directors would continue to be eligible to receive equity-based compensation under the 2012 Plan or a successor equity compensation plan, as well as cash compensation for their service as directors.

MATERIAL TERMS OF THE PERFORMANCE GOALS

Eligible Participants. The directors, officers, and employees of the Company and its subsidiaries are eligible to receive awards under the 2012 Plan. The Compensation Committee will determine who participates in the 2012 Plan. As of February 21, 2017, there were approximately 22 directors, officers, and employees eligible to participate in the 2012 Plan, with these same individuals holding outstanding awards.

Plan and Individual Award Limits.  The 2012 Plan provides that the aggregate number of shares of the Company’s common stock that may be subject to awards under the 2012 Plan cannot exceed 1,684,000, of which no more than 817,476 shares may be subject to full-value awards (i.e., awards other than stock options and stock appreciation rights (“SARs”)), in each case subject to adjustment in certain circumstances to prevent dilution or enlargement as set forth in Article XI of the 2012 Plan. No participant may be granted, in each case during any calendar year, performance-based awards intended to qualify under Section 162(m) (other than stock options and SARs) covering in excess of 100,000 shares or stock options and SARs covering in excess of 200,000 shares. The maximum number of shares that may be granted pursuant to incentive stock options is 1,684,000. The maximum value of the property that may be paid to a participant pursuant to a performance unit in any year is $2.5 million. In addition, the maximum value of cash awards that may be paid or payable to any participant in any calendar year is $2.5 million. The A&R 2012 Plan also limits the grant-date fair value of equity grants that may be made to individual non-employee directors under the 2012 Plan to $200,000 per calendar year.

Performance Goals.  Under the 2012 Plan, the vesting or payment of performance-based awards will be subject to the satisfaction of certain performance goals. The performance goals applicable to a particular award will be determined by the Compensation Committee at the time of grant. To the extent an award is intended to qualify for the performance-based exemption from the $1 million deduction limit under Section 162(m) of the Code, as described below, the performance goals will be will be based on the attainment of specified levels of one or more of the following measures: stock price, earnings (including earnings before taxes, earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization), prescribed rating, earnings per share, return on equity, return on assets or operating assets, percentage of non-performing assets, asset quality, level of classified assets, net interest margin, loan portfolio growth, efficiency ratio, deposit portfolio growth, liquidity, market share, objective customer service measures or indices, economic value added, shareholder value added, embedded value added, combined ratio, pre- or after-tax income, net income, cash flow (before or after dividends), cash flow per share (before or after dividends), gross margin, risk-based capital, revenues, revenue growth, return on capital (including return on total capital or return on invested capital), cash flow return on investment, cost control, gross profit, operating profit, cash generation, unit volume, sales, asset quality, cost saving levels, market-spending efficiency, core non-interest income or change in working capital, in each case with respect to the Company or any one or more subsidiaries, divisions, business units or business segments thereof, either in absolute terms or relative to the performance of one or more other companies (including an index covering multiple companies).

ADDITIONAL SUMMARY OF DESCRIPTION OF THE 2012 PLAN

General.  Awards granted under the 2012 Plan may be in the form of non-qualified stock options, incentive stock options, SARs, restricted stock, restricted stock units, performance units, cash awards, other stock-based awards or any combination of those awards. The 2012 Plan provides that awards may be made under the 2012 Plan for ten years following the adoption of the 2012 Plan by the Company’s Board of Directors, which occurred on March 16, 2012. The purpose of the 2012 Plan is to help the Company attract and retain directors, officers, and employees, to motivate these persons by means of appropriate incentives to achieve the goals of the Company, and to provide incentive compensation opportunities that are competitive with those of similar companies.

 

Administration.  The 2012 Plan will be administered by the Compensation Committee or such other committee as the Board of Directors may designate (the “committee”). The committee is intended to consist entirely of two or more “outside directors” within the meaning of Section 162(m) and who are “non-employee directors” as defined in Rule 16b-3 under the Securities Exchange Act of 1934 (the “Exchange Act”). The committee can make rules and regulations and establish such procedures for the administration of the 2012 Plan as it deems appropriate. Any determination made by the committee under the 2012 Plan will be made in the sole discretion of the committee and such determinations will be final and binding on all persons.

Available Shares.  The 2012 Plan initially reserved 1,684,000 shares of our common stock for the issuance of awards, of which 1,126,101 shares remained available as of February 21, 2017. Shares underlying awards that expire or are forfeited or terminated without being exercised or awards that are settled for cash will again be available for the grant of additional awards within the limits provided by the 2012 Plan.  Shares withheld by or delivered to the Company to satisfy the exercise price of options or SARs or tax withholding obligations with respect to any award granted under the 2012 Plan will nonetheless be deemed to have been issued under the 2012 Plan.

 

Stock Options.  Subject to the terms and provisions of the 2012 Plan, options to purchase shares of Company common stock may be granted to eligible individuals at any time and from time to time as determined by the committee. An option may be granted with or without a related SAR. Options may be granted as incentive stock options, which are intended to qualify for favorable treatment to the recipient under Federal tax law, or as non-qualified stock options, which do not qualify for this favorable tax treatment. Subject to the limits provided in the 2012 Plan, the committee determines the number of options granted to each recipient. Each option grant will be evidenced by a stock option agreement that specifies the option exercise price, whether the options are intended to be incentive stock options or non-qualified stock options, the duration of the options, the number of shares to which the options pertain, the vesting terms and such additional limitations, terms and conditions as the committee may determine.

 

The committee determines the exercise price for each option granted, except that the option exercise price may not be less than 100 percent of the fair market value of a share of Company common stock on the date of grant. As of February 21, 2017, the fair market value (as that term is defined under the 2012 Plan) of a share of Company common stock was $91.00. All options granted under the 2012 Plan will expire no later than ten years from the date of grant. The methods of exercising an option granted under the 2012 Plan is set forth in the 2012 Plan. Stock options are nontransferable except by will or by the laws of descent and distribution. The granting of an option does not accord the recipient the rights of a shareholder, and such rights accrue only after the exercise of an option and the registration of shares of Company common stock in the recipient’s name.

 

Stock Appreciation Rights.  A SAR will entitle the holder to receive, with respect to each share of Company common stock covered by the SAR, the amount by which the fair market value of one share of Company common stock at the time of exercise exceeds the fair market value of one share of Company common stock on the date of grant. A SAR may be granted with or without a related option. The exercise price of a SAR shall not be less than 100% of the fair market value of a share of Company common stock on the date of grant.

   

Each SAR will be evidenced by an award agreement that specifies the exercise price (or base price), the number of shares to which the SAR pertains and such additional limitations, terms and conditions as the committee may determine. The Company may make payment of the amount to which the participant exercising SARs is entitled by delivering shares of Company common stock, cash or a combination of common stock and cash as set forth in the award agreement relating to the SARs. The method of exercising a SAR granted under the 2012 Plan is set forth in the 2012 Plan. SARs are not transferable except by will or the laws of descent and distribution. Each SAR will be evidenced by an award agreement that specifies the date and terms of the award and such additional limitations, terms and conditions as the committee may determine.

 

Restricted Stock.  The 2012 Plan provides for the award of shares of Company common stock that are subject to forfeiture and restrictions on transferability as set forth in the 2012 Plan and as may be otherwise determined by the committee. Each grant of restricted stock will be evidenced by an award agreement that specifies the number of shares of restricted stock and such additional limitations, terms and conditions as the committee may determine. Except for these restrictions and any others imposed by the committee, upon the grant of restricted stock, the recipient will have rights of a shareholder with respect to the restricted stock, including the right to vote the restricted stock and to receive all dividends and other distributions paid or made with respect to the restricted stock (which dividends relating to restricted stock subject to performance vesting conditions will only vest upon the vesting of the restricted stock relating to such dividends). During the restriction period set by the committee, the recipient may not sell, transfer, pledge, exchange or otherwise encumber the restricted stock.

 

Restricted Stock Units.  The 2012 Plan authorizes the committee to grant restricted stock units and deferred share rights. Restricted stock units and deferred share rights are not shares of Company common stock and do not entitle the recipients to the rights of a shareholder. Each grant of restricted stock units will be evidenced by an award agreement that specifies the number of restricted stock units and such additional limitations, terms and conditions as the committee may determine. Restricted stock units granted under the 2012 Plan may or may not be subject to performance conditions.

The recipient may not sell, transfer, pledge or otherwise encumber restricted stock units granted under the 2012 Plan prior to their vesting. Restricted stock units will be settled in cash or shares of Company common stock, in an amount based on the fair market value of Company common stock on the settlement date.

 

Performance Units.  The 2012 Plan provides for the award of performance units that may be valued by reference to a designated amount of cash, share of Company common stock or other property other than shares of Company common stock. The payment of the value of a performance unit is conditioned upon the achievement of performance goals set by the committee in granting the performance unit and may be paid in cash, shares of Company common stock, other property or a combination thereof. The maximum value of the property that may be paid to a participant pursuant to a performance unit in any year is $2.5 million.

 

Cash Awards.  The 2012 Plan provides for the award of cash awards on such terms and conditions determined by the committee, including, without limitation, performance goals that must be satisfied and the applicable performance period. The maximum value of cash awards that may be paid or payable to any participant in any calendar year is $2.5 million.

 

Other Stock-Based Awards.  The 2012 Plan also provides for the award of shares of Company common stock and other awards that are valued by reference to Company common stock, including unrestricted stock, dividend equivalents and convertible debentures.

 

Change of Control.  Unless otherwise determined by the committee, immediately prior to consummation of a change of control (as defined below), (i) all outstanding options and SARs will become fully vested and exercisable and (ii) all restrictions on any restricted stock, restricted stock units, cash awards or other stock-based awards that are not subject to performance goals will lapse, and these awards will become free of all restrictions and become fully vested and transferable to the full extent of the original grant and (iii) all restrictions on any restricted stock, restricted stock units, cash awards or other stock-based awards that are subject to performance goals will lapse, and these awards will become free of all restrictions and become fully vested and transferable, in each case, to the extent set forth in the applicable award agreement. The committee will, in its sole and absolute discretion, establish such terms and conditions as may be required to permit a participant to exercise an option or SAR that will terminate in connection with a change of control. Under the 2012 Plan, a “change of control” will be deemed to have taken place if:

 

 

 

 

 

Amendment.  The Company’s Board of Directors or the committee may amend, alter, or discontinue the 2012 Plan, but no amendment, alteration or discontinuation will be made that materially impairs the rights of a participant with respect to a previously granted award without such participant's consent, except such an amendment made to comply with applicable law, including without limitation Section 409A of the Code, stock exchange rules, or accounting rules. In addition, no such amendment will be made without the approval of the Company’s shareholders (a) if the amendment would permit the Company to reprice any outstanding options or SARs, (b) to the extent such approval is required (1) by applicable law or the listing standards of the applicable stock exchange as in effect as of the date hereof or (2) under applicable law or the listing standards of the applicable stock exchange as may be required after the date hereof, (c) to the extent such amendment would materially increase the benefits accruing to participants under the 2012 Plan, (d) materially increase the number of securities which may be issued under the 2012 Plan or (e) materially modify the requirements for participation in the 2012 Plan. No amendment will be made if the amendment would disqualify the applicable awards under the 2012 Plan from the exemption provided by Rule 16b-3 of the Exchange Act.

Federal Income Tax Consequences.  The following is a summary of certain federal income tax consequences of awards made under the 2012 Plan based upon the laws in effect on the date hereof. The discussion is general in nature and does not take into account a number of considerations which may apply in light of the circumstances of a particular participant under the 2012 Plan. The income tax consequences under applicable state and local tax laws may not be the same as under federal income tax laws.

 

 

 

 

 

 

 

 

PLAN BENEFITS

 

The Company currently is not able to estimate the number or terms of grants and awards that may be made under the 2012 Plan.  However, the number of options granted by the Company during 2016 under the 2012 Plan and the number of restricted share awards granted by the Company during 2016 under the 2012 Plan are as follows:

In addition, each nominee for director at the Annual Meeting other than Robert R. Horger was granted between 400 to 666 restricted share awards under the 2012 Plan during 2016. No options or restricted share awards were granted during 2016 to any associate of any director, nominee for director or executive officer. Except as shown in the table above, no other person received more than five percent of the total number of options and restricted share awards awarded during 2016.

The following table sets forth information about the Company’s outstanding equity compensation plans as of December 31, 2016:

Included within the 1,273,330 number of securities available for future issuance in the table above are a total of 102,322 shares remaining from the authorized total of 363,825 under the Company’s Employee Stock Purchase Plan.  All securities totals for the outstanding and remaining available for future issuance amounts described in this item have been adjusted to give effect to stock dividends paid on March 23, 2007, January 1, 2005 and December 6, 2002.

certain interests of directors

 

In considering the recommendation of our Board of Directors with respect to the approval of the A&R 2012 Plan, shareholders should be aware that members of our Board of Directors have certain interests, which may present them with conflicts of interest in connection with this proposal. As discussed above, directors are eligible to receive awards under the 2012 Plan. For more information about the compensation we pay to our directors, see “Director Compensation” on page 55. Our Board of Directors recognizes that approval of this proposal may benefit our directors and their successors.

 

The Board of Directors unanimously recommends that you vote “FOR” the approval of the 2012 Omnibus Stock and Performance Plan, as amended and restated, to re-approve the performance goals under the Plan and include a limit on non-employee director equity compensation payable under the Plan.

PROPOSAL NO. 5:  RATIFICATION OF APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

Although the Company is not required to seek shareholder ratification of the selection of its accountants, the Company believes obtaining shareholder ratification is desirable. If the shareholders do not ratify the appointment of Dixon Hughes Goodman LLP, the Audit Committee will re-evaluate the engagement of the Company’s independent auditors. Even if the shareholders do ratify the appointment, the Audit Committee has the discretion to appoint a different independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interest of the Company and its shareholders.

The Board unanimously recommends that shareholders vote FOR the ratification of the appointment of Dixon Hughes Goodman LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017.

If a quorum is present, the number of shares of Common Stock voted in favor of this proposal must exceed the number of shares voted against it for approval of this proposal.

 

 

EXECUTIVE COMPENSATION 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion & Analysis explains our 2016 executive compensation programs and decisions with respect to our executive officers and, in particular, our Named Executive Officers, or which we sometimes refer to herein as our “NEOs”. In this discussion, we explain, among other things, our compensation philosophy and program, factors considered by the Compensation Committee in making compensation decisions and additional details about our compensation program and practices. The following discussion is organized into four parts:

 

 

Part 1 – Executive Summary

 

The Compensation Committee seeks to provide compensation arrangements for the Company’s executive officers that are designed to retain and attract talented executives who can perform at a high level and manage the Company in the shareholders’ best interest. Among other things, these compensation arrangements are intended to align executive compensation with the Company’s performance, both on a short-term basis and a long-term basis. This is accomplished through incentive compensation that is based primarily on the Company’s performance and secondarily on individual contributions. Our Named Executive Officers for 2016 were:

 

   

When setting specific goals and objectives, the Compensation Committee considers the principles of Soundness, Profitability and Growth which are the cornerstone on which our culture is built.

 

We believe these principles have enabled the Company to be well-positioned to take advantage of strategic growth opportunities, deliver outstanding returns to our shareholders, and become the largest bank holding company headquartered in South Carolina.

 

 

The Company believes that key 2016 measures of soundness, profitability and growth include the following:

 

Soundness

 

Profitability

 

 

 

* Adjusted EPS – Diluted and Return on average tangible equity are non-GAAP financial measures.  See page 38 in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 for the non-GAAP to GAAP reconciliation and other relevant information.

 

Growth

 

 

 

 

Returns are shown on a total return basis, assuming the reinvestment of dividends and a beginning stock index value of $100 per share.  The value of the Company’s stock as shown in the graph is based on published prices for transactions in the Company’s stock.

 

Total Return Performance

 

 

Key 2016 Compensation Decisions by the Compensation Committee

The Compensation Committee made the following key compensation decisions during 2016:

 

 

In summary, the Committee concluded that the 2016 performance-based compensation, together with 2016 base salary levels, were well aligned with the Company’s performance and the individual’s contribution for the year. 

 

Part 2 – South State Executive Compensation Process

 

Compensation Philosophy

 

In 2016, the Compensation Committee reviewed and validated its compensation philosophy with the assistance of the Compensation Committee’s independent compensation consultant.  The purpose of the review was to ensure that compensation decisions made by the Compensation Committee and the Board of Directors were consistent with this philosophy. The fundamental philosophy of the Company’s compensation program is to offer competitive compensation opportunities for executive officers that (i) align compensation with the performance of the Company on both a short-term and long-term basis, and (ii) are based on both the Company’s performance and the individual’s contribution. The compensation structure is designed to retain and reward executive officers who are capable of leading the Company in achieving its business objectives. The philosophy is to also consider applicable rules and regulations and current peer group compensation in determining compensation levels.

 

The Compensation Committee considers this philosophy as it develops its incentive plans. Cash incentives for 2016 were designed to reward executives for achieving annual financial and performance goals based on soundness and profitability. The performance objectives of the 2016 annual cash incentive plan reflect this focus.  Equity grants are designed to reward our NEOs for achievement of business objectives that benefit shareholders and support the retention of a talented management team over time.  The Compensation Committee has determined that the 60th percentile (or the 75th percentile for CFO/COO due to his dual role with the Company) for targeted total compensation is appropriate in light of the fact that four of the five NEOs do not participate in supplemental retirement benefit arrangements or certain other special benefits that are prevalent among financial institutions in our peer group.  The Company’s compensation peer group is explained on page 31.

 

Role of the Compensation Committee

 

The Compensation Committee is responsible for the design, implementation and administration of the compensation programs for the executive officers and directors of the Company. The Compensation Committee keeps the full Board of Directors apprised of the decisions and activities of the Compensation Committee.  When appropriate, the Compensation Committee makes recommendations to the Board of Directors on items that require approval by the full Board of Directors. 

 

The Compensation Committee seeks to increase shareholder value by rewarding performance with cost-effective compensation and striving to attract and retain talented executives through adherence to the following compensation objectives:

 

 

 

 

 

 

 

 

The Compensation Committee is comprised of six independent directors and met seven times in 2016. The Compensation Committee is supported in its work by the Director of Human Resources, her staff, and an executive compensation consultant, as described below.

 

The Compensation Committee may receive recommendations from the chairman of the Board of Directors with respect to the CEO’s performance in light of goals and objectives relevant to the compensation of our CEO. The CEO reviews the performance of the other NEOs with the Compensation Committee and makes recommendations to the Compensation Committee about the total compensation of the other NEOs. The CEO does not participate in, and is not present during, deliberations or approvals by the Compensation Committee or the Board of Directors with respect to his own compensation.

 

The Compensation Committee reviews and approves the equity compensation of the NEOs annually. The Compensation Committee makes decisions based on the Company’s philosophy of providing a competitive base salary (relative to the peer group) complemented with significant performance-based incentives. After reviewing all of the compensation arrangements discussed below, along with corporate and individual performance, the Compensation Committee believes that the measurement tools, compensation levels and the design of the Company’s executive compensation program are appropriate and motivate the NEOs to lead the Company in the best interests of its shareholders.

 

The primary goals of the Compensation Committee in 2016 were consistent with its established philosophy.  The Compensation Committee seeks to provide compensation arrangements for executive officers that are designed to retain, attract, and motivate talented executives who can perform at a high level and manage the company in the shareholders’ best interest.  The NEO compensation arrangements are designed to align compensation with the performance of the Company both on a short-term and long-term basis and are based both on the Company’s performance and the individual’s contribution.  The Compensation Committee considered the Company’s financial performance throughout its decision-making process in 2016.

Compensation Consultant

 

During 2016, the Compensation Committee engaged the services of McLagan, an Aon Hewitt compensation consulting company, to provide independent compensation consulting services for both directors and executive management of the Company. McLagan reports directly to the Compensation Committee. The Compensation Committee has the sole authority to hire consultants and set the engagements and the related fees of those consultants.

The following consulting services were provided to the Compensation Committee in 2016:

 

Compensation Committee’s Relationship with its Independent Compensation Consultant

 

The Compensation Committee considered the independence of McLagan in light of applicable SEC rules and NASDAQ listing standards. The Compensation Committee requested and received a report from McLagan addressing the independence of McLagan and its senior advisors. The following factors were considered: (1) services other than compensation consulting provided to us by McLagan; (2) fees paid by us as a percentage of McLagan's total revenue; (3) policies or procedures maintained by McLagan that are designed to prevent a conflict of interest; (4) any business or personal relationships between the senior advisors of McLagan and a member of the Compensation Committee; (5) any stock of the Company owned by the senior advisors of McLagan; and (6) any business or personal relationships between our executive officers and the senior advisors of McLagan. The Compensation Committee discussed these considerations and concluded that the work performed by McLagan and McLagan's senior advisors involved in the engagements did not raise any conflict of interest.

 

Compensation Benchmarking and Compensation Committee Functions

 

Each year, with assistance from McLagan, the Compensation Committee reviews the compensation practices of the Company's peers in order to assess the competitiveness of the compensation arrangements of our NEOs. Although benchmarking is an active tool used to measure compensation structures among peers, it is only one of the tools used by the Compensation Committee to determine total compensation. Benchmarking is used by the Compensation Committee primarily to ascertain competitive total compensation levels (including base salary, equity awards, cash incentives, etc.) with comparable institutions. The Compensation Committee uses this data as a reference point, establishes competitive base salaries, and then addresses pay-for-performance (meritocracy) as discussed further in the sections below on cash incentives and long-term retention. Peer performance, market factors, Company performance and personal performance are all factors that the Compensation Committee considers when establishing total compensation, including incentives.

This practice is in line with the Company's meritocracy philosophy of pay. The Compensation Committee, at its discretion, may determine that it is in the best interest of the Company to negotiate total compensation packages that deviate from regular compensation and incentive levels in order to attract and retain specific talent.

The Compensation Committee reviews the composition of the peer group annually at a minimum and may change it as a result of mergers, changes to banks within the group, or changes within the Company. The 2016 compensation peer group was selected based on certain current market criteria, including the following:

The Compensation Committee reviewed a group of 27 peers with median assets, including pending acquisitions, of $9.7 billion (median actual assets of $9.3 billion), defined as of December 31, 2015. The specific members of this peer group are as follows:

 

When making compensation determinations for the Company’s NEOs, the Compensation Committee focuses on total compensation that is generally competitive with the 60th percentile of the market at target levels of performance and up to the 75th to 80th percentiles for superior performance. In their most recent assessment of our compensation program, McLagan determined that our 2015 NEO compensation was at the 73rd percentile of the peer group due in part to our strong corporate performance in 2015, with individuals ranging from the 70th to 77th percentiles. Our NEOs’ 2016 target compensation was positioned at the 58th percentile of the peer group, with individual positioning ranging from the 38th to 69th percentiles. 

Part 3 – Components of Executive Compensation

 

The following table summarizes the components of compensation paid or awarded to our Named Executive Officers who appear in the “Summary Compensation Table” below.

 

 

The key elements of compensation for the NEOs are base salary, annual and long-term incentives, and benefits, which are discussed below in greater detail.

 

 

 

The 2016 Executive Performance Plan is composed of cash, restricted stock units and stock option components. 

2016 Annual Incentive Plan

 

Cash incentive opportunities as a percentage of salary for each of the applicable NEOs and results under the 2016 Annual Incentive Plan are displayed below:

 

The primary objectives of the 2016 Annual Incentive Plan were to enhance shareholder value by focusing on operating earnings, growth, and soundness. Accordingly, subject to the conditions and limits described below, the Compensation Committee was allowed under the 2016 Annual Incentive Plan to determine the actual cash bonus amounts based on the following performance goals, weighted 25% for soundness and 75% for profitability.

 

●    Soundness: This component was based on achieving the specified asset quality test, which is defined as receiving a regulatory rating for asset quality of at least the previous year's rating or better. We believe it is important to include a measurement of soundness in our annual incentive plan in order to ensure that soundness is not sacrificed at the expense of growth or profitability, and that appropriate focus is placed on continuing to improve credit-related issues.

 

●    Profitability: This measure was based on adjusted earnings per share ("Adjusted EPS"). Since growth in Adjusted EPS is a key component in building shareholder value, this element was weighted at 75% of the total cash incentive opportunity. Emphasis on this performance metric aligns the interests of the executive with those of the shareholder. Adjusted Earnings is a non-GAAP measure which excludes the after-tax effect of gains on acquisitions, OTTI (Other Than Temporarily Impaired Items), and merger and branding-related expense. Ultimately, the Compensation Committee determines the final Adjusted Earnings performance used in calculating incentive results, and exercised its authority to exclude certain revenue or expenses that it deems to be non-recurring. For 2016, the Company's diluted GAAP EPS was $4.18. The calculated Adjusted EPS used in connection with the annual incentive plan was $4.55, which excluded the after-tax impact of $81,000 in securities gains, $2.9 million in FDIC LSA Early Termination expense, and $6.0 million in branch consolidation and acquisition expense.

 

 

The goals and the actual results of the 2016 Executive Incentive Plan are outlined in the table below:

* Asset Quality must receive a regulatory rating equal to or better than the previous year.

The 2016 Annual Incentive Plan was implemented under the 2012 Omnibus Stock and Performance Plan, which allows the Compensation Committee to structure awards to “covered employees” to meet the “qualified performance-based compensation” exception under Section 162(m) of the internal revenue code (the "tax code"). For 2016, the Compensation Committee approved an aggregate incentive pool under the Annual Incentive Plan equal to 15% of pre-tax net income, and set maximum incentive pool allotments for each of the participants. In addition, incentive payments under the 2016 Annual Incentive Plan were limited to the amounts shown in the maximum column in the table above and were subject to the following “minimum performance triggers”: a) net income sufficient to fully cover the cash dividends paid to the Company’s shareholders, and b) a composite regulatory rating equal to or better than the Company’s rating in the previous year. Both of the minimum performance triggers were achieved for 2016. 

2016 Long-Term Incentive Plan 

2016 Long-Term Incentive Plan opportunities as a percentage of salary for each of the NEOs are displayed below:

 

Long-Term Incentive Plan Performance Goals

 

The restricted stock units (RSUs) granted in 2016 vest based on the attainment of the following pre-established performance goals over the three-year period ending December 31, 2018:

 

 

The RSUs will vest based upon the performance on the goals above during the three years ending December 31, 2018. The grants are reported in the “Summary Compensation Table” on page 40 at target level, in accordance with SEC reporting rules.  RSUs are intended to meet the “qualified performance-based compensation” exception from the $1 million deduction limitation of Section 162(m) of the tax code. Vesting of the RSUs is subject to achievement of the minimum "performance triggers" as of December 31, 2018.

 

Individual Performance-Based Goals

 

Under the 2016 Long-Term Incentive Plan, 25% of the value of the equity grants (at target levels) was determined based on non-formulaic individual performance objectives for the stock option component. The individual performance objectives were based on implementation of actions to achieve long-term growth and profitability such as completion and successful integration of acquisitions, improvement in credit practices and

measurements and other practices related to risk management, team building, and leadership development, succession planning and continuing to build upon Company culture.

The Compensation Committee granted Incentive Stock Options in 2017 under the 2016 Long-Term Incentive Plan at the maximum level in recognition of our NEOs’ 2016 individual contributions. Specifically, Mr. Hill received 9,036 stock options, while the other NEOs received between 2,183 and 5,281 stock options in recognition of their 2016 contributions. As required by SEC disclosure rules, the stock options granted in 2017 will be reported in the compensation tables included in our 2018 proxy statement, in spite of the fact that we consider them to be part of our 2016 executive compensation plan.

 

Results of 2014 Long-Term Incentive Plan Which Ended in 2016

 

On January 1, 2014, the Committee granted performance-vesting RSUs to each of our NEOs.  The vesting of 67% of these RSUs was dependent on achieving pre-determined levels of cumulative Adjusted EPS, with the remaining 33% vesting based on cumulative average adjusted ROATE.  Both objectives are measured over the three-year performance period from January 1, 2014 through December 31, 2016.

 

Target performance over the three-year period represented 37.7% growth in cumulative adjusted EPS and 15.66% cumulative average adjusted ROATE.  Actual performance represented 102.9% growth in cumulative adjusted EPS, which was greater than maximum performance under the plan, and cumulative average ROATE was 16.41%, which was above the maximum performance guidelines under the plan.  As a result, all of the RSUs granted as part of the 2014 plan vested at maximum on December 31, 2016.  The RSUs that have been earned and have vested are shown in the Option Exercises and Stock Vested table on page 44.

 

Part 4 – Other Aspects of South State’s Executive Compensation Program

 

Benefits

 

During 2016, the Company maintained various employee benefit plans that constitute a portion of the total compensation package available to the NEOs and all eligible employees of the Company.  These plans consist of the following:

 

Employees’ Pension Plan – The NEOs are participants in a non-contributory defined pension plan which covers substantially all employees of the Company hired before January 1, 2006. Pension benefits are paid based upon age of the employee and years of service with the Company. The Plan was frozen in July 2009, and no further benefits are being accrued.  See the Pension Benefits table and the accompanying footnotes and narrative for more information.

 

Retirement Savings Plan – 401(k) – Each of the NEOs are participants in a defined contribution plan which in 2016 permitted employees to contribute a portion of their compensation, on a tax-deferred basis, up to certain IRS compensation deferral amount limits applicable to a tax-qualified retirement plan. The Company matched 100% up to 6% of participants’ deferrals (4% Safe Harbour, 1% discretionary and an additional 1% discretionary at year-end).  

See the table in footnote 7 of the Summary Compensation Table.

 

Health Care – The NEOs are eligible to receive medical and dental coverage that is provided to all eligible employees.

 

Other Welfare Benefits  – The NEOs receive sick leave, vacation and other benefits available to all eligible employees of the Company.

 

The employee benefits for the NEOs discussed in the subsection above are determined by the same criteria applicable to all Company employees.  These benefits help keep the Company competitive in attracting and retaining employees.  The Company believes that its employee benefits are generally competitive with benefits provided by the Peer Group and consistent with industry standards.

 

Supplemental Executive Retirement Plan – The Company provides a non-qualified supplemental executive retirement plan (a “SERP”) for Mr. Windley, and certain other executives who are not NEOs.

The Company elects to offer this type of incentive as a way to retain executives over the long term and to provide a partial offset to shortfalls in the percentage of income provided for retirement by its qualified retirement plans.

 

Deferred Compensation Plan   We make available to selected members of our senior management group, including all NEOs and/or other selected employees who are highly compensated, the opportunity to elect to defer current compensation for retirement income or other future financial needs.  The plan is a nonqualified deferred compensation plan that is designed to be exempt from certain ERISA requirements as a plan that covers a select group of management and certain other highly compensated employees.  Each year participants can choose to have their compensation for the upcoming year reduced by a certain whole percentage amount ranging between 5% and 80% or by a specific dollar amount (in all cases, subject to a minimum value established by the Company).  In addition, the Company may make matching or partially–matching contributions for participant deferrals.  The Company may also make discretionary contributions for any or all participant(s).   Both of these types of employer contributions would be subject to certain vesting requirements.  There are also forfeiture provisions, which can result from unvested amounts existing at terminations or from materially incorrect earnings that are subsequently adjusted or corrected.  Deferrals may be held by a trustee in a grantor (rabbi) trust and may be invested in funds that mirror deemed investments selected by the participants and offered pursuant to the plan. Such a trust would not isolate assets for the benefit of the participants.  Consequently, distributions made under the plan will be made from the general assets of the bank which could be subject to claims of its creditors.   Amounts deferred under the plan will generally be subject to income taxes payable by the participant in the year in which received (end of the deferral period), but these deferred amounts are subject to employment taxes in the year of deferral.  In 2016, Mr. Hill and Mr. Windley elected to participate.  No employer contributions have been made to this plan in 2016 or in the past.

 

See the discussion entitled Deferred Compensation Plan for additional information.

 

Perquisites – The Company also provides limited perquisites to NEOs that are not available to all employees. Some examples of these include Company-owned automobiles, automobile allowances and club and membership dues. The values of these items are presented in the Summary Compensation Table under the heading All Other Compensation. The value attributable to any personal use of Company-owned automobiles is considered compensation to the executive and represents the aggregate incremental cost to the Company associated with that personal use. The Company and the Board of Directors believe that the use of each of these perquisites is helpful for the proper performance of the NEOs’ duties.

 

Role of Shareholder Say on Pay Vote

 

As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, we held a triennial advisory vote on the compensation of our executive officers (the "Say on Pay Proposal") at our 2014 annual shareholders meeting.  At the 2014 annual shareholders meeting, 83.49% of the votes cast on the Say on Pay proposal were cast in support of the compensation of the Company’s named executive officers. While the 2014 shareholder vote reflected strong support for our executive compensation programs, the Compensation Committee, Board of Directors and executive management has evaluated compensation programs each year to ensure the plans have continued to align the interest of the executives with those of the Company's shareholders and continued to strengthen the linkage of pay to performance.

 

At the Annual Meeting, we are submitting a Say on Pay Proposal and a Say on Frequency Proposal for shareholders to vote on. See Proposal No. 2 for more information on the Say on Pay Proposal and Proposal No. 3 for more information on the Say on Frequency Proposal.

 

Clawback Policy

 

The Compensation Committee is committed to adopting a formal clawback provision for adjustment or recovery of incentive awards or payments in the event the performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment.  The Compensation Committee intends to fully comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding this issue once rulemaking has been completed with respect to these provisions.  Until formal guidance is available, the Compensation Committee will