UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.)

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

STERLING CONSTRUCTION COMPANY, INC.

(Name of Registrant as Specified in its Charter)

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

Payment of Filing Fee (Check the appropriate box):

Notice of Annual Meeting of Stockholders

		By Order of the Board of Directors.
		Richard E. Chandler, Jr.
		Executive Vice President,
		General Counsel & Secretary
		March 26, 2019

Table of Contents

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Proxy Statement Summary

This summary highlights selected information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before submitting voting instructions for your shares. For more information regarding our 2018 financial and operational performance, please review our 2018 annual report to stockholders (“2018 annual report”). The 2018 annual report, including financial statements, is first being made available to stockholders together with this proxy statement on or about March 26, 2019.

2019 Annual Meeting of Stockholders

Agenda and Voting Recommendations

Corporate Governance Highlights

We are committed to strong and effective governance practices that promote and protect the interests of our stockholders. Our commitment to good corporate governance is illustrated by the following highlights:

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Director Nominees Overview

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2018 Performance Highlights

The financial improvements reflect progress in delivering our multi-year strategy to solidify the base, grow high margin products and expand into adjacent markets. Our strategic element to solidify the base of the heavy civil construction business focuses on cost reductions, remaining disciplined at the bid table, monitoring pricing at the time of bid, and executing the projects to expectations. The strategy element to grow high margin products is reflected in the increasing percentage of backlog of non-heavy highway projects. Finally, expansion of the residential business, as well as other acquisition opportunities will lead to further expansion into adjacent markets. Overall, the execution of our strategy led to improved operating income of $42.6 million in 2018 compared to operating income of $26.2 million in 2017.

Executive Compensation Highlights

During the last few years, we have made several key enhancements to our executive compensation programs:

We are committed to developing and maintaining executive compensation practices that enhance the performance of the Company and long-term value for its stockholders.

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Corporate Governance

Board Governance Guidelines; Ethics and Business Conduct Policy

We are committed to strong and effective governance practices that promote and protect the interests of our stockholders. Our board governance guidelines, along with the charters of the standing committees of our board, provide the framework for the governance of the Company and reflect the board’s commitment to monitor the effectiveness of policy and decision making at both the board and management levels. Our board governance guidelines and our code of business conduct are available at www.strlco.com under Investor Relations-Board Governance and –Code of Business Conduct, respectively. Both are available in print to any stockholder who requests a copy. Amendments to or waivers of our code of business conduct granted to any of our directors or executive officers will be published promptly on our website. Such information will remain on our website for at least 12 months.

Board Composition and Leadership Structure

Our board has the primary responsibility of oversight of the management of our business and affairs. Our current board of directors consists of eight members, seven of whom have been determined by our board to be independent. Mr. Cutillo, our chief executive officer, is our only non-independent director. Our board of directors recognizes the importance of having a strong independent board leadership structure to ensure accountability and to provide effective oversight of management.

Milton L. Scott serves as our chairman of the board of directors with responsibilities that include: (1) presiding at meetings of the board and executive sessions of its independent directors; (2) presiding at the annual meeting of stockholders; (3) serving as a liaison between the independent directors and senior management; (4) approving the agendas for board meetings; and (5) calling meetings of the independent directors. The board of directors believes that the separation of the roles of chairman and chief executive officer, as required by our board governance guidelines, continues to be the appropriate leadership structure for the Company at this time. The board believes this structure provides an effective balance between strong company leadership and appropriate safeguards and oversight by independent directors.

Board and Committee Independence; Financial Experts

On the basis of information solicited from each director, and upon the advice and recommendation of the corporate governance and nominating committee, our board of directors annually determines the independence of each of our then-current directors in connection with the nomination process. Further, in connection with the appointment of any new director to the board during the year, our board of directors makes the same determination. In making these determinations, our board, with assistance from the Company’s legal counsel, evaluated responses to a questionnaire completed annually by each director regarding relationships and possible conflicts of interest between each director, the Company and management. In its review of director independence, our board and legal counsel considered all commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships any director may have with the Company or management.

Our board of directors has determined that each of our director nominees (other than Mr. Cutillo) has no material relationship with the Company and is independent as defined in the director independence standards of NASDAQ listing standards, as currently in effect. Further, our board of directors has determined that each of the members of the audit, compensation and talent development and corporate governance and nominating committees has no material relationship with the Company and satisfies the independence criteria (including the enhanced criteria with respect to members of the audit and compensation and talent development committees) set forth in the applicable NASDAQ listing standards and SEC rules. In addition, our board of directors has determined that each of Messrs. Scott and White qualifies as an “audit committee financial expert,” as such term is defined by the rules of the SEC.

Director Nominees Experience and Skills Matrix

The following table notes the breadth and variety of experience and skills that each of our director nominees brings to the Company and which enable the board to provide insightful leadership to the Company to advance its strategies:

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Board Diversity, Tenure and Refreshment

We believe the Company’s director recruitment and nominations process demonstrates its continued focus on gender and racial diversity, as well as helps to ensure a diversity of skills, experience and tenure on our board, which further promotes and supports the Company’s long-term strategic goals.

Board Diversity

Although we do not have a formal diversity policy, we continue to focus on diversity as an important factor in determining the composition and make-up of the board and board diversity is a consideration in making nominee recommendations and filling board vacancies. During the recruitment and evaluation of the suitability of current directors and potential director-nominees, the corporate governance and nominating committee considers the diversity of directors and nominees as one consideration among many. To achieve diversity among directors, the corporate governance and nominating committee considers a number of demographics, including, but not limited to, race, gender, ethnicity, culture, nationality and age to continue developing a board that reflects diverse backgrounds, viewpoints, experience, skills and expertise. The addition of new directors over the past two years (as discussed in more detail below under “—Board Tenure and Refreshment”) has increased the diversity of our board, including the gender, experience and skills diversity of our board.

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Board Tenure and Refreshment

Since 2017, we have added four new directors, all of whom are standing for reelection at the meeting. Specifically, we have added two independent directors to our board since our last annual meeting of stockholders. On July 31, 2018, the board appointed Thomas M. White to serve as a director effective immediately. On December 12, 2018, the board appointed Dana C. O’Brien to serve as a director effective January 1, 2019. In addition, at this year’s annual meeting of stockholders, we have included Roger A. Cregg as a director nominee. If elected to the board, Mr. Cregg will bring experience in residential housing construction, as well as other additive skills to the board, including but not limited to, financial and accounting expertise, and public company executive management and leadership experience. The average tenure of our director nominees is approximately 4 years and the average age is approximately 61. As part of its board recruitment and refreshment process, the board will continue to seek to appoint new directors who complement the diversity, skills and expertise of the board. As mentioned above, gender and racial/ethnic diversity will remain an important factor for the board in its director recruitment and refreshment efforts.

Board and Committee Meeting Attendance

Our board of directors held a total of seven meetings during 2018. During 2018, each director participated in more than 75% of the total number of meetings of our board and meetings of each committee on which such director served. Mr. White joined our board effective July 2018 and Ms. O’Brien joined our board effective January 2019.

We expect our directors to attend the annual meetings of our stockholders. Our company policy is to schedule a regular meeting of the board of directors on the same day as the annual meeting of stockholders so that directors can attend the annual meeting without the Company incurring the extra travel and related expenses of a separate meeting. All of our directors attended our 2018 annual meeting of stockholders.

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Board Committees

To provide for effective direction and management of our business, our board has established three standing committees: an audit committee, a compensation and talent development committee (referred to as the “compensation committee” in most instances hereinafter) and a corporate governance and nominating committee (referred to as the “governance/nominating committee” in most instances hereinafter). Each of the audit, compensation and governance/nominating committees are composed entirely of independent directors. Each committee operates under a written charter adopted by our board. All of the committee charters are available on our website at www.strlco.com under Investor Relations–Corporate Governance and are available in print upon request. The following table identifies the current committee members.

Audit Committee

The audit committee assists the board in fulfilling its oversight responsibilities related to (1) the effectiveness of the Company’s internal control over financial reporting; (2) the integrity of the Company’s financial statements; (3) the qualifications and independence of the Company’s independent registered public accounting firm; (4) the evaluation of the performance of the Company’s independent registered public accounting firm; and (5) the review and approval or ratification of any transaction that would require disclosure under Item 404(a) of Regulation S-K of the Securities Exchange Act of 1934 (the Exchange Act). Please refer to the “Audit Committee Report” included in this proxy statement for more information. The audit committee held five meetings in 2018.

Compensation and Talent Development Committee

The compensation committee assists the board in fulfilling its oversight responsibilities by (1) discharging the board’s responsibilities relating to the compensation of our executive officers; (2) administering our cash-based and equity-based incentive compensation plans; and (3) overseeing the Company’s talent development strategy. Please refer to “Compensation and Talent Development Committee Procedures” included in this proxy statement for more information. The compensation committee held 14 meetings in 2018.

Corporate Governance and Nominating Committee

The governance/nominating committee assists the board in fulfilling its oversight responsibilities by (1) identifying, considering and recommending to the board qualified candidates for directorship; (2) monitoring the composition of the board and its committees and making recommendations to the board on the membership of the committees; (3) maintaining our board governance guidelines and recommending to the board any desirable changes; (4) evaluating the effectiveness of the board and its committees; (5) with input from the chair of our compensation committee, determining

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the compensation of our directors; and (6) addressing any related matters required by the federal securities laws or The NASDAQ Stock Market LLC (“NASDAQ”). The governance/nominating committee held four meetings in 2018.

Compensation and Talent Development Committee Procedures

The compensation committee has the sole authority to set annual compensation amounts and annual incentive plan criteria for our executive officers, evaluate the performance of our executive officers, and make awards to our executive officers under our incentive plans and programs. The compensation committee also reviews, and when appropriate, recommends to the board any proposed plan or arrangement, including employment agreements, providing for incentive, severance, retirement, change-in-control or other compensation to our executive officers. The compensation committee oversees our assessment of whether our compensation policies and practices are likely to expose the Company to material risks.

In exercising its authority and carrying out its responsibilities, the compensation committee meets to discuss the structure of executive compensation, proposed employment agreements, severance arrangements, salaries, cash and equity incentive awards, and the achievement and the setting of financial and individual performance goals on which executive incentive compensation is based, using information circulated in advance of the meeting by the chair of the compensation committee. The compensation committee may delegate any of its responsibilities to one or more members of the committee, except to the extent such delegation is prohibited by law, rules and regulations of the SEC or the listing standards of NASDAQ. When the compensation committee discusses an executive officer’s compensation, he or she is not permitted to be present.

The compensation committee engaged an independent executive compensation consultant to advise the compensation committee on matters related to executive compensation. Please refer to the section titled “Executive Officer Compensation—Compensation Discussion and Analysis” for more information related to the independent executive compensation consultant.

Compensation and Talent Development Committee Interlocks and Insider Participation

During 2018, Ms. Davenport and Messrs. Messer, Patton, Schaum and White served as members of our compensation committee. None of the members of the compensation committee is or has been an executive officer of our company. None of our executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, an executive officer of which served as one of our directors or as a member of our compensation committee during 2018.

Board Evaluation Process

The governance/nominating committee is responsible for overseeing the annual performance evaluation of the board. Annually, each director completes an evaluation of the full board and each committee upon which the director serves. This board evaluation process is intended to provide each director with an opportunity to evaluate performance for the purpose of improving board and committee processes and effectiveness. The detailed questionnaire seeks quantitative ratings and subjective comments in key areas of board practices, and asks each director to evaluate how well the board or the committee, as applicable, operates and to make suggestions for improvements. Replies are anonymous and are collected and summarized by the chair of the governance/nominating committee. The summary is then discussed by the independent directors in an executive session held for such purpose. In addition, the chair of the governance/nominating committee conducts one-on-one interviews with each director to solicit additional feedback on the overall operation of the board and its committees, as well as specific feedback on the effectiveness of individual directors. The board chair or the chair of the governance/nominating committee discusses the individual feedback with each board member. Any areas of board or committee performance that are identified as needing improvement or change are considered by the governance/nominating committee, which then makes a recommendation to the board on the matter.

Board’s Role in Oversight of Risk Management

Our board of directors as a whole is responsible for risk oversight, with reviews of certain areas being conducted by the relevant board committees that report to the full board. In its risk oversight role, our board focuses on understanding the nature of our enterprise risks, including our operations and strategic direction, as well as the adequacy of our risk management process and overall risk management system. There are a number of ways our board performs this function, including (i) receiving management updates on our business operations, financial results and strategy and discussing risks related to the business at each regular board meeting, (ii) receiving reports on all significant committee activities at each regular board meeting and (iii) evaluating the risks inherent in significant transactions as applicable.

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Throughout the year, the board of directors receives briefings and assessments of the Company’s risks as they relate to:

Our board believes that full and open communication between executive management and our board is essential to effective risk oversight. Our chairman meets regularly with executive management to discuss a variety of matters including business strategies, opportunities, key challenges and risks facing the Company, as well as enterprise risk assessment and risk mitigation strategies. Executive management attends all regularly scheduled board meetings where they make presentations to our board on various strategic matters involving our operations and are available to address any questions or concerns raised by our board on risk management or any other matters. Our board of directors oversees the strategic direction of the Company, and in doing so considers the potential rewards and risks of the Company’s business opportunities and challenges, and monitors the development and management of risks that impact our strategic goals. The board’s involvement in the strategic planning process is a critical part of the assessment of the risks that impact our strategic goals and the management of those risks as they develop. The board holds annual strategic and succession planning sessions to discuss, among other things, the utilization and development of talent and management succession. In 2018, this process led to our hiring a chief talent officer, effective January 2019, to assist the board and the compensation committee in their oversight over the development and management of the Company’s key talent and senior management.

Each standing committee of the board of directors assists the board in fulfilling its risk oversight responsibility. The chart below provides an overview of the allocation of risk oversight responsibilities among the board committees.

The audit committee assists our board in fulfilling its oversight responsibilities with respect to certain areas of risk. The audit committee is responsible for reviewing and discussing with management and our independent registered public accounting firm any guidelines and policies relating to risk assessment and risk management, and the measures management has taken to monitor, control and minimize the Company’s major financial risk exposures. The audit committee also discusses with our independent registered public accounting firm the results of their processes to assess risk in the context of its audit engagement. The audit committee also assists our board in fulfilling its oversight responsibilities by monitoring the effectiveness of the Company’s internal control over financial reporting and legal and regulatory compliance. Our independent registered public accounting firm meets regularly in executive session with the audit committee. The audit committee regularly reports on these matters to the full board. Finally, in furtherance of its risk oversight responsibility, the audit committee provides for the confidential, anonymous submission by employees and others of concerns regarding questionable accounting, auditing and any other matters. These submissions are collected by an independent organization specializing in those services, and are conveyed to the chair of the audit committee, our chief compliance officer, and our general counsel.

The compensation committee assists our board in fulfilling its oversight responsibilities with respect to the Company’s assessment of whether its compensation policies and practices are likely to expose the Company to material risks, including the Company’s compensation of executives and incentive compensation awarded to officers. In addition, in consultation with management, the compensation committee is responsible for overseeing the Company’s compliance with regulations governing executive compensation. The compensation committee also oversees the management and

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development of the Company’s talent and the succession plan for key senior management positions, which we consider a critical asset of the Company. In 2018, we hired a chief talent officer, effective January 2019, who reports directly to the Company’s chief executive officer, and assists the compensation committee with managing and developing the Company’s talent. The chief talent officer will provide valuable assistance to the compensation committee and the board in its oversight of our strategy to recruit, train and retain a world-class workforce.

The governance/nominating committee assists our board in fulfilling its oversight responsibilities with respect to the management of risks associated with our board leadership structure, including committee appointments, size of board and nomination of board members, and corporate governance matters. The governance/nominating committee addresses some of its risk oversight responsibilities by identifying and recommending for nomination well-qualified independent directors, periodically reviewing of our board governance guidelines, and conducting annual board self-evaluations and individual director evaluations (through the chair of the committee).

In addition, the governance/nominating committee reviews and discusses with management and the board the CEO succession plan. The governance/nominating committee, in consultation with management and the board periodically reviews and updates its CEO succession plan. Furthermore, the committee is responsible for developing and maintaining procedures to address emergency CEO succession planning in extraordinary circumstances, which mitigates the disruption and loss of continuity to our business and operations during a transition period.

Director and Executive Officer Stock Ownership Guidelines

In January 2018, our board of directors revised the stock ownership guidelines applicable to our non-employee directors and our executive officers. The board of directors believes that it is in the best interests of the Company and its stockholders that directors and executive officers have a meaningful proprietary stake in the Company so that their interests are aligned with the interests of stockholders. The stock ownership guidelines are administered by the governance/nominating committee.

Under our stock ownership guidelines, (i) each non-employee director is expected to acquire and maintain ownership of our common stock valued at five times his or her annual cash retainer, which is currently $75,000, (ii) our chief executive officer is expected to acquire and maintain ownership of our common stock valued at five times his or her base salary, and (iii) each of our other executive officers is expected to acquire and maintain ownership of our common stock valued at three times his or her base salary. The value of the shares is based on the greater of the then current market price or the grant date fair value. Shares of our common stock owned individually or jointly, shares held by members of the director or executive’s immediate family or by a trust for the director or executive or his or her immediate family, as well as shares subject to unvested restricted stock and restricted stock units are counted for purposes of the stock ownership guidelines.

As of March 19, 2019, all of our current non-employee directors except Ms. O’Brien and Messrs. Messer and White exceeded their target ownership levels. Under the stock ownership guidelines, directors have five years from the date of appointment or election to comply with the stock ownership guidelines. Mr. Messer was first elected to the board at the 2017 annual meeting, Mr. White was first appointed to the board in July 2018 and Ms. O’Brien was first appointed to the board effective January 2019. Since each of Ms. O’Brien and Messrs. Messer and White is required to reach their stock ownership target within five years from the date of election, each of these directors is currently in compliance with the guidelines. Our executive officers have five years from the date of their respective appointments or from January 17, 2018, the date upon which the guidelines were revised, whichever is later, to attain their required ownership levels. Since all of our executive officers have all been in their respective positions with the Company for less than five years, each has until January 17, 2023 to reach his target ownership level and, thus, each of our executive officers is currently in compliance with the guidelines. For more information regarding the stock ownership guidelines applicable to our executive officers, see “Compensation Discussion and Analysis.”

Consideration of Director Nominees

In evaluating nominees for membership on our board of directors, the governance/nominating committee has not specified any minimum qualifications for serving on the board, but seeks to achieve a board that is composed of individuals who have experience that is relevant to the needs of the Company, who have a high level of professional and personal integrity, who have the ability and willingness to work cooperatively with other members of our board and with senior management, and who contribute to the cognitive diversity of the board taking into account many factors, including business experience, public sector experience, professional training, public and private offices held, geographical representation, race, gender and age, among other considerations. Experience in the construction industry and in one or more of engineering, transportation, finance and accounting, corporate governance, senior management, and public sector matters are considered particularly valuable. An independent director candidate is expected to be committed to

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enhancing stockholder value, and to have sufficient time to carry out the duties of a director, both on the full board and on one or more of its standing committees. In selecting nominees, the governance/nominating committee will seek to have a board of directors that represents a diverse range of perspectives and experience relevant to the Company. The governance/nominating committee will also evaluate each individual in the context of our board as a whole, with the objective of recommending nominees who can best perpetuate the success of the business, be an effective director in conjunction with the full board, and represent stockholder interests through the exercise of sound judgment using his or her diversity of experience in these various areas. In determining whether to recommend a director for re-election, the governance/nominating committee will also consider the director’s age, tenure, past attendance at meetings and participation in and contributions to the activities of our board.

The governance/nominating committee will regularly assess whether the size of our board is appropriate, and whether any vacancies on our board are expected due to retirement or otherwise. In addition, the governance/nominating committee periodically assesses the experience, qualifications, attributes and skills of the independent directors to determine if there are gaps that the board should seek to fill. In the event that vacancies are anticipated, or otherwise arise, the governance/nominating committee will consider various potential candidates, who may come to the governance/nominating committee’s attention through professional search firms, stockholders or other persons. Alternatively, the governance/nominating committee may recommend a reduction in the size of the board. Each candidate brought to the attention of the governance/nominating committee, regardless of who recommended such candidate, will be considered on the basis of the criteria set forth above.

In accordance with its charter, the governance/nominating committee will consider candidates proposed for nomination by our stockholders. Stockholders may propose candidates for consideration by the governance/nominating committee by submitting the names and supporting information to: ^c⁄_o Corporate Secretary, Sterling Construction Company, Inc., 1800 Hughes Landing Blvd. — Suite 250, The Woodlands, Texas 77380.

In addition, our bylaws permit stockholders to nominate candidates for consideration at next year’s annual stockholder meeting. Any nomination must be in writing and received by our corporate secretary at our principal executive offices no later than February 8, 2020. If the date of next year’s annual meeting is moved to a date more than 30 days before or 90 days after the anniversary of this year’s annual meeting, the nomination must be received no later than 90 days prior to the date of the 2020 annual meeting or 10 days following the public announcement of the date of the 2020 annual meeting. Any stockholder submitting a nomination under our bylaws must comply with the requirement provided in the bylaws including providing: (a) all information relating to the nominee that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such nominee’s written consent to being named in the proxy statement as a nominee and to serve as a director if elected); and (b) the name and address (as they appear on the Company’s books) of the nominating stockholder and the class and number of shares beneficially owned by such stockholder.

Communications with the Board

Stockholders or other interested parties may communicate directly with one or more members of our board, or the non-employee directors as a group, by writing to the director or directors at the following address: ^c⁄_o Corporate Secretary, Sterling Construction Company, Inc., 1800 Hughes Landing Blvd. — Suite 250, The Woodlands, Texas 77380; or by e-mail to the corporate secretary at: Reports@Lighthouse-Services.com. Each communication should specify the addressee as well as the general topic of the communication. The communication will be forwarded to the appropriate director or directors, unless it is frivolous. If the communication is voluminous, the corporate secretary will summarize it and furnish a summary to the appropriate director or directors.

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Director Compensation

In setting director compensation, we consider the significant amount of time directors dedicate in fulfilling their duties as directors, as well as the skill-level required to be an effective member of our board. We also seek to align the directors’ compensation with our stockholders’ interest by delivering a substantial portion of that compensation in the form of equity-based compensation. The governance/nominating committee reviews the form and amount of director compensation and, with the advice of the chair of the compensation committee, makes recommendations to the full board. We use a combination of cash and equity-based incentive compensation to compensate our non-employee directors, as described below.

In early 2018, the governance/nominating committee engaged Meridian Compensation Partners, LLC (“Meridian”), the board’s independent compensation consultant, to conduct a competitive analysis of non-employee director compensation and evaluate our program in light of the results of its analysis. Meridian analyzed the non-employee director compensation programs of three comparator groups: the Company’s full peer group used to evaluate executive officer compensation (see page 24 for a list of those companies), a subset of the full peer group comprised of peers with revenues below $3 billion, and a general industry survey data for companies with revenues between $500 million and $1 billion. Meridian’s findings indicated that our per director average compensation was below the 25^th percentile of the full peer group and approximated the 25^th percentile of the general industry survey, noting that the largest discrepancy was the level of equity-based compensation. Following the governance/nominating committee’s review of the report and discussions with Meridian, the committee recommended and the board approved the following changes to our program effective May 1, 2018: a $25,000 increase in the annual board retainer and the elimination of all meeting fees, and a $35,000 increase in the annual target equity award.

Cash Compensation

Effective May 1, 2018, each non-employee director receives an annual fee paid monthly consisting of, as applicable:

Also, each director receives reimbursement for reasonable out of pocket expenses incurred in attending board and committee meetings, as well as investor conferences and education programs attended at the request of the Company. Effective May  1, 2018, we no longer pay meeting fees to our directors.

Equity-Based Compensation

Each non-employee director also receives equity-based compensation under our stockholder-approved stock incentive plan consisting of annual grants of restricted stock. Each year on the day of the annual meeting of stockholders, each non-employee director is awarded shares of restricted stock with an aggregate grant date value of $85,000. The restricted stock vests the day prior to the following year’s annual meeting of stockholders, with potential accelerated vesting in the event that the non-employee director dies or becomes permanently disabled, or in the event there is a qualifying change of control of the Company. Unless otherwise determined by the Board, the restricted stock is forfeited if prior to vesting, the director ceases to be a director for any other reason.

2018 Director Compensation

The table below summarizes the total compensation paid to or earned by our non-employee directors during 2018. The amount included in the “Stock Awards” column reflects the aggregate grant date fair value of the restricted stock, and does not necessarily reflect the income that will ultimately be realized by the director for these stock awards. Mr. Cutillo did not receive any compensation for his service on our board of directors. The compensation paid to Mr.

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Cutillo during 2018 is reflected in the “2018 Summary Compensation” table on page 30.

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Proposal No. 1: Election of Directors

In accordance with our bylaws, effective as of the annual meeting, our board of directors has fixed the current number of directors at eight. Upon recommendation of our governance/nominating committee, and in furtherance of our board refreshment efforts, our board of directors has nominated Roger A. Cregg, Joseph A. Cutillo, Marian M. Davenport, Raymond F. Messer, Dana C. O’Brien, Charles R. Patton, Milton L. Scott and Thomas M. White to serve as our directors, each until the next annual meeting and election of their successor. All of the nominees are current directors, except for Mr. Cregg. Each nominee has consented to being named as a nominee in this proxy statement and to serve as a director if elected. The persons named as proxies intend to vote your shares of our common stock for the election of each of the director nominees, unless otherwise directed. If, contrary to our present expectations, any of the nominees is unable to serve, the proxy holders may vote for a substitute nominee. The board has no reason to believe that any of the nominees will be unable to serve.

Vote Required to Elect Director Nominees

Under our bylaws, in an uncontested election, our directors are elected by a majority of the votes cast, with the directors receiving more for than against votes being elected. In contested elections where the number of nominees exceeds the number of directors to be elected, directors are elected by a plurality vote, with the director nominees who receive the most votes being elected.

As a condition to nomination for election or reelection to the board in an uncontested election, each incumbent director or director nominee submits to the board in advance of the annual meeting an executed irrevocable letter of resignation that is deemed tendered if the director fails to receive the votes required for election or reelection. Such resignation shall only be effective upon acceptance by the board of directors, which effective time may be deferred until a replacement director is identified and appointed to the board.

If an incumbent director fails to achieve a majority of the votes cast in an uncontested election, the governance/nominating committee will make a recommendation to the board of directors on whether to accept or reject the resignation, or whether other action should be taken. The board of directors will act promptly on the governance/nominating committee’s recommendation, considering all factors that the board of directors believes to be relevant, and will publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. For more information on the voting requirements, see “Questions and Answers about the Proxy Materials, Annual Meeting and Voting.”

Recommendation of the Board of Directors

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Information about Director Nominees

The table below provides certain information as of March 19, 2019, with respect to the director nominees. The biography of each of the director nominees contains information regarding the person’s business experience, director positions with other public companies held currently or at any time during the last five years, and the experiences, qualifications, attributes and skills that caused our board to determine that the person should be nominated to serve as a director of the Company. Unless otherwise indicated, each person has been engaged in the principal occupation shown for the past five years.

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Stock Ownership of Directors, Director Nominees and Executive Officers

We believe that it is important for our directors and executive officers to align their interests with the long-term interests of our stockholders. We encourage stock accumulation through the grant of equity incentives to our directors and executive officers and through our stock ownership guidelines applicable to our directors and executive officers. See “Corporate Governance—Director and Executive Officer Stock Ownership Guidelines.”

The table below shows the amount of our common stock beneficially owned as of the record date, March 19, 2019, by each of our director nominees, our named executive officers and our current directors and executive officers as a group. Unless otherwise indicated, all shares shown are held with sole voting and investment power.

* Ownership is less than one percent.

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Stock Ownership of Certain Beneficial Owners

The table below shows persons known to us, as of March 19, 2019, to be the beneficial owner of more than 5% of our outstanding shares of common stock.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC. Based solely upon our review of such reports and amendments thereto filed during 2018, and written representations from our directors and executive officers, we believe that all required reports were timely filed except for Form 4s related to the grant of the 2018 LTI awards for each of Messrs. Cutillo, Ballschmiede, Wadsworth and Chandler, which were inadvertently filed three days after the filing deadline.

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Executive Officer Compensation

Compensation Discussion and Analysis

This Compensation Discussion and Analysis, or CD&A, describes and analyzes our executive compensation philosophy and program in the context of the compensation paid during the last fiscal year to our chief executive officer, our chief financial officer and each of our other three executive officers during 2018 (collectively referred to as our “named executive officers” or “NEOs”). Our named executive officers for 2018 are:

Executive Summary

We are a construction company that specializes in heavy civil infrastructure construction and infrastructure rehabilitation as well as residential construction projects. We operate primarily in Arizona, California, Colorado, Hawaii, Nevada, Texas and Utah, as well as other states in which there are feasible construction opportunities. Heavy civil construction projects include highways, roads, bridges, airfields, ports, light rail, water, wastewater and storm drainage systems, foundations for multi-family homes, commercial concrete projects and parking structures. Residential construction projects include concrete foundations for single-family homes.

2018 Business Highlights

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The financial improvements reflect progress in delivering our multi-year strategy to solidify the base, grow high margin products and expand into adjacent markets. Our strategic element to solidify the base of the heavy civil construction business focuses on cost reductions, remaining disciplined at the bid table, monitoring pricing at the time of bid, and executing the projects to expectations. The strategy element to grow high margin products is reflected in the increasing percentage of backlog of non-heavy highway projects. Finally, expansion of the residential business, as well as other acquisition opportunities will lead to further expansion into adjacent markets. Overall, the execution of our strategy led to improved operating income of $42.6 million in 2018 compared to operating income of $26.2 million in 2017.

Compensation Governance and Best Practices

Our executive compensation program is designed and managed by the independent compensation and talent development committee of our board, referred to in this CD&A as the “committee.” The committee annually reviews the components and structure of our compensation program to ensure that the program supports our business objectives and is aligned with the interests of our stockholders. As part of this review, the committee seeks input from its independent compensation consultant as it deems necessary to provide an outside perspective and evaluation of our program. The committee also values our stockholders’ views on our program. Based on last year’s annual stockholder advisory vote on executive compensation (say-on-pay), more than 95% of our stockholders indicated their support for our program.

We believe the following compensation governance practices and policies promote the accountability of our executives and strengthen the alignment of our executive and stockholder interests:

2018 Changes to Executive Compensation Program

New Structure to Executive Compensation Program: Effective January 2018, our new senior executive incentive compensation plan consists of base salaries, an annual incentive program, which is referred to as the Short-Term Incentive, or STI, and a three-year incentive program, which is referred to as the Long-Term Incentive, or LTI. The STI and the LTI are performance driven programs, and reflect the pay-for-performance philosophy of the Company by linking the opportunity to earn additional compensation to the achievement of short-term and long-term company financial and strategic goals.

This new program differs from the Company’s prior program in the following ways:

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Executive Employment Agreements: Effective December 12, 2018, we entered into executive employment agreements with our CEO, Mr. Cutillo, our CFO, Mr. Ballschmiede, and our General Counsel, Mr. Chandler (the “Executive Employment Agreements”). The board believes that Messrs. Cutillo, Ballschmiede and Chandler have been instrumental in the financial performance of the Company and that their retention is important to the execution of the Company’s multi-year strategy. Accordingly, the board believes the Executive Employment Agreements are in the best interests of the Company and its stockholders and will encourage long-term retention and stability of the Company’s key executive officers and reduce distractions that could result from employment on a non-contractual basis. Further, the severance protections provided under the Executive Employment Agreements are consistent with those commonly found in the market. In approving the Executive Employment Agreements, the board, following the recommendation of the committee, considered advice, information and analysis provided by the committee’s independent legal counsel and compensation consultant, including general industry and peer group compensation information. See the “Cash Severance and Change of Control Benefits” section below and the description under “Executive Compensation Tables” for more information regarding the Executive Employment Agreements.

How We Determine and Assess Executive Compensation

Role of Independent Compensation Consultant

To assist in evaluating our compensation practices and the level of compensation provided to our executives, the committee from time to time retains an independent compensation consultant to provide advice and ongoing recommendations on these matters that are consistent with our business goals and pay philosophy. We believe that this input and advice produces more informed decision-making and assures that an objective perspective is considered in this important governance process. The committee has retained Meridian Compensation Partners, LLC (“Meridian”) as its executive compensation consultant. The committee assessed Meridian’s independence and concluded that Meridian’s work does not raise any conflicts of interest.

For 2018, the scope of Meridian’s engagement included providing market data which the committee referenced in evaluating 2018 compensation levels and in entering into the Executive Employment Agreements.

Market Data and Peer Group

In late 2017, Meridian was asked to benchmark the compensation of our executive officers as a reference for our committee to determine 2018 compensation levels. In seeking a useful peer group, the committee and Meridian recognized that there are few publicly-traded companies in the heavy civil construction business that are close to the Company’s size. Most other publicly-traded heavy civil construction companies are much larger than the Company and are companies with which we rarely compete. Accordingly, we use a number of comparative factors incorporating financial, industry-specific, and both objective and subjective elements to determine a group of appropriate firms for executive compensation benchmarking. The most common criterion for peer group inclusion is industry similarity. Other criterion includes similar business model, competition for business or executive talent and size (including revenue, market capitalization, assets, and geographic presence). Following this analysis, the committee selected the following peer group, which the committee referred to with respect to 2018 compensation:

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In late 2018, the committee once again worked with Meridian to update its peer group in order to better reflect the Company’s size and to remove outliers and companies that have been acquired and are no longer public. This new 15-company peer group, identified below, was used by the committee to determine 2019 compensation.

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Role of Chief Executive Officer

Our chief executive officer makes recommendations to the committee regarding the base salary and incentive compensation awards for our other executive officers, based on his qualitative judgment regarding each officer’s individual performance, although the committee makes all final compensation decisions regarding our executive officers. Our chief executive officer is not present when the committee discusses or determines any aspect of his compensation.

Objectives of Our Compensation Program

The committee is responsible for designing, implementing, and administering our executive compensation program. The committee seeks to increase stockholder value by:

The committee believes compensation should reward achievement of business performance goals, recognize individual initiative and leadership and link the interests of the executives and stockholders.

2018 Executive Compensation Program

During 2018, our executive compensation program included three primary components: base salary, a Short Term Incentive award payable in cash and Long-Term Incentive awards in the form of time-based restricted stock units and performance share units.

After reviewing these components of our compensation program, the committee believes that the risks arising from our compensation policies and practices for our employees, including our executive officers, are not reasonably likely to have a material adverse effect on the Company. Further, the committee believes that certain features of our compensation program, including our clawback, anti-hedging and anti-pledging policies, our stock ownership guidelines and our use of both cash- and equity-based awards, help to manage any compensation-related risks.

Base Salaries

Our philosophy is that base salaries, which provide fixed compensation, should meet the objective of attracting and retaining the executive officers needed to manage our business successfully. Actual individual salary amounts reflect the committee’s judgment with respect to each executive officer’s responsibility, performance, work experience and the individual’s historical salary level.

During 2018, based on a review of base salary levels of our peer companies provided by Meridian, the committee approved increases to the base salaries of our executive officers as follows:

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Short-Term Incentive Program

Our annual incentive, or STI, program awards represent variable components of compensation designed to reward our executive officers if the Company achieves the pre-established performance goals approved by the committee for the applicable year. In January 2018, the committee established the framework for the 2018 STI awards. Under the program, each executive officer was assigned a target STI award based on a percentage of his base salary. For 2018, the STI awards for our NEOs could be earned based on financial and strategic goals, as follows: 75% of the award was based on the Company’s EBITDA for 2018 (the financial goal), and 25% was based on the Company’s income from expanding Tealstone Residential into new markets during 2018 (the strategic goal). These measures differ from the measures used in previous years, which focused on earnings per share and individual performance. The committee believes incorporating EBITDA as the financial measure is appropriate because it is directly tied to management’s success in growing our business and will drive our executives to improve operational execution, efficiencies and profitability. In addition, because earnings per share is now the performance measure used in our new LTI program, the committee believes that EBITDA is a complementary financial measure for the STI program.

The chart below describes the 2018 target STI awards for each executive:

With respect to the performance goals, the committee established threshold and maximum goals as well, and executives could earn between 50% and 200% of the applicable target STI award based on the level of achievement of the goal. The chart below summarizes these goals and also the Company’s actual performance during 2018 with respect to each performance measure.

2018 STI Program Structure and Results

As a result, in March 2019, the committee approved the annual STI awards to the NEOs:

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Long-Term Incentive Program

Under our new long-term incentive, or LTI, program, our NEOs receive a combination of RSUs, which are a time-based award designed to promote retention and stock ownership, and PSUs, designed to reward increased earnings per share (“EPS”). In January 2018, the committee assigned each executive officer an LTI Target Amount, which was expressed as a percentage of his annual base salary at the time.

The LTI awards vest over a three-year performance period and, except for limited circumstances, require continued employment in order to earn the award. Both awards are settled in shares of our common stock. The terms of the LTI awards are summarized as follows:

In 2018, the number of RSUs and PSUs granted to each executive other than Mr. Wadsworth was computed by multiplying the executive’s LTI Target Amount by 50% and then dividing the result by $15.15, which was the closing price per share of the Common Stock on January 16, 2018, the trading day prior to the grant date. With respect to Mr. Wadsworth, in connection with his promotion to chief operating officer in 2017, his incentive compensation package has gradually been realigned to be consistent with the other executive officers. As part of this phase-in, his 2018 LTI Target Amount was split 70% RSUs and 30% PSUs. This phase-in ended in 2018, and his 2019 LTI awards were made consistent with the other executive officers.

For the PSUs granted in January 2018, one-third of the award vested based on the Company’s adjusted EPS performance for fiscal year 2018, which was calculated as our GAAP EPS of $0.93, plus non-cash federal tax expense of $0.05 (“Adjusted EPS”). Based on an annual Adjusted EPS of $0.98, which fell between the target and maximum EPS goals, in 2019, our NEOs received a payout equal to 185% of the first installment of the award.

Supplemental PSU Awards. In connection with the execution of the Executive Employment Agreements and in recognition of the significant improvement in the Company’s financial position over the last three years (see page 21), each of Messrs. Cutillo, Ballschmiede and Chandler received a one-time supplemental award of additional PSUs (the “Supplemental PSUs”) as follows: Mr. Cutillo - 500,000, Mr. Ballschmiede - 200,000 and Mr. Chandler - 80,000. The Supplemental PSUs expire in four equal tranches beginning December 31, 2020 through 2023, and each tranche will vest if aggressive EPS targets are achieved on or before the expiration date for such tranche. These targets would require an annualized earnings growth of over 20% per year over a two to five year period to receive any vesting of the award and total earnings growth in excess of 3 times our 2018 EPS to receive full vesting. See the “Executive Compensation Tables—Grants of Plan-Based Awards” table for more information regarding these awards.

Clawback Policy

The Company’s clawback policy applies to all incentive compensation paid to an employee, including our executive officers (whether paid in cash or in equity) that was based on financial statements that are subsequently restated. Following such a restatement, the compensation shall be adjusted, if necessary, so that the employee will have received no more and no less than the amount that he or she would have received had the incentive award been calculated based on the restated financial results. The policy applies regardless of the employee’s culpability or fault with respect to the error, event, act or omission that caused the restatement.

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Stock Ownership Guidelines

We encourage stock accumulation because we believe that it is important for our executive officers to align their interests with the long-term interests of our stockholders. Accordingly, our board of directors adopted stock ownership guidelines applicable to our executive officers. Under the guidelines, each of our executive officers is encouraged to maintain ownership of shares of our common stock valued at five times (for our CEO) or three times (for our other executive officers) his or her base salary. Shares of our common stock owned individually or jointly, shares held by members of the executive’s immediate family or by a trust for the executive or his immediate family, as well as shares subject to unvested restricted stock and RSUs are counted for purposes of the stock ownership guidelines.

Our executive officers have five years from the date of their respective appointments (or from January 17, 2018, the date upon which the guidelines were revised, whichever is later) to attain these ownership levels. Until the specified ownership levels are met, our executive officers are expected to retain 75% of the net shares issued upon the vesting of equity awards granted by the Company, after deducting any shares used to pay applicable taxes. Mr. Ballschmiede currently exceeds his target ownership level, and each of our other executive officers is currently in compliance with the guidelines. Each of our executive officers (other than Mr. Allen) has until January 17, 2023 to reach his target ownership level, and Mr. Allen has until May 2023.

Limited Executive Perquisites and No Special Retirement Benefits

We seek to maintain a cost conscious culture in connection with the benefits provided to our executive officers. As a result, we provide limited perquisites to our executive officers. Please see “Executive Compensation Tables—2018 Summary Compensation Table” for a description of the perquisites provided in 2018.

Retirement benefits fulfill an important role within our overall executive compensation objectives by providing a financial security component, which in turn promotes retention. However, our executive officers do not receive any retirement benefits that are not generally available to our other full-time employees. We maintain a 401(k) plan, a tax-qualified defined contribution retirement plan in which our executive officers are eligible to participate, which currently provides a 5% employer match. We do not maintain any excess benefit plans, defined benefit or pension plans, or any deferred compensation plans.

Cash Severance and Change of Control Benefits

Beginning in December 2018, we provide Messrs. Cutillo, Ballschmiede and Chandler with contractual protections in the event of certain terminations of employment outside of the change of control context, as well as in connection with a change of control. We believe that severance protections, particularly in connection with a change of control transaction, can play a valuable role in attracting and retaining key executive officers by providing protections commonly provided in the market. In addition, we believe these benefits also serve the company’s interest by promoting a continuity of management in the context of an actual or threatened change of control transaction.

Specifically, these executives are entitled to severance benefits under their Executive Employment Agreements in the event of a termination of employment by the company without cause or by the executive for good reason. The board determined that it is appropriate to provide these executives with severance benefits under these circumstances in light of their respective critical positions with the company and as part of their overall compensation package. In addition, we believe that the occurrence, or potential occurrence, of a change of control transaction would create uncertainty regarding the continued employment of our executive officers. This uncertainty results from the fact that many change of control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage these executive officers to remain employed with the company during an important time when their prospects for continued employment following a transaction are often uncertain, the Executive Employment Agreements provide these executive officers with enhanced severance benefits if their employment is terminated by the company without cause or by the executive for good reason in connection with a change of control. Because we believe that a termination by the executive for good reason may be conceptually the same as a termination by the company without cause, and because we believe that in the context of a change of control, potential acquirers would otherwise have an incentive to constructively terminate the executive’s employment to avoid paying severance, we believe it is appropriate to provide severance benefits in these circumstances. We do not provide excise tax gross-up protections under any change of control arrangements with our executive officers.

In addition, the terms of our outstanding restricted stock, RSU and PSU awards provide for accelerated vesting under certain circumstances related to a termination of employment and the occurrence of a qualifying change of control.

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For more information regarding all of these benefits, see the section titled “Executive Compensation Tables – Potential Payments Upon Termination or Change of Control.”

Tax and Accounting Considerations

The accounting and tax treatment of compensation generally has not been a factor in determining the amounts of compensation awarded to our executive officers. However, the committee and management have considered the accounting and tax impact of various program designs to balance the potential cost to the Company with the benefit or value to the executive officer.

Compensation and Talent Development Committee Report

The compensation and talent development committee of the board has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K, and based on such review and discussion, the compensation and talent development committee recommended to the board that the Compensation Discussion and Analysis be included in this proxy statement.

Submitted by the compensation and talent development committee on March 5, 2019:

Marian M. Davenport, Chair

Raymond F. Messer

Charles R. Patton

Richard O. Schaum

Thomas M. White

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Executive Compensation Tables

The table below summarizes the total compensation paid to or earned by our named executive officers for the fiscal years ended December 31, 2018, 2017 and 2016.