Atmos Energy (ATO) DEF 14ADefinitive proxy

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider before casting your vote. Please read this entire proxy statement carefully before voting. This proxy statement is first being made available to our Shareholders on or about December 29, 2023.

Our corporate governance policies and practices promote the long-term interests of our shareholders, strengthen the accountability of our Board and management, and help build public trust in the Company. Below is a summary of some of the highlights of our corporate governance framework.

The Board and the Nominating Committee believe it is important that our directors represent diverse viewpoints and backgrounds. Our Corporate Governance Guidelines provide that the Nominating Committee shall evaluate each director’s continued service on the Board, at least annually, by considering the appropriate skills and characteristics of members of the Board in the context of the then current makeup of the Board. The Board seeks to maintain balance and diversity on the Board with respect to race, sex, age, geographical location, knowledge, skills, expertise, business experience, and other appropriate measures. It is also the practice of the committee to consider these factors when screening and evaluating candidates for nomination to the Board.

Each of the following current directors was last elected by shareholders at the 2023 Annual Meeting and has been nominated to serve an additional one-year term on the Board of Directors with such term expiring in 2025.

In fiscal 2023, the Board held 7 meetings. Each of the directors attended 100% of the total meetings of the Board and the Committees on which he or she served. In addition, we strongly support and encourage each member of our Board to attend our annual meeting of shareholders. All members of the Board attended our annual meeting of shareholders on February 8, 2023.

The Board’s leadership structure is designed so that independent directors exercise oversight of the Company’s management and key issues related to strategy and risk. Only independent directors serve on our Audit Committee, Human Resources Committee (“HR Committee”) and Nominating Committee, and all standing Board committees are chaired by independent directors.

Independent directors regularly hold executive sessions of the Board led by the Lead Director (defined below) outside the presence of the Chairman, the President and CEO or any other Company employee, and they generally meet in a private session with the Chairman and the President and CEO at regularly scheduled Board meetings.

The Board welcomes the regular attendance at each Board meeting of the Company’s executive officers who are not members of the Board. Additionally, the Board (both as a whole and each director individually) and each Board committee has complete access to the Company’s management. The Board encourages the executive officers to bring non-executive managers to Board meetings, from time to time, who can provide additional insight into the items being discussed because of personal involvement in these areas as well as represent non-executive managers with future potential that the senior management believes should be given exposure to the Board.

The Company’s Corporate Governance Guidelines provide that our Board has the right to exercise its discretion to either separate or combine the offices of the Chairman of the Board and the CEO. This decision is based upon the Board’s determination of what is in the best interests of the Company and its shareholders, in light of the circumstances and taking into consideration succession planning, skills and experience of the individuals filling those positions and other relevant factors. The current leadership structure is based on the experienced leadership provided by a Chairman of the Board (currently Mr. Cocklin) and a full-time President and CEO (currently Mr. Akers), with both positions being subject to oversight and review by the Company’s independent directors. The Board recognizes that if the circumstances change in the future, other leadership structures might also be appropriate and it has the discretion to revisit this determination of the Company’s leadership structure.

The Board’s leadership structure is designed so that independent directors exercise oversight of the Company’s management and key issues related to strategy and risk. Only independent directors serve on our Audit Committee, Human Resources Committee (“HR Committee”) and Nominating Committee, and all standing Board committees are chaired by independent directors. Additionally, independent directors regularly hold executive sessions of the Board led by the Lead Director (defined below) outside the presence of the Chairman, the President and CEO or any other Company employee, and they generally meet in a private session with the Chairman and the President and CEO at regularly scheduled Board meetings.

Each year, the independent directors of the Board select an independent director to serve as a lead director (the “Lead Director”). The Lead Director is expected to consult with the chairs of the appropriate Board committees and solicit their participation. The Lead Director also has the authority to call meetings of the independent directors as well as the non-management directors; and if requested by major shareholders, will ensure that he or she is available for consultation and direct communication. In 2023, the independent directors of the Board designated Mr. Richard K. Gordon as the Lead Director.

Atmos Energy’s Board committee structure is organized around key strategic issues to facilitate oversight of management. Committee chairs regularly coordinate with one another to ensure appropriate information sharing. To further facilitate information sharing, all committees provide a summary of significant actions to the full Board. As required under our Corporate Governance Guidelines, each standing committee conducts an annual self-evaluation and review of its charter.

The Nominating Committee considers all relevant facts and circumstances in evaluating the independence of directors, including without limitation, written responses to submitted questionnaires completed annually by each of our directors. On the basis of this information, the Nominating Committee advised the full Board of its conclusions regarding director independence. After considering the committee’s recommendation, for fiscal 2023, the Board affirmatively determined that each of the Company’s directors other than Mr. Akers and Mr. Cocklin is independent in accordance with applicable NYSE and Securities and Exchange Commission (“SEC”) independence rules and requirements and the standards described above. The Board determined that Mr. Akers is not independent because he is the President and Chief Executive Officer of the Company and that Mr. Cocklin is not independent because he was the Executive Chairman of the Company until December 2020.

The Board is committed to assessing its own performance as a board in order to identify its strengths as well as areas in which it may improve its performance. The self-evaluation process, which is established by the Nominating Committee, involves the completion of annual written questionnaires of the Board and its committees, review and discussion of the results of the evaluations by both the committee and full board, and consideration of action plans to address any issues.

The Nominating Committee is primarily responsible for identifying and evaluating nominees for director. Periodically, the Chairman of the Board, Lead Director, and CEO discuss with the Chair of the Nominating Committee the Board’s compositional needs and criteria for the selection of candidates to serve as directors. The Lead Director is expected to consult with the chairs of the Board committees and solicit their participation as well. The Nominating Committee uses a variety of methods for identifying and evaluating nominees for director. The Nominating Committee will consider candidates that come to their attention through current board members, professional search firms, shareholders, or other persons. The Nominating Committee may interview potential candidates to further assess the qualifications possessed by the candidates and their ability to serve as a director. The Committee will consider and make recommendations to the Board regarding the nominees to be submitted to the Company’s shareholders for election at each annual meeting and suitable candidates to fill any vacancies occurring on the Board with a view to achieving and maintaining balance and diversity on the Board with respect to race, sex, age, geographical location, knowledge, skills, expertise, business experience, and other appropriate measures.

If a shareholder wishes to nominate a candidate for election to the Board at the annual meeting, he or she should write to the Corporate Secretary, Atmos Energy Corporation, 1800 Three Lincoln Centre, 5430 LBJ Freeway, Dallas, Texas 75240, which is our principal executive office, not earlier than October 10, 2024, and not later than the close of business on November 9, 2024. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the Company’s bylaws.

The Board represents the shareholders’ interest in perpetuating a successful business and optimizing long-term financial returns in a manner consistent with applicable legal requirements and ethical considerations. To achieve these results, the Board is responsible for engaging with management on the topics below:

While the Board and its committees oversee material risk, Company management is charged with managing risk. Atmos Energy’s integrated risk management (“IRM”) framework supports the Company’s vision to be the safest provider of natural gas services by providing a consistent approach for the Company to identify and manage risk. The Risk Management and Compliance Committee (“RMCC”), which is overseen by the Management Committee, is charged with oversight of enterprise-wide risk management across all categories, including safety, security, and cybersecurity. The RMCC also has oversight of the Quality Assurance and Management of Change processes.

As reflected in its charter, the Audit Committee oversees the Company’s cybersecurity risks. Our Chief Information Officer provides the Audit Committee with periodic cybersecurity updates.

The Board is actively engaged and involved in succession planning, including detailed discussions of the Company’s leadership and succession plans for key positions at the senior officer level. As part of these activities, the Board engages in a robust CEO succession planning process, including reviewing development plans for potential CEO candidates and engaging with potential successors at board meetings and in less formal settings to allow directors to personally assess candidates.

Succession planning does not stop with senior officers. We perform succession planning annually throughout the organization to ensure that we are building a strong bench of talent capable of performing at the highest levels. Not only is talent identified, but potential paths of development are discussed to ensure that employees have an opportunity to build their skills and are well-prepared for future roles. The strength of our succession planning process is evident through our long history of promoting our senior leadership from within the organization.

We believe that maintaining an active dialogue with our shareholders is important to our commitment to deliver sustainable, long-term value to our shareholders. We engage with shareholders on a variety of topics throughout the year to ensure we are addressing questions and concerns, to seek input, and to provide perspective on our policies and practices. We also engage with proxy and other advisory firms that represent the interests of various shareholders. Shareholder feedback is regularly reviewed and considered by the Board and is reflected in adjustments or enhancements to our policies and practices. We remain committed to investing time with our shareholders to maintain transparency and to better understand their views on key issues.

The Board recognizes that related party transactions can present a heightened risk of potential or actual conflicts of interest and may create the appearance that Company decisions are based on considerations other than the best interests of the Company and its shareholders. As a result, the Board prefers to avoid related party transactions, while also recognizing that there are situations where related party transactions may be in the best interests of or may not be inconsistent with the best interests of the Company and its shareholders. The Board has adopted and periodically reviews written guidelines with respect to related party transactions and has delegated to the Nominating Committee the responsibility to review and, if not adverse to the Company’s best interests, approve, related party transactions. Under the guidelines, a related party transaction is any transaction (or series of related transactions) involving the Company and in which the amount involved exceeds $100,000 and a related person has a direct or indirect material interest. A “related person” is:

Under the guidelines, all executive officers, directors and director nominees are required to identify, to the best of their knowledge after reasonable inquiry, business and financial affiliations involving themselves or their immediate family members, which could reasonably be expected to give rise to a related person transaction. Executive officers, directors and director nominees are required to advise the Corporate Secretary promptly of any change in the information provided and are asked periodically to review and reaffirm this information.

In accordance with the guidelines, the Nominating Committee reviews the material facts of all related person transactions and either approves or disapproves of the entry into any such transaction.

The Nominating Committee has considered and adopted standing pre-approvals under the guidelines for limited types of transactions that meet specific criteria. Such pre-approved transactions are limited to:

The Company’s non-employee director compensation program reflects best practices, as follows:

Together with its independent compensation consultant, the HR Committee annually reviews the non-employee director pay program to ensure it remains competitive. As a result of this review, our annual board retainer, committee chair, and lead director fees were moderately increased and our Chairman of the Board fee was reduced for fiscal 2023.

The Board believes that the level of non-employee director compensation should be based on Board and committee responsibilities and be competitive with comparable companies. The Board generally targets compensation near the median of our proxy peer group (discussed below). In addition, the Board believes that a significant portion of non-employee director compensation should be awarded in the form of equity to align director interests with the long-term interests of shareholders.

In fiscal 2023, our director compensation program included the following components:

The Company provides our non-employee directors the option to receive all or part of their cash director retainer and fees (in 10% increments) in Company stock through the LTIP. The selected Company stock portion of the fee earned in each quarter is issued as soon as practicable following the first business day of each quarter. The number of shares issued is equal to the amount of the cash fee that would have been paid to the non-employee director during the quarter divided by the fair market value (average of the highest and lowest prices as reported on the NYSE Consolidated Tape) on the first business day of such quarter. Only whole numbers of shares of Company stock may be issued. Fractional shares are paid in cash.

All directors are reimbursed for reasonable expenses incurred in connection with attendance at Board and committee meetings. A director who is also an officer or employee receives no additional compensation for his or her service as a director. We provide business travel accident insurance for non-employee directors and their spouses. The policy provides $100,000 coverage to directors and $50,000 coverage to their spouses per accident while traveling on Company business.

Each non-employee director is also eligible to participate in the Atmos Energy Corporation Equity Incentive and Deferred Compensation Plan for Non-Employee Directors (“Directors Plan”). This plan allows each such director to defer receipt of his or her annual retainer or other director fees and to invest such deferred fees in either a cash account or a stock account (in 10% increments). The amount of the fee allocated as a credit to the cash account is converted to a cash balance as of the first business day of each quarter and credited with interest at a rate equal to 2.5% plus the annual yield reported on a 10-year U.S. Treasury Note for the first business day of January for each plan year. Interest on the accumulated balance of the cash account is credited monthly. The amount of the fee allocated as a credit to the stock account is converted to share units. The fee payable for the quarter is converted to a number of whole and, if applicable, fractional share units on the first business day of that quarter. Share units are also credited with dividend equivalents whenever dividends are declared on shares of the Company stock. Such dividend equivalent credits are converted to whole and, if applicable, fractional share units on the same day on which such dividends are paid. At the time of a participating director’s separation from service, plan benefits paid from the cash account are paid in cash and plan benefits paid from the stock account are paid in whole shares of Company stock (rounded up to the nearest whole share).

Each non-employee director also receives an annual grant (as noted in the table above) based on his or her election of share units or RSUs with a one-year vest period under the LTIP each year he or she serves on the Company’s Board. The grants generally occur on the 30th day following the Company’s annual meeting of shareholders each year. Share units accrue dividend equivalents and are settled in the same manner as share units under the Directors Plan. RSUs earn dividends paid in cash at the time dividends are paid to the Company’s shareholders. Unlike the RSUs that are settled upon vesting, share units must be held until the director’s separation from service and are settled in accordance with the terms of the Directors Plan described above.

The following table sets forth all compensation paid to our non-employee directors for fiscal 2023:

The following table sets forth, for each participating non-employee director, the amount of director compensation deferred during fiscal 2023 and cumulative deferred compensation as of September 30, 2023:

We have share ownership guidelines for our non-employee directors that require each director to hold a multiple of his or her annual retainer in shares of Company stock. The HR Committee believes that share ownership promotes better alignment of the interests of our directors with those of our shareholders, and it monitors compliance with the ownership guidelines each year. Minimum ownership levels are as follows:

Fees for professional services provided by our independent registered public accounting firm, E&Y, in each of the last two fiscal years, in each of the following categories are:

Management is responsible for the Company’s internal controls and the financial reporting process. E&Y is responsible for performing an independent audit of the Company’s financial statements in accordance with generally accepted auditing standards and for issuing audit reports on the financial statements and the assessment of the effectiveness of internal control over financial reporting. The Audit Committee’s responsibility is to monitor and oversee these processes on behalf of the Board.

In discharging its responsibility for the year ended September 30, 2023:

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (which the Board has approved) that the Company’s audited financial statements be included in its Annual Report on Form 10-K for the year ended September 30, 2023 for filing with the SEC.

Respectfully submitted by the members of the Audit Committee.

This Compensation Discussion and Analysis provides an overview of our executive compensation program objectives and strategy, and the elements of compensation that we provide to our named executive officers, including the process we employed in reaching the decisions to pay the specific amounts and types of executive compensation discussed. Our named executive officers for fiscal 2023 are listed below:

Over the past twelve years, our operating strategy has focused on modernizing our distribution and transmission system to improve the safety and reliability of the system while reducing regulatory lag. Since that time, our capital expenditures have increased approximately 13% annually. Our ability to increase capital spending each year to modernize our system has increased our rate base, which has also resulted in increasing earnings per share.

This trend continued during fiscal 2023. In fiscal 2023, we generated net income of $885.9 million or $6.10 per diluted share representing increases over net income for the year ended September 30, 2022 of $774.4 million or $5.60 per diluted share. Capital expenditures for fiscal 2023 totaled approximately $2.8 billion, with approximately 85% of this amount invested to improve the safety and reliability of our distribution and transmission systems.

The following table summarizes the various elements of compensation that we provided to our named executive officers for fiscal 2023. See “2023 Elements of Compensation” beginning on page 39 for a more detailed discussion of each element, why we pay each element, how we determine the amount we pay under each element and how each element fits into our overall compensation objectives.

We do not have any individual compensation policies or plans that are not applied consistently to all our named executive officers.

In determining executive compensation, the HR Committee and our Board consider the results of our most recent shareholder advisory vote on executive compensation. Below are the results for the say-on-pay votes for the last three fiscal years, which show consistent support from our shareholders of our executive compensation program. Accordingly, for fiscal 2023, the HR Committee and Board decided to adhere to its pay-for-performance philosophy and did not materially change our executive compensation programs and policies over the last fiscal year as a result of the most recent shareholders’ advisory votes on executive compensation.

Our executive compensation program is designed to ensure that the interests of our named executive officers are closely aligned with those of our shareholders and customers and that our named executive officers are paid above-target incentive compensation only when the Company’s financial performance warrants the payment of such compensation. We believe that our executive compensation program is effective in allowing our organization to attract and retain highly-qualified senior management team members who can deliver outstanding performance. Our executive compensation program is founded upon the following principles:

The HR Committee believes that the base salaries provided to each of the named executive officers are appropriate to retain and motivate them, are competitive with salaries offered for similar positions by companies in our proxy peer group and are consistent with our Total Rewards strategy.

Through our Incentive Plan, we provide our named executive officers an opportunity to earn an annual incentive award based upon the Company’s financial performance each year as measured by our fully diluted EPS.

For fiscal 2023, the HR Committee reviewed competitive compensation benchmarking data, as discussed below, to establish an annual target opportunity expressed as a percentage of base salary earned during fiscal 2023 for each named executive officer. Such target incentive award opportunities are reviewed each year and benchmarked against the 50th percentile for similar positions within companies in our proxy peer group. The Incentive Plan targets for fiscal 2023 for each of the named executive officers were as follows. The targets for Mr. Akers and Mr. Forsythe were increased from the prior year following a review of market data.

At its meeting in November 2022, the HR Committee established the threshold, target and maximum performance levels of EPS upon which the Incentive Plan’s awards would be based for fiscal 2023, along with the corresponding percentages of target awards to be paid out. The target EPS performance level was based on our annual business plan and budget and considered factors including the allowed rates of return in our established service areas, natural gas pricing and volatility, budgeted capital expenditures, expected growth within our service areas, competitive factors from other service providers and other business considerations embedded in our annual business planning process.

The following table summarizes the performance levels and actual performance level attainment under the Incentive Plan for fiscal 2023:

Since the actual EPS performance level attained was between the target of $6.00 per share and maximum of $6.30 per share, straight-line interpolation was used to compute the percentage of the target award earned. The HR Committee has the discretion under the Incentive Plan to make downward adjustments to earned awards but may not make upward adjustments. For fiscal 2023, the HR Committee did not use its discretion to make negative adjustments to any awards for any of our executive officers. However, the HR Committee does place a limit under certain conditions on the amount of earned awards for all our executive officers. If the Company’s TSR during any fiscal year is negative, the earned award for each officer for that fiscal year will be limited to the amount earned at the target level of performance. This limitation was not applicable for the fiscal 2023 performance period since the Company’s TSR was positive for such performance period.

Awards under the Incentive Plan are paid in cash and are based on the participant’s eligible earnings received during the fiscal year. However, under the terms of the Incentive Plan, participants may elect prior to the beginning of each fiscal year to convert all or a portion of their final earned awards to time-lapse RSUs with three-year cliff vesting, with a premium equal to 20% of the amount converted, such that the value of time-lapse RSUs received will equal 120% of the value of the final earned award, and with such units being awarded under our LTIP. Each named executive officer elected to receive 100% cash for his or her fiscal 2023 Incentive Plan award.

The HR Committee grants awards under our LTIP each fiscal year that are structured with 50% of the targeted long-term value in the form of three-year performance-based RSUs (measured by cumulative EPS over the three-fiscal year period) and with the remaining 50% in the form of time-lapse RSUs with three-year cliff vesting. The HR Committee bases the actual number and value of awards granted primarily on the competitive compensation benchmarking of grants made by the companies in our proxy peer group, as discussed below.

At its meeting in November 2022, the HR Committee also established the threshold, target and maximum performance levels of cumulative EPS upon which performance-based RSUs awards would be based for the fiscal 2023-2025 performance period, along with the corresponding percentages of target awards. The three-fiscal year cumulative EPS target performance level was based on the same factors utilized by the HR Committee for our Incentive Plan described above. The HR Committee then awarded grants to the named executive officers at its meeting in May 2023, which were later ratified by the Board, of performance-based RSUs for the fiscal 2023-2025 performance period. The following table shows the three-year performance criteria for such period.

The 2021 performance-based RSUs awarded in May 2021 were also based on the Company’s three year cumulative EPS performance for the 2021 through 2023 fiscal years. The HR Committee has also historically set increasingly challenging cumulative three-fiscal year EPS target performance levels each year. The HR Committee believes this EPS performance is in alignment with the Company’s shareholder return performance over that same time period. The following table summarizes the performance levels and actual performance attainment levels for the fiscal 2021-2023 performance-based RSUs.

Since the actual performance level attained over the performance period was $16.82 per share, each named executive officer earned 200% of their target award. The awards were paid in the form of shares of Company stock issued in November 2023 with the named executive officers also receiving accumulated cash dividend equivalents over the three-fiscal year performance period on such awards. As with the payout of Incentive Plan awards, if the Company’s TSR during the performance period is negative, the earned award for each such officer for such performance period will be limited to the amount earned at the target level of performance. This limitation was not applicable for the 2021-2023 performance period since the Company’s TSR was positive for such performance period.

In addition, each named executive officer would be paid (i) an amount that is generally actuarially equivalent to an additional 36 months of health and welfare benefits and (ii) an amount that is actuarially equivalent to 36 months of accident and life insurance coverage, along with disability coverage. If the total of such lump sum severance payment results in the imposition of excise taxes imposed by Section 4999 of the Internal Revenue Code (“IRC”), the named executive officer has the ability to elect to have the payment reduced to a level that will result in no payment of such excise tax. In lieu of reducing the severance payment under the agreement, each named executive officer may elect to have the Company pay the full severance payment amount, thereby leaving such officer responsible for personally paying the excise tax penalties imposed on such “excess parachute payments.”

The HR Committee believes that providing severance protection to our named executive officers following a change in control is a key component to ensuring that our executive compensation program remains competitive and that our named executive officers remain engaged before and during any potential change in control transaction.

We do not have any individual compensation policies or plans that are not applied consistently to all our named executive officers. Each year, we set our target opportunities in incentive compensation based solely upon competitive market conditions and the other factors discussed below. In addition, in determining executive compensation, the HR Committee and our Board considered the results of our most recent shareholder advisory vote on executive compensation at our February 8, 2023, meeting of shareholders. Our shareholders approved the compensation of our named executive officers for fiscal 2022, with over 93% of the shares voted in favor of such compensation. Accordingly, the HR Committee and our Board decided to continue to adhere to its pay-for-performance philosophy and did not materially change our executive compensation programs and policies over the last fiscal year as a result of the most recent shareholders’ advisory vote on executive compensation. However, the HR Committee and Board will continue to review our executive compensation program each year and will consider the views of our shareholders and other developments during such review.

Like all major corporations, we operate in a competitive environment for talented executives. In November 2022, Meridian Compensation Partners, LLC (“Meridian”), the HR Committee’s independent compensation consultant, provided the HR Committee with a review of the compensation program elements and pay levels for companies similar to us and of comparable size as measured by financial measures and market capitalization for fiscal 2022. The competitive compensation benchmarking data reviewed by the HR Committee included base salary, annual incentive compensation and long-term incentive compensation found in the proxy statements and other public filings filed by companies in the proxy peer group. The companies in the proxy peer group were selected because they represent those companies considered by the HR Committee to be the most comparable to the Company in terms of business operations, market capitalization and overall financial performance. The companies in the proxy peer group for the following fiscal year are selected annually by the HR Committee after its review of the recommendation of and presentation by its independent compensation consultant, which selection is then reviewed and approved by the Board. Below is our peer group for fiscal 2023, which remained the same as the peer group for fiscal 2022.

The annual revenues shown below for the companies in our proxy peer group are for the most recent fiscal year reported. The market capitalizations shown below are as of June 30, 2023.