Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Check the appropriate box:

 

(Name of Person(s) Filing Proxy Statement, if Other Than The Registrant)

 

Dear Fellow Shareholders:

We are pleased to invite you to our Annual Meeting of Shareholders on Tuesday, May 3, 2022 at 8:30 a.m., Central Daylight Time. For the continued protection of the health and safety of our shareholders, employees, and other stakeholders, the Annual Meeting of Shareholders will be held virtually via the Internet through a live, audio-only webcast. Shareholders will be able to participate, listen, vote, and submit questions virtually from any remote location with Internet connectivity. A notice of the meeting and a proxy statement containing information about the matters to be acted upon are attached to this letter.

Your vote is important to us. Whether or not you plan to attend virtually, we encourage you to vote in advance of the Annual Meeting of Shareholders by telephone, by Internet, or by signing, dating and returning your proxy card (or voting instruction form, if you hold shares through a broker or other nominee) by mail. You may also vote virtually during the Annual Meeting of Shareholders by following the instructions included in Arcosa, Inc.’s 2022 Proxy Statement.

Thank you for being a shareholder and for your continued support and interest in Arcosa, Inc.

Best regards,

/s/ Rhys J. Best

Rhys J. Best

Chairman of the Board

 

This summary provides an overview and highlights of the information contained in this Proxy Statement. It does not contain all information you should consider, and you should read the entire Proxy Statement carefully before voting.

 

We achieved healthy financial performance in line with the targets set by the board of directors (the “Board”) and the Human Resources Committee (the “HR Committee”) for 2021. Our financial highlights for 2021 include:

We continued to integrate environmental, social, and governance (“ESG”) into our business in our united efforts to build a better world through our strategic planning, ESG-focused initiatives, and innovative continuous improvement projects. We are proud of achieving the following milestones in our continuous efforts to integrate ESG into our daily practices and long-term strategies.

We continued to enhance diversity at both the Board and leadership levels. 50% of Arcosa's Board (all of which are nominated for election this year) and its senior leaders are now comprised of diverse members.

 

* Reflects racial or gender diversity.

We are committed to strong corporate governance practices, which we believe recognize shareholder interests and support the success of our enterprise. Our corporate governance practices are highlighted below:

We continue to receive strong support from our shareholders on our pay-for-performance philosophy (receiving 98% of votes cast in favor of Arcosa’s compensation program during the 2021 Annual Meeting). We believe weighting a significant portion of our named executive officers’ compensation with performance-based compensation and value creation in the form of stock appreciation aligns with our shareholder’s expectations. With these expectations in mind, the HR Committee designed a compensation package for the CEO that was 83% at risk and for the other named executive officers 65% at risk.

 

We encourage you to read the more fulsome description of our compensation program in “Compensation Discussion and Analysis” beginning on page 21.

The following chart sets forth information regarding our director nominees for election at the 2022 Annual Meeting.

The following matrix highlights the mix of skills, attributes, and experiences of the ten nominees that supported the Governance and Sustainability Committee’s recommendation and the Board’s nomination for election.

 

 

 

 

 

 

 

 

The Governance and Sustainability Committee (the “G&S Committee”) is responsible for recommending qualified candidates to the Board for nomination. The G&S Committee believes that the qualifications for serving as a director of Arcosa are that a nominee (i) demonstrate depth of experience at the policy-making level in business, government, or education; (ii) possess the ability to make a meaningful contribution to the Board’s oversight of the business and affairs of Arcosa and a willingness to exercise independent judgment; and (iii) have an impeccable reputation for honest and ethical conduct in both professional and personal activities. In addition, the G&S Committee examines a candidate’s time availability, the candidate’s ability to make analytical and probing inquiries, and financial independence to ensure he or she will not be financially dependent on director compensation.

The G&S Committee identifies potential nominees by asking, from time to time, current directors and executive officers for their recommendations of persons meeting the criteria described above who might be available to serve on the Board. The G&S Committee may also engage qualified firms that specialize in identifying director candidates. As described above, the G&S Committee will also consider candidates recommended by shareholders.

Once a person has been identified as a potential candidate, the G&S Committee makes an initial determination regarding the need for additional Board members to fill vacancies or expand the size of the Board. If the G&S Committee determines that additional consideration is warranted, the G&S Committee will review such information and conduct interviews as it deems necessary to fully evaluate each director candidate. In addition to the qualifications of a candidate, the G&S Committee will consider such relevant factors as it deems appropriate, including the current composition of the Board, the evaluations of other prospective nominees, and the need for any required expertise on the Board or one of its committees. The G&S Committee considers potential candidates in light of the skills, experience, and attributes (i) possessed by current directors; and (ii) that the Board has identified as important for new directors to possess. The G&S Committee also contemplates multiple dynamics that promote and advance diversity among its members. Although the G&S Committee does not have a formal diversity policy, the G&S Committee considers a number of factors regarding diversity of personal and professional backgrounds (both domestic and international), national origins, specialized skills and acumen, and breadth of experience in industry, manufacturing, financing transactions, and business combinations. The G&S Committee’s evaluation process will not vary based on whether or not a candidate is recommended by a shareholder.

The G&S Committee will consider director candidates recommended by shareholders. In considering candidates submitted by shareholders, the G&S Committee will take into consideration the needs of the Board and the qualifications of the candidate. To have a candidate considered by the G&S Committee, a shareholder must submit the recommendation in writing and must include the following information:

The shareholder recommendation and information described above must be sent to the Corporate Secretary at 500 N. Akard St., Suite 400, Dallas, Texas 75201, and must be received by the Corporate Secretary not less than 120 days prior to the anniversary date of the date that Arcosa’s proxy statement was released in connection with the previous year’s Annual Meeting of Shareholders.

 

Arcosa's business affairs are managed under the direction of the Board in accordance with the General Corporation Law of the State of Delaware, Arcosa’s Restated Certificate of Incorporation, and its Amended and Restated Bylaws. The role of the Board is to oversee the management of Arcosa for the benefit of the shareholders. This responsibility includes monitoring senior management’s conduct of Arcosa’s business operations and affairs; reviewing and approving Arcosa’s financial objectives, strategies, and plans; risk management oversight; evaluating the performance of the Chief Executive Officer and other executive officers; and overseeing Arcosa’s policies and procedures regarding corporate governance, legal compliance, ethical conduct, and maintenance of financial and accounting controls.

The Board has adopted Corporate Governance Principles, which are reviewed annually by the G&S Committee. Arcosa also has a Code of Business Conduct and Ethics, which is applicable to all employees of Arcosa, including the Chief Executive Officer, the Chief Financial Officer, principal accounting officer, and controller, as well as the Board. Arcosa intends to post any amendments to or waivers from its Code of Business Conduct and Ethics on Arcosa’s website at ir.arcosa.com to the extent applicable to an executive officer, principal accounting officer, controller, or a director of Arcosa. The Corporate Governance Principles and the Code of Business Conduct and Ethics are available on Arcosa’s website at ir.arcosa.com under the heading “Corporate Governance — Additional Governance Documents.”

The Board makes all determinations with respect to director independence in accordance with the New York Stock Exchange (“NYSE”) listing standards and the rules and regulations promulgated by the Securities and Exchange Commission (“SEC”). In addition, the Board established certain guidelines to assist it in making any such determinations regarding director independence (the “Independence Guidelines”), which are available on Arcosa’s website at ir.arcosa.com under the heading “Corporate Governance — Additional Governance Documents — Arcosa Categorical Standards of Director Independence.” The Independence Guidelines set forth commercial and charitable relationships that may not rise to the level of material relationships that would impair a director’s independence as set forth in the NYSE listing standards and SEC rules and regulations. The determination of whether such relationships as described in the Independence Guidelines actually impair a director’s independence is made by the Board on a case-by-case basis.

The Board undertook its annual review of director independence and considered transactions and relationships between each director, or any member of his or her immediate family, and Arcosa and its subsidiaries and affiliates. In making its determination, the Board applied the NYSE listing standards and SEC rules and regulations, together with the Independence Guidelines.

The Board considered the disclosure by Julie Piggott that she was the Chief Financial Officer of BNSF prior to her retirement from BNSF in October of 2021. From time to time, Arcosa sells components to BNSF, and BNSF provides transportation services to Arcosa and certain of its subsidiaries. These transactions involved less than two percent (2%)  of the consolidated gross revenues of each of Arcosa and BNSF for each fiscal year since January 1, 2019. For the 2019-2021 period, Arcosa received revenue from BNSF totaling $3,530,717, with $616,953 received in 2021, and paid BNSF a total of $3,997,018, with $304,173 paid in 2021. These transactions were conducted in the ordinary course of business, at arms-length. The Board determined that these limited transactions did not preclude a finding of independence with respect to Ms. Piggott.

As a result of its review, the Board affirmatively determined that the following directors are independent of Arcosa and its management under the standards set forth in the listing standards of the NYSE and the SEC rules and regulations: Joseph Alvarado, Rhys J. Best, David W. Biegler (now retired), Jeffrey A. Craig, Ronald J. Gafford, John W. Lindsay, Douglas L. Rock, Melanie M. Trent, Kimberly S. Lubel and Julie A. Piggott. The Board determined that Antonio Carrillo is not independent because of his employment by Arcosa.

As our independent, non-executive Chairman of the Board, Mr. Best (i) presides over all meetings of the Board and shareholders, (ii) reviews and approves meeting agendas, meeting schedules and other information, as appropriate, (iii) acts as a liaison between the outside directors and management, (iv) consults on shareholder engagement and governance matters, (v) has the right to call special board or shareholder meetings, and (vi) performs such other duties as the Board requires from time to time. The Board believes that this structure allows our Chief Executive Officer to focus on operating and managing Arcosa and leverages our Chairman’s experience in guidance and oversight. While the Board believes that this structure is currently in the best interests of Arcosa and its shareholders, it does not have a policy with respect to separating the Chairman of the Board and the Chief Executive Officer roles and could adjust the structure in the future as it deems appropriate.

Our Audit, G&S, and HR Committees are currently comprised entirely of independent directors. The Board believes that having an independent, non-executive Chairman of the Board and independent committees provides a structure for strong independent oversight of our management.

The G&S Committee and the full Board regularly discuss board succession. Board composition is one of the most critical areas of focus for the Board. Having the right mix of directors who bring diverse perspectives, business and professional experiences, and skills, provides a foundation for robust dialogue, informed advice, and collaboration. The Board considers current Board skills, composition, tenure, and anticipated retirements to identify gaps that may need to be filled through Board succession planning and the Board refreshment process. The Board strives to ensure an environment that encourages diverse critical thinking and values innovative, strategic discussions to achieve a higher level of success for Arcosa.

On September 21, 2021, David Biegler announced his retirement from the Board after a combined 29 years of service with both the boards of Arcosa and the Former Parent. As part of its succession planning, the G&S Committee retained a search firm specializing in board placements to assist in identifying potential candidates meeting the Board’s criteria for membership. After a thorough search and vetting process, Arcosa identified two highly qualified candidates that increased the overall diversity of the Board. On November 1, 2021, Arcosa announced the election of Kimberly Lubel to the Board and her appointment to serve on the HR Committee. Additionally, on December 9, 2021, Arcosa announced the election of Julie Piggott to the Board and her appointment to serve as a financial expert on the Audit Committee.

The directors hold regular and special meetings and spend such time on the affairs of Arcosa as their duties require. The Board of Directors held six meetings and a total of 16 committee meetings in 2021. The Board also meets regularly in non-management executive sessions. In 2021, all directors of Arcosa attended at least 75% of the meetings of the Board and the committees on which they served. Each director also attended the 2021 Annual Meeting of Shareholders, which is required pursuant to Arcosa's Corporate Governance Principles.

The standing committees of the Board are the Audit Committee, G&S Committee, and HR Committee. Each of the committees is governed by a charter, current copies of which are available on Arcosa’s website at ir.arcosa.com under the heading “Corporate Governance — Board Committees & Charters.” Mr. Carrillo, Chief Executive Officer and President (“CEO”) of Arcosa, and Mr. Best, our non-executive Chairman of the Board, do not serve on any Board committees. Director membership of the committees and the number of committee meetings held in 2021 are identified below.

The Audit Committee’s function is to oversee, on behalf of the Board, (i) the integrity of Arcosa’s financial statements and related disclosures; (ii) Arcosa’s compliance with legal and regulatory requirements; (iii) the qualifications, independence, and performance of Arcosa’s independent auditing firm; (iv) the performance of Arcosa’s internal audit function; (v) Arcosa’s internal accounting and disclosure control systems and practices; (vi) Arcosa’s procedures for monitoring compliance with its Code of Business Conduct and Ethics; and (vii) Arcosa’s policies and procedures with respect to risk assessment, management, and mitigation. In carrying out its function, the Audit Committee (a) reviews with management, our Vice President of Audit, and the independent auditors, Arcosa’s financial statements, the accounting principles applied in their preparation, the scope of the audit, any comments made by the independent auditors upon the financial condition of Arcosa and its accounting controls and procedures; (b) reviews with management its processes and policies related to risk assessment, management, and mitigation, compliance with corporate policies, compliance programs, internal controls, and summaries of management’s travel and entertainment reports; and (c) performs such other matters as the Audit Committee deems appropriate.

The Audit Committee also pre-approves all auditing and all allowable non-audit services provided to Arcosa by the independent auditors. The Audit Committee selects and retains the independent auditors for Arcosa and approves audit fees. The Board of Directors has determined that all members of the Audit Committee are “independent” as defined by the rules of the SEC and the listing standards of the NYSE. The Board has determined that Mr. Rock, Chair of the Audit Committee, Ms. Piggott and Mr. Craig are each qualified as an audit committee financial expert within the meaning of SEC regulations.

The G&S Committee has oversight responsibilities with respect to Arcosa’s governance and ESG activities and initiatives. The functions of the G&S Committee are to (i) identify and recommend to the Board individuals qualified to be nominated for election to the Board; (ii) review the qualifications of the members of each committee (including the independence of directors) to ensure that each committee’s membership meets applicable criteria established by the SEC and NYSE; (iii) recommend to the Board the members and chairperson for each Board committee; (iv) periodically review and assess Arcosa’s Corporate Governance Principles and Arcosa’s Code of Business Conduct and Ethics and make recommendations for changes thereto to the Board; (v) periodically review Arcosa’s orientation program for new directors and Arcosa’s practices for continuing education of existing directors; (vi) annually review director compensation and benefits and make recommendations to the Board regarding director compensation and benefits; (vii) review, approve, and ratify all transactions with related persons that are required to be disclosed under the rules of the SEC; (viii) annually conduct an individual director performance review of each incumbent director; oversee the annual self-evaluation of the performance of the Board and its committees; and (ix) review and assess Arcosa’s activities and practices regarding sustainability and ESG matters that are significant to Arcosa. Each of the members of the G&S Committee is an independent director under the NYSE listing standards. In performing its annual review of director compensation, the G&S Committee may utilize independent compensation consultants from time to time to assist in making its recommendations to the Board.

The HR Committee makes recommendations to the independent members of the Board in its responsibilities relating to the competitive compensation of Arcosa’s CEO. The HR Committee has been delegated authority by the Board to make compensation decisions with respect to the other named executive officers identified in this Proxy Statement. Each of the members of the HR Committee is an independent director under the NYSE listing standards, including those standards applicable specifically to members of compensation committees.

The HR Committee reviews management succession planning and approves awards under Arcosa’s incentive compensation and equity-based plans. The HR Committee annually evaluates the leadership and performance of Arcosa’s CEO and recommends his compensation to Arcosa’s independent directors. The independent directors are responsible for approving the CEO’s compensation. The CEO provides to the HR Committee his assessment of the performance of the other named executive officers. The HR Committee also has direct access to Arcosa’s key leaders. The HR Committee reviews and approves compensation for the Chief Financial Officer (the “CFO”) and the other named executive officers.

In 2021, the HR Committee retained Pay Governance LLC (the “Compensation Consultant”) to provide a variety of executive compensation consultant services as an independent compensation consultant. The services provided by the Compensation Consultant in 2021 included: (i) review and assist in the design of Arcosa’s executive compensation programs, (ii) provide insight into executive compensation practices used by other companies, (iii) benchmark Arcosa’s executive compensation pay levels with relevant peer survey data, (iv) provide proxy disclosure information for comparator companies, and (v) provide input to the HR Committee on the risk assessment, structure, and overall competitiveness of Arcosa’s executive compensation programs.

The Compensation Consultant’s ownership structure, limited service lines, and policies and procedures are designed to ensure that such Compensation Consultant’s work for the HR Committee does not raise any conflicts of interest. The amount of fees paid in 2021 to the Compensation Consultant by Arcosa represented less than one percent (1%)  of such Compensation Consultant’s total annual revenues for 2021. The internal policies of the Compensation Consultant prohibit its members, partners, consultants, and employees from engaging in conduct that could give rise to conflicts of interest and from acquiring securities in their client organizations. The employees of the Compensation Consultant providing consulting services to the HR Committee have no other business or personal relationship with any member of the HR Committee or any executive officer of Arcosa. After a review of these factors and the

considerations outlined in applicable SEC and NYSE rules, the HR Committee has concluded that the work of the Compensation Consultant has not raised any conflicts of interest and that the Compensation Consultant is independent from Arcosa and from management.

The CEO, the CFO, and Chief Human Resources Officer work with the HR Committee and the Compensation Consultant to develop the framework and to design the plans for all compensation components. The CEO and CFO recommend the financial performance measurements for the annual incentive awards and the long-term performance-based equity awards, subject to HR Committee approval. The CFO certifies the achievement of these financial performance measures. The HR Committee recommends the CEO's compensation to the independent directors for their approval. The CEO makes recommendations to the HR Committee on compensation for each of the other named executive officers.

Throughout the year, the CEO provides the HR Committee with his ongoing assessment of the performance of the other named executive officers. These assessments provide background information for any adjustment to base salary, annual incentives, or long-term incentives. Both annual incentives and long-term incentives are established with threshold, target, and maximum payout levels.

The HR Committee realizes that benchmarking and comparing peer group proxy disclosure data require certain levels of interpretation due to the complexities associated with executive compensation plans. The HR Committee uses the benchmarking information and the peer group proxy disclosure data provided by the Compensation Consultant as general guidelines and makes adjustments to compensation levels based on what the HR Committee believes is in the best interests of Arcosa’s shareholders. The HR Committee uses its judgment and bases its consideration of each executive’s compensation on performance in respect to the value of the executive’s contributions to Arcosa, the executive’s tenure, and peer survey data that establishes the ranges against which compensation is benchmarked.

Messrs. Biegler (before his retirement), Alvarado, and Lindsay and Ms. Lubel served on the HR Committee during the last completed fiscal year. None of the members of the HR Committee had ever served as an executive officer or employee of Arcosa or any of its subsidiaries. There were no compensation committee interlocks during 2021.

While management is responsible for the day-to-day management and mitigation of risk, our Board has ultimate responsibility for risk oversight. Management reviews and discusses risks with the Board as part of the business and operating review conducted at each of the regular meetings of the Board. While the Board has primary responsibility for overseeing Arcosa’s risk management, each committee of the Board also considers risk within its area of responsibility. Each committee regularly reports back to the Board on its risk oversight activities.

The Audit Committee assesses major financial risk exposures and steps taken by management to address the same, is responsible for the review and assessment of information technology and cybersecurity risk exposures and the steps taken to monitor and control those exposures, and reviews risks identified during the internal and external auditors’ risk assessment procedures. The HR Committee reviews risks arising from our executive compensation programs and management succession planning. The G&S Committee oversees risks related to our governance structure and director compensation programs.

The Compensation Consultant performed a risk assessment with respect to our 2021 incentive compensation plans applicable to our executive officers. Based on this review, the Compensation Consultant concluded that Arcosa's executive incentive programs do not encourage excessive risk-taking behaviors. Arcosa also conducted a detailed risk assessment of our 2021 compensation policies and practices (the “Compensation Policies”) for our employees, including our executive officers, and assessed the likelihood and potential impact of the risk presented by the Compensation Policies. Participants in the risk assessment included Arcosa’s management, human resources group, internal audit group, and the HR Committee. Based on this review, management has concluded that sufficient controls exist to mitigate the risks related to the Compensation Policies.

The Board has established a process to receive communications by mail from shareholders and other interested parties. Shareholders and other interested parties may contact any member of the Board or the non-management directors as a group, any Board committee, or any chair of any such committee. All such correspondence should be sent to the Corporate Secretary of Arcosa at 500 N. Akard St., Suite 400, Dallas, Texas 75201.

All communications received as set forth in the preceding paragraph will be opened by the office of the Corporate Secretary for the sole purpose of determining whether the contents represent a message to directors. Any contents that are not in the nature of advertising, promotions of a product or service, or offensive material will be forwarded promptly to the addressee. In the case of communications to the Board or any group or committee of directors, the Corporate Secretary will make sufficient copies of the contents to send to each director, group, or committee to which the envelope is addressed.

Arcosa has adopted a policy prohibiting pledging and hedging. The policy prohibits officers, directors, and employees of Arcosa and their respective related persons from (i) selling Arcosa securities short, (ii) pledging or hypothecating any Arcosa securities (e.g. using Arcosa securities for margin loans or to collateralize other indebtedness), or (iii) engaging in derivative transactions, including without limitation hedging, puts and calls, or other transactions involving Arcosa securities.

The G&S Committee has adopted a Policy and Procedures for the Review, Approval, and Ratification of Related Person Transactions. In accordance with the written policy, the G&S Committee, or the chair of such committee, as applicable, is responsible for the review, approval, and ratification of all transactions with related persons that are required to be disclosed under the rules of the SEC. Under the policy, a related person includes any of Arcosa’s directors, executive officers, certain shareholders, and any of their respective immediate family members. The policy applies to “Related Person Transactions,” which are transactions in which Arcosa participates, a related person has a direct or indirect material interest, and the amount exceeds $120,000. Under the policy, the Chief Legal Officer (the “CLO”) will review potential transactions and, in consultation with the CEO and CFO, will assess whether the proposed transaction would be a Related Person Transaction. If the CLO determines the proposed transaction would be a Related Person Transaction, the proposed transaction is submitted to the G&S Committee, or the chair of such committee, as applicable, for review and consideration. In reviewing Related Person Transactions, the G&S Committee, or the chair of such committee, as applicable, shall consider all relevant facts and circumstances available, including, but not limited to the following:

After reviewing such information, the G&S Committee, or its chair, as applicable, may approve the Related Person Transaction if the G&S Committee or the G&S Committee chair concludes in good faith that the Related Person Transaction is in, or is not inconsistent with, the best interests of Arcosa and its shareholders.

Under the policy, the HR Committee must approve hiring of immediate family members of executive officers or directors and any subsequent material changes in employment or compensation. In 2021, Arcosa did not enter into any Related Person Transaction of the type required to be disclosed under Item 404 of Regulation S-K under the Exchange Act.

This Compensation Discussion and Analysis (“CD&A”) describes Arcosa’s executive compensation philosophy and pay programs in 2021.

Our executive compensation program reflects our pay-for-performance philosophy. The HR Committee utilizes a combination of fixed and variable pay elements in order to achieve the following objectives:

For 2021, the named executive officers (“Named Executive Officers”) of Arcosa and their titles were:

Payouts to the Named Executive Officers and other key executives under our 2021 Annual Incentive Program (“AIP”) reinforced our strong pay-for-performance philosophy. In designing the AIP for 2021, the HR Committee approved performance metrics that were in furtherance of our goals and in line with our 2021 earnings guidance. The HR Committee linked a significant portion of each of the Named Executive Officer’s AIP awards to the performance of the business, both at the enterprise level and the group level of businesses, as applicable.

In 2021, the HR Committee approved the following Corporate and Group President AIP plans, which Group President Plans were comprised of the business units reporting to the Group Presidents:

Updates for these plans included:

With these updates, the HR Committee approved the 2021 AIP with the following performance metrics and weighting:

In 2021, our highest priority continued to be the health and safety of our employees and communities as we faced the COVID-19 pandemic. We continued our safety and health protocols while operating as an essential business that supports critical infrastructure sectors. We remain proud of our employees' performance and resilience in facing the continued challenges from the COVID-19 pandemic.

We achieved healthy financial performance in line with the targets set by the Board and the HR Committee for 2021. Our $283.3 million in Enterprise Adjusted EBITDA was fueled by our continued efforts to transform our portfolio, including 30% growth in Adjusted Segment EBITDA year-over-year in Construction Products.

 

In addition to our 2021 financial performance, we continued to execute on the four strategic pillars of our long-term vision.

 

Highlights for our execution of these strategies, which the HR Committee considered in connection with the evaluation of the execution of the strategic initiatives component in the payout of the 2021 AIP, include:

The HR Committee did not make any adjustments to its pay for performance philosophy to compensate or offset for any continued impacts of the COVID-19 pandemic.

2021 compensation will be subject of the advisory, non-binding say-on-pay vote at the 2022 Annual Meeting. The HR Committee considered our 2020 say-on-pay vote (98% voting in favor at the 2021 Annual Meeting) as a sign of our shareholders’ support of Arcosa’s executive compensation philosophy and plans. The Board and the HR Committee value the benefits of maintaining a dialogue with Arcosa’s shareholders and understanding their views. The HR Committee will consider the outcome of future say-on-pay votes as it evaluates the design of the executive compensation programs and the related specific compensation decisions.

We have adopted the following compensation practices, which are intended to promote strong governance and alignment with shareholder interests:

The HR Committee, in consultation with management and its Compensation Consultant, oversees our executive compensation philosophy and reviews and approves compensation for our Named Executive Officers and other key executives, with the exception of the CEO. The independent directors of the Board approve the CEO’s compensation following a review and recommendation by the HR Committee.

The HR Committee retained the Compensation Consultant who provides guidance on executive compensation-related matters and who performs an annual total compensation study. The Compensation Consultant provides compensation benchmarking information (the “Peer Survey Data”) for our Named Executive Officers and other key executives from peer group companies (the “Peer Group”). After evaluating the Peer Survey Data, our CEO discusses with the HR Committee his evaluation of each Named Executive Officer and other key executives, excluding himself. The Compensation Consultant’s analyses, along with the CEO’s compensation recommendations for each Named Executive Officer and other key executives, are presented to the HR Committee for consideration and approval in determining Named Executive Officer and other key executive compensation. The HR Committee, following a review and in consultation with the Compensation Consultant, recommends the CEO’s compensation to the independent directors of the Board for their approval.

The HR Committee generally targets the total target compensation of the Named Executive Officers and other key executives within a competitive range around the median of the Peer Survey Data. The HR Committee considers the targeted range and develops a total target compensation amount for each Named Executive Officer and other key executives using the objectives described above and the Peer Survey Data as general guidelines. The HR Committee considers additional internal and external factors when making individual compensation decisions, including overall experience and future potential, individual performance, internal reporting structure, internal equity, and our overall pay objectives. This approach supports our philosophy of driving performance and accountability.

Arcosa engaged the Compensation Consultant to assist in designing Arcosa’s executive compensation program, including review of Arcosa's compensation benchmarking Peer Group. In September 2020, the HR Committee, with the assistance of the Compensation Consultant, reviewed Arcosa’s Peer Group for use in benchmarking 2021 compensation. The Compensation Consultant used regression analysis to provide size-adjusted market data for a company of our revenue size to the HR Committee. The Peer Group was developed based on the following attributes:

 

Based on these attributes, in September 2020, the HR Committee with the advice of the Compensation Consultant approved the following Peer Group of 27 companies (with such companies having a median revenue of $1.6 Billion):

The Peer Survey Data includes data from each company named in the Peer Group for base salary, target annual and long-term incentive compensation, and total target compensation obtained from the Aon Hewitt Total Compensation Measurement Survey as well as public filings.

In December 2020, the HR Committee reviewed benchmarking analysis for each Named Executive Officer and other key executives based on the Peer Survey Data in developing 2021 total compensation consisting of base salaries, annual incentive compensation, and long-term incentive compensation. As a point of reference, when available for the Named Executive Officers, the Compensation Consultant also provided the HR Committee with the most recently available proxy disclosure data for the 2021 Peer Group.

In 2021, the three primary components of an executive's total target direct compensation were base salary, annual incentive compensation, and long-term incentive compensation, each as described below:

 

Consistent with our pay-for-performance philosophy, a significant portion of an executive’s total compensation opportunity (including that of each of the Named Executive Officers) is weighted toward performance-based pay and components we believe align with the interests of shareholders. Our annual incentive awards and the performance-based restricted stock unit component of the LTI award opportunities are considered performance-based pay because the payout of these awards is dependent on the achievement of specified performance goals. The time-based restricted stock unit awards are retentive while also aligning with Arcosa’s performance as the final value realized is based on Arcosa’s share price.

For our CEO and our other Named Executive Officers, on average, the charts below show the percentage of 2021 target total direct compensation allocated to each compensation element as well as the amount of target compensation that is at risk. We consider compensation to be at risk if the award or vesting is subject to achievement of performance goals and/or the value received is dependent on our stock price.

 

The following table depicts 2021 target total compensation opportunities for the Named Executive Officers based on their target compensation in effect at December 31, 2021:

Individual base salaries and incentive targets for the Named Executive Officers and other key executives are established based on the breadth, complexity, and scope of each Named Executive Officer’s responsibilities, individual prior performance, experience, internal equity considerations, and market pay data.

In December 2020, the HR Committee, working with management and the Compensation Consultant, reviewed market compensation data, including the Peer Survey Data, to determine 2021 compensation for each of the Named Executive Officers and other key executives. The components of total target compensation for 2021 set forth below reflect Arcosa's pay-for-performance philosophy.

The HR Committee establishes base salaries to attract, motivate and retain key executives by providing a consistent level of pay that appropriately compensates the executive for the breadth, complexity, and scope of responsibility inherent in the position.

The HR Committee reviewed and adjusted the salaries of the Named Executive Officers for 2021 after consideration of the median of the Peer Group for their respective positions, performance, previous salary changes, experience, and other factors.

The following chart reflects the adjustments made to each Named Executive Officer’s base salary for 2021:

In June 2021, the HR Committee adjusted the base salary of Mr. Essl from $418,000 to $463,500 to align his salary with the growth of the Construction Products businesses and the resulting increase in Adjusted EBITDA for the businesses over the two-year period of growth. Additionally, Ms. Peck’s salary was adjusted in June 2021 to reflect her promotion to Chief Financial Officer. Ms. Peck’s and Mr. Essl's salary adjustments were not retroactive and went into effect on June 7, 2021.

The HR Committee selects performance metrics, performance goals, and other elements of annual incentive compensation with the objective of placing management’s focus on appropriate operational and financial objectives and consistent with Arcosa's annual operating plan. The HR Committee believes that there should be clear accountability for the performance of one’s business group. As a result, under our AIP, the group president Named Executive Officers are compensated primarily upon the results of their respective group of businesses, whereas the

corporate Named Executive Officers are compensated primarily upon the results of the enterprise. At the same time, the HR Committee recognized the importance of creating and fostering a cohesive overall company focus and introduced the enterprise performance metric to the Group President Plans.

Under our AIP, the HR Committee may choose to, among other things, (i) modify or discontinue annual incentive compensation at any time; (ii) increase or decrease a Named Executive Officer’s annual incentive compensation on a discretionary basis; and (iii) recoup all or any portion of annual incentive compensation under circumstances where Arcosa restates its financial statements. The HR Committee may remove any unusual or infrequently occurring or non-recurring items of income or expense from the calculation of financial goal attainment and incentive compensation.

The HR Committee approved the following financial metrics and performance targets for 2021 annual incentive compensation for each of the Named Executive Officers to incentivize performance:

2021 Payouts are calculated from the actual performance of Arcosa, both at the enterprise level and at the Group level, with respect to measurement of the Adjusted EBITDA. In determining the Execution of Strategic Initiatives metric, the HR Committee considered the holistic evaluation of management in the overall performance of the enterprise with respect to the execution of Arcosa’s goals of (i) progressing ESG initiatives, including safety, (ii) advancing growth initiatives, including acquisitions and product development, and (iii) maintaining focus on Arcosa's cash culture with attention to working capital.

The HR Committee approved the following 2021 target annual incentive opportunities for each Named Executive Officer based on such officer’s position. These target opportunities are set forth in the table below:

The following sets forth the financial metrics and actual results that the HR Committee approved for Messrs. Carrillo, Beasley, and Stevenson and Ms. Peck for 2021, whose performances were evaluated at an enterprise level:

The following sets forth the financial metrics and actual results that the HR Committee approved for Mr. Cole for 2021, whose performance was evaluated primarily based on the performance of the Utility Structures, Traffic and Telecom Structures, Marine Products, and Storage Tanks businesses:

The following sets forth the financial metrics and actual results that the HR Committee approved for Mr. Collins for 2021, whose performance was evaluated primarily based on the performance of the Steel Components, Wind Towers, and Shoring Products businesses:

The following sets forth the financial metrics and actual results that the HR Committee approved for Mr. Essl for 2021, whose performance was evaluated primarily based on the performance of the Natural Aggregates, Recycled Aggregates, and Specialty Materials businesses:

For the Adjusted EBITDA component, performance at the target level resulted in 100% payout of the target award at the respective metric weighted percentage, performance below the minimum threshold resulted in no payout, and performance above the maximum level was capped at a maximum total payout of 200% of the target award at the respective metric weighted percentage. The amount of incentive compensation earned with respect to these components was linearly interpolated for performance falling between the specified performance levels. With respect to the Execution of Strategic Initiatives component, performance was evaluated holistically at the enterprise level at the discretion of the HR Committee. For the Execution of Strategic Initiatives component, performance at the target level resulted in 100% payout of the target award at the metric weighted percentage, and performance above the maximum level was capped at a maximum total payout of 150% of the target award at the metric weighted percentage. When combining each of the components of the AIP, actual payouts for 2021 can range from 0%-190% of the target.

In February 2022, the HR Committee evaluated Arcosa’s performance and certified 2021 actual results in accordance with the predefined performance metrics and targets under the AIP. With respect to the Execution of Strategic Initiatives, management recommended and the HR Committee approved a payout of 100% as a result of, among other considerations, (i) the successful closing and integration of the StonePoint Materials and Southwest Rock Products acquisitions, (ii) the closing of Arcosa's inaugural bond offering, (iii) advancement in safety programs enterprise-wide, and (iv) furtherance of Arcosa’s ESG initiatives, including the publishing of the 2020 Sustainability Report. Based on Arcosa's actual performance and the review of strategic initiatives, the HR Committee approved the following 2021 award payouts for the Named Executive Officers:

LTI compensation opportunities are a key part of the total target compensation for our Named Executive Officers. The LTI program key objectives are to:

For 2021, the HR Committee awarded the Named Executive Officers LTI compensation opportunity, consisting of 60% performance-based restricted stock units for the performance period January 1, 2021 through December 31, 2023 and 40% time-based restricted stock units. The detail of 2021 LTI award opportunity follows.

Time-Based Restricted Stock Units. 40% of the target 2021 LTI grant opportunity was made in the form of time-based restricted stock units to promote long-term executive retention and alignment with shareholders. The time-based restricted stock units vest 33¹∕3% on each of May 15, 2022, 2023, and 2024 if the Named Executive Officer remains continuously employed by Arcosa through such date. All time-based restricted stock unit awards are non-voting and provide for dividend equivalent units payable in cash, which will vest on the same schedule as the corresponding time-based restricted stock unit awards.

Performance-Based Restricted Stock Units. The remaining 60% of each Named Executive Officer’s target 2021 LTI grant opportunity is made in the form of performance-based restricted stock units, which will not vest unless the performance metric is met. This program is designed to (i) increase the visibility of the long-term incentive performance goals for the program’s participants, (ii) align their efforts toward achieving these goals, and (iii) reinforce pay for performance philosophy through settlement of awards following the end of the relevant performance period. These units are non-voting and do not receive dividends or dividend equivalents during the performance period. The HR Committee approves performance targets and payout ranges at the beginning of the 3-year performance period. Arcosa's actual performance during the performance period determines the number of performance-based restricted stock units that will be ultimately earned following the end of the performance period. After the HR Committee certifies the actual results of the performance period, the earned performance-based restricted stock units are settled in shares of Common Stock upon the vesting date.

For the 2021-2023 performance period, the HR Committee approved the following company-wide performance metrics and weighting for the performance-based restricted stock units to incentivize long-term growth of shareholder value:

The awards will settle in May 2024 following determination of results of the 2021-2023 performance period. Each Named Executive Officer may receive from 0% to 200% of the target performance-based restricted stock unit award based on actual performance against the target levels set by the HR Committee. The Named Executive Officers will earn 0% of the target if the threshold performance level is not achieved. For performance falling between the specified levels, the amount of performance-based restricted stock units earned will be interpolated accordingly between the specified performance levels.

The 2021 target LTI award opportunity for each Named Executive Officer was set as a specified target dollar value as set forth below: