2018 Guide to Effective Proxies

2.17.2 Executive summary | 277 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES W. R. BERKLEY COMPENSATIONDISCUSSIONANDANALYSIS Ourperformanceoverthepastfivecompletedfiscalyearsissummarizedinthegraphsbelow: 93.7% 97.4% 93.8% 98.0% 95.1% 98.0% 94.3% 100.7% 96.7% 103.8% $37.31 $36.21 $32.79 $41.65 $44.53 2015 2014 2013 2015 2014 2013 2016 2017 2015 2014 2013 2016 2017 2016 Solidbars=WRB StripedBars= Industry 2017 2015 2014 2013 2016 2017 $3.87 $4.86 $3.55 $4.68 $4.26 CombinedRa�o (1) BookValuePerShare ReturnonEquity Net IncomePerShare 11.0% 15.0% 11.6% 13.1% 10.9% (1) Acombinedratiobelow100%indicatesanunderwritingprofit;alowercombinedratioisbetter. 2017CompensationHighlights CompensationpaidtoourNEOsin2017reflectedtheCompany’sperformance.Althoughabsolute performancewasmodestlylowerthanin2016,theCompanydeliveredstrongrisk-adjustedreturnsdespite thechallengesoflowinterestrates,highcatastrophelossesandsubstantialcompetitioninthepricingof insuranceproducts.In2017,basesalariesfortheNEOsremainedthesameasin2016.Annualcashincentive awardsfortheCEOandtheExecutiveChairmaneachdecreased10%from2016to$2,250,000and $3,150,000,respectively;Mr.Lederman’sawardremainedunchangedat$430,000andMr.Shiel’sincreased slightlyto$430,000.TheannualcashincentiveawardforMr.Baio,ourChiefFinancialOfficersinceMayof 2016,increased21%over2016to$400,000reflectinghisincreasedresponsibilitiesforthefullyear. 2018ProxyStatement 51 Total of 05 pages in section COMPENSATIONDISCUSSIONANDANALYSIS ➣ We startedtwonewbusinesses inMexico,realignedthreeoperatingunitsandaddedmanytalented professionals. ➣ Wecontinuedourpracticeofmakingcertaininvestmentsandstrategicallydivestingcertainofthose investmentswiththeaimofgeneratingcapitalgainsthatenhancelong-termreturnsandstockholder value. Netrealizedinvestmentgains netofperformance-basedcompensationcosts added4.2 percentagepointstoourROEin2017 . Ourreported2017resultsarepreparedunderU.S.generallyacceptedaccountingprinciples(“GAAP”), whichmaynotfullyreflectthethencurrentfairvaluesofsomeofourassets. ➣ Forrealestatethatweown,theaccountingrulesrequireustorecordthosepropertiesinourfinancial statementsatcost.Asaresult,anyappreciationofthesepropertiessinceweacquiredthemisnot reflectedinourfinancialstatements.In2017,wesoldourinvestmentinanofficebuildingin Washington,D.C.,resultinginapre-taxrealizedgainof$124.3million. ➣ Forcertainequitysecuritiesthatweown–eithersecuritiesforwhichaccountingrulesrequireusto usetheequitymethodofaccounting,orsecuritiesthatdonothaveareadilydeterminablefairvalue– appreciationinthevalueoftheinvestmentsovertimemaynotbereflectedinourfinancial statementsorresults.(Forsomeofthesesecurities,changesinunrealizedgainsandlossesmaybegin tobeincludedinnetincomeoncethesecuritieshaveareadilydeterminablefairvalue.)Whenthese investmentsaresold,however,thegainisrealized. Long-TermPerspectiveandPerformance Whiletheseresultsreflectourmostrecentyears’performance,weholdtothefundamentalbeliefthatthe Companyshouldbemanagedoverthelongterm,includingthefullextentofthepropertycasualty insurancecycle.Managingoverthecyclemeansgrowingwhenconditions,inpricingandterms,are favorable,andmaintainingunderwritingdiscipline( i.e., forgoingtop-linegrowth)whentheyarenot.Our businessmodelisthereforedesignedtoproducesuperiorreturnsoverindustryperformancewhenpricing isfavorable,or“hard,”andmaintainatleastadequatereturnswhenpricingislessfavorable,or“soft.” Accordingly,webelievethatthemostrelevantperformancecomparisonsshouldbemadebasedonlong- termmeasurements,consistentwithourstrategy. 50 W.R.BerkleyCorporation COMPENSATIONDISCUSSIONANDANALYSIS Compensation Discussion and Analysis Introduction ThisCompensationDiscussionandAnalysisprovidesmaterialinformationabouttheCompany’s compensationpolicies,objectivesanddecisionsregardingourNEOsaswellasperspectiveforinvestorson theamountsdisclosedintheSummaryCompensationTableandothertables,footnotesandnarrativethat follow. ThisCompensationDiscussionandAnalysisandthetablesthatfollowcoverthecompensationpaidin2017 tothefollowingfiveNEOs: ➣ W.RobertBerkley,Jr.:PresidentandChiefExecutiveOfficer(“CEO”or“Mr.RobBerkley”); ➣ WilliamR.Berkley:ExecutiveChairmanoftheBoard(“ExecutiveChairman”or“Mr.Wm.Berkley”); ➣ RichardM.Baio:SeniorVicePresident—ChiefFinancialOfficerandTreasurer; ➣ IraS.Lederman:ExecutiveVicePresidentandSecretary;and ➣ JamesG.Shiel:ExecutiveVicePresident—Investments. Executive Summary BusinessHighlightsforFiscalYear2017. In2017,ourfocusonrisk-adjustedreturnsenabledustoproduce excellentresultswithlowervolatilitythanourpeers,asmanagementcontinuedtocreatevaluewhile managingriskandvolatilitythroughoutthebusiness,despitechallengescreatedbytheextendedlow interestrateenvironment,significantcatastropheactivityandincrementallymorecompetitivemarket conditionsinmanylinesofinsurance. ➣ Ourafter-taxROEwas10.9%andpre-taxROE (1) was15.2% fortheyear.ROEbenefited romrealized investmentgainsof$336millionpre-tax,inaccordancewithourstrategyofinvestingaportio ofour portfolioforcapitalgains. ➣ Bookvaluepershareincreased6.9%to$44.53 ;our2017totalvaluecreation(growthinbookvalue persharebeforedividendsandsharerepurchases)was10.9%. ➣ Ourcombinedratioof96.7%outperformedthepropertycasualtyinsuranceindustryby7.1points. Withrecordindustrylossesfromcatastrophesin2017,theCompany’scombinedratioincreased slightlycomparedto2016.Combinedratioisafinancialmetricthatrepresentsourunderwriting profitabilityexcludinginvestmentincome;avalueoflessthan100%indicatesanunderwritingprofit, andalowercombinedratioisbetter.Acomparisontoanindustrybenchmarkautomaticallyadjusts forcompetitiveconditionsandallowsustobettergaugeourperformancerelativetoourcompetitors. ➣ Netinvestmentincomefor2017was$576million,andnetrealizedinvestmentgainsbeforetaxes were$336million. ➣ 2017netincomeperdilutedsharewas$4.26. ➣ We returned$236millionofcapital toourstockholdersin2017throughspecialandordinarycash dividendsonourcommonstockof$188millionandsharerepurchasestotaling$48million. (1) SeeAnnexAforareconciliationofpre-taxincome,anon-GAAPfinancialmeasure,tonetincome,its mostdirectlycomparableGAAPmeasure.Pre-taxROEiscalculatedbasedonpre-taxincome. 2018ProxyStatement 49 WEYERHAEUSER COMPANY EXECUTIVECOMPENSATION Compensation Highlights PayforPerformance. Ourcompensationprogramis designedtoreflectastrongpay-for-performanceand shareholderinterestalignmentthatwillresultinsuperior financialresultsandcreatelong-termvaluefor shareholders.Wetiepaytoperformancebymeasuring businessandindividualperformanceinourincentive plans,andwestructureourtotalcompensationprogram suchthatourexecutivesonlydowellwhenour shareholdersdowell. AnnualIncentivePlan. Ourshort-termannualincentive planisfundedbasedprimarilyontheabsolutefinancial performanceofeachindividualbusinessagainst pre-determinedtargetsandpartlybasedonthe performanceofthebusinessagainstcertaincontrollable businessmetricsrelatingtooperationalexcellence,such asfinancialandcompetitiveperformance,cost competitiveness,reliability,cashgenerationand performanceagainststrategicgoalssuchaspeople development.Basedontheirabsolutefinancial performanceandperformanceagainsttheircontrollable businessmetrics,bonusesforeachbusinesssegment fundedatthefollowinglevelsin2017: BusinessSegment FundingTimes Target Timberlands 1.39 RealEstate,Energy&NaturalResources 1.39 WoodProducts 1.40 CorporateStaff 1.39 Asaresultofourfinancialperformanceandachievement ofseveralstrategicgoalsin2017,ournamedexecutive officersreceivedpaymentsunderourannualincentive cashbonusplanrangingfrom139%to173%oftarget levelsfor2017.Thesestrategicgoalsincludedwithout limitationpeopledevelopment,operationalexcellence initiatives,portfoliomanagementandcapitalallocation, timberlandsintegrationandleadershiptransition.For morediscussion,see“CompensationComponents— DeterminationofCompensation—Short-TermIncentive Plan”onpage29. Long-TermIncentivePlan. Long-termincentivegrantsfor executiveofficersin2017includedamixofformsof equity,with60%ofthevalueoftheawardgrantedas PSUs,and40%ofthevaluegrantedasRSUs.PSUs grantedin2017willbeearnedwithinarangefrom0%to 150%ofthetargetnumberofPSUsbasedontwo independentperformancemeasures:thecompany’s three-yeartotalshareholderreturn(“TSR”)relativeto companiesintheS&P500Index(50%weighting);and thecompany’sthree-yearTSRrelativetoadesignated industrypeergroup(50%weighting).Thecompany’s performanceagainsteachperformancegoalwillbe measuredseparatelytodetermineactualpercentile performanceandthecorrespondingPSUpayout percentage,multipliedbytheappropriateweighting factor.Formorediscussion,see“Compensation Components—DeterminationofCompensation—Long- TermIncentiveCompensation”onpage33. Consideration of the 2017 Advisory Vote on Executive Compensation Shareholderscommunicatedoverallapprovalofour compensationphilosophyandprogramswith“say-on-pay” votingresultsinexcessof97%in2017and95%in 2016.OurCompensationCommitteeandboardof directorsvaluetheopinionsofourshareholdersand considerthoseopinionswhenmakingcompensation decisions.Totheextentwereceiveasignificantvote againstthecompensationofournamedexecutive officers,wewillconsiderourshareholders’concernsand theCompensationCommitteewillevaluatewhetherany responsiveactionsarerequired.Ourshareholdersvoted in2017tocontinuehaving“say-on-pay”votesonan annualbasis.Therefore,thenext“say-on-pay”votewill occuratour2019annualshareholdersmeeting,andwe expectthenextvoteonthefrequencyofthe“say-on-pay” votetooccuratour2023annualshareholdersmeeting. Compensation Philosophy and Principles Wedesignourcompensationprogramstomotivateand rewardemployeesforperformancethatresultsin superiorfinancialresultsandcreateslong-termvaluefor shareholders.Wedothisbygenerallytargetingbasepay atorslightlybelowthecompetitivemedianandtargeting incentivepay,whichistieddirectlytoperformance,ator slightlyabovethecompetitivemedian,sothatthe resultingtargettotaldirectcompensationopportunity approximatesmedian.Wetiepaytoperformanceby: Š measuringcompany,businessandindividual performance; Š usingperformancetodifferentiatetheamountof incentivecompensation;and Š allocatingmorerewarddollarstohigherperforming businessesandemployees. 24 WEYERHAEUSERCOMPANY Total of 02 pages in section EXECUTIVE COMPENSATION Executive Summary Weyerhaeuser’s executive compensation programs are designed to align the interests of our executive officers with those of our shareholders. Our compensation philosophy is to provide market-competitive programs that ensure we attract and retain world-class talent, with pay directly linked to the achievement of short- and long-term business results. The Compensation Committee reviews executive compensation program components, targets and payouts on an annual basis to ensure the strength of our pay-for-performance alignment. 2017 Business and Performance Highlights 2017 was a very strong year for Weyerhaeuser, as we successfully completed our merger integration, further focused our portfolio and delivered improved financial performance across all our businesses. We generated net earnings of $582 million, or $872 million before special items*, on net sale of approximately $7.2 billion. Our total shareholder return (“TSR”) for 2017 was over 20% (54 th percentile of the S&P 500), and we increased our dividend to $0.32 per share consistent with our commitment to a growing and sustainable dividend. BY 11.6% $7.196B $6.365B REVENUE INCREASED IN THE LAST YEAR 2016 2017 WE INCREASED FULL YEAR ADJUSTED EBITDA BY APPROXIMATELY $500 MILLION* (over 30% increase) $2.081B $1.583B 2016 2017 $941 MILLION IN DIVIDENDS TO OUR COMMON SHAREHOLDERS IN THE LAST YEAR WERETURNEDOVER Executive Compensation Practices Our leading practices include: Š Stock ownership guidelines for the CEO (six times salary) and senior vice presidents (two times salary). Senior officers who have not yet accumulated the required ownership level must hold 75% of the net shares remaining after vesting of restricted stock units (“RSUs”) and performance share units (“PSUs”). Š An executive compensation program designed and managed to mitigate undue risk. Š A “clawback” policy for incentive compensation recovery. Š A policy prohibiting hedging and pledging of company stock by directors and officers. Š An independent compensation consultant, Frederic W. Cook & Co., Inc. (“FW Cook”), which advises the Compensation Committee. Š “Double trigger” accelerated vesting of our long-term incentive equity awards upon a change in control. Š No executive perquisites other than limited relocation-related benefits. Š No tax gross ups for “golden parachute” excise taxes. Š No repricing of stock options. Š Annual review of all of our compensation programs to ensure they do not encourage inappropriate risk- taking. *Representsameasureofperformancethatiscalculatedandpresentedotherthaninaccordancewithgenerallyacceptedaccountingprinciples(“GAAP”).SeeAppendix Aforanexplanationofthesenon-GAAPmeasures,afullreconciliationofthesenon-GAAPresultstoourGAAPNetEarningsresults,andabriefdiscussionofwhyweuse thesenon-GAAPperformancemeasures. 2018ANNUALMEETING&PROXYSTATEMENT 23 REVENUEINCREASEDBY11.6%INTHELASTYEAR2016$6.365B2017$7.196BWEINCREASEDFULLYEARADJUSTEDEBITDABYAPPROXIMATELY$500MILLION*(over30%increase)2016$1.583B2017$2.081BWERETURNEDOVER$941MILLIONINDIVIDENDSTOOURCOMMONSHAREHOLDERSINTHELASTYEAR