Shane O'Kelly
ADVANCE AUTO PARTSAbout Shane O'Kelly
Shane M. O’Kelly (age 56) has served as President and Chief Executive Officer of Advance Auto Parts (AAP) and as a director since September 11, 2023; he is not an independent director and does not serve on board committees . Company performance in 2024 under his tenure saw negative total shareholder return (TSR) and operating results, with TSR value of an initial $100 at $30.67, GAAP net income of $(366) million, GAAP operating income of $(713) million, and comparable store sales growth of (0.7)% . In Q1 2025, AAP reported net sales of $2.583B, comparable store sales down 0.6% (excludes liquidation sales from >500 store closures), and reaffirmed full-year 2025 guidance; management cited 8 consecutive weeks of U.S. Pro comp growth and progress on footprint optimization .
Past Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| HD Supply (Home Depot subsidiary) | Chief Executive Officer | Dec 2020 – Sep 2023 | Improved operational execution, oversaw DC network transition, delivered record sales and profit . |
| Interline Brands (Home Depot) | Chief Executive Officer | Mar 2018 – Dec 2020 | Led national MRO distributor until integration into Home Depot . |
| PetroChoice Holdings | Chief Executive Officer | Jun 2011 – Mar 2018 | Led national lubricant distributor . |
| AH Harris & Sons | Chief Executive Officer | Jan 2008 – Jun 2011 | Led specialty construction supply distributor . |
| U.S. Army | Captain | — | Prior military leadership experience . |
External Roles
| Organization | Role | Years | Notes |
|---|---|---|---|
| — | — | — | No current public company boards disclosed for O’Kelly . |
| Policy allowance | May serve on 1 other public company board (with Board approval) | During employment term | Per his employment agreement . |
Fixed Compensation
| Year | Base salary ($) | Target bonus % of salary | Actual non-equity incentive ($) | Notes |
|---|---|---|---|---|
| 2023 | 302,885 | 150% (from 2024 onward per agreement) | — | New hire 9/11/2023; sign-on cash $1,000,000 in 2023 . |
| 2024 | 1,125,000 | 150% | 168,750 | STI paid at 10% (individual objectives only) given 0% corporate metric payout . |
Additional 2024 compensation elements: bonus (sign-on) $1,000,000; stock awards grant-date fair value $6,255,449; option awards grant-date fair value $1,624,973; all other compensation $129,464 (relocation and gross-up, 401(k) match, imputed spousal travel) .
Performance Compensation
Short-Term Incentive (STI) – 2024 Design and Outcome
| Metric | Weight | Target | Actual/Payout |
|---|---|---|---|
| Operating Income | 65% | $432–$454 million | 0% payout for corporate metric; enterprise OI below threshold . |
| Comparable Store Sales | 25% | 1.8% | 0% payout for corporate metric; actual metrics below threshold . |
| Individual Objectives | 10% | Set per role | 100% of the 10% component for all NEOs; aggregate STI payout of 10% . |
Design changes from 2023 to 2024 included removal of Free Cash Flow metric, increased weighting to Operating Income, and flatter payout curve around target; threshold required improvement vs prior year .
Long-Term Incentive (LTI) – Structure and Recent Realization
| Component | Weight | Vesting/Performance | 2024/Recent Outcomes |
|---|---|---|---|
| PSUs (RTSR vs S&P 500) | 50% | 3-year performance; 35th/55th/80th percentiles = 35%/100%/200% payout; cap at 100% if absolute TSR negative | 2022–2024 PSU cycle paid 0% (below threshold) . |
| RSUs (time-based) | 25% | Ratably over 3 years | Outstanding awards disclosed; see grant detail below . |
| Stock Options | 25% | 3-year ratable vest; 10-year term | 2023 sign-on and 2024 annual options outstanding; both strikes above $47.29 YE2024 price (underwater) . |
O’Kelly – Key Equity Grants and Vesting
| Grant date | Type | Shares/Target | Terms/Strike | Vesting |
|---|---|---|---|---|
| 9/18/2023 | Sign-on RSUs | 78,982 | — | 1/3 annually on 9/18/2024, 9/18/2025, 9/18/2026 (26,327/26,327/26,328) . |
| 9/18/2023 | Sign-on Options | 150,000 | $58.16 | 1/3 annually on 9/18/2024, 9/18/2025, 9/18/2026; 10-year term . |
| 3/14/2024 | PSUs (target) | 40,865 (thr 14,303; max 81,730) | RTSR vs S&P 500 | 2024–2026 performance period . |
| 3/14/2024 | RSUs (time-based) | 20,433 | — | Typically 3-year ratable vest (company practice) . |
| 3/14/2024 | Options | 50,465 | $79.53; exp 3/14/2034 | 3-year ratable vest; YE2024 price $47.29 (underwater) . |
| 3/04/2025 | PSUs (target) | 93,985 (thr 32,895; max 281,955) | RTSR vs S&P 500 | 2025–2027 performance period . |
| 3/04/2025 | RSUs (time-based) | 193,400 | — | Time-based award to support retention/alignment . |
2022–2024 PSU payout = 0%; 2024 STI payout = 10% (individual objectives only), signaling pay-for-performance rigor amidst underperformance .
Equity Ownership & Alignment
| Item | Detail |
|---|---|
| Beneficial ownership | 87,654 shares; <1% of outstanding (59,833,137 shares outstanding at 3/17/2025) . |
| Near-term exercisable options | 66,821 options exercisable within 60 days of 3/17/2025 . |
| Underwater options (selling pressure) | YE2024 stock price $47.29 vs option strikes $58.16 (2023) and $79.53 (2024) – reducing likelihood of exercise/sales until recovery . |
| Ownership guidelines | CEO must hold stock equal to 6x base salary within 5 years; retain 50% of net vested shares until compliant . |
| Hedging/pledging | Prohibited hedging; pledging prohibited unless stringent requirements; directors/officers subject to policy . |
| Director pay | Management directors receive no additional director compensation . |
Employment Terms
| Topic | Key terms |
|---|---|
| Start date; term | Commenced September 11, 2023; initial 3-year term with automatic 1-year renewals unless 90 days’ notice . |
| Base salary; target bonus | $1,125,000 base; target annual bonus 150% of salary; max 200% of target; first eligible from fiscal 2024 . |
| Annual LTI opportunity | 2024 target LTI grant-date value $6,500,000; mix consistent with other executives (PSUs/RSUs/options) . |
| Sign-on cash | $1,000,000 (paid after start), $500,000 (by 3/15/2024), $500,000 (upon relocation by 9/15/2024); subject to repayment on certain resignations/for-cause separations within 1–2 years per tranche . |
| Sign-on equity | 78,982 time-based RSUs (3-year ratable); 150,000 options at $58.16 (3-year ratable; 10-year term) . |
| Severance (no CIC) | If terminated without Due Cause or resigns for Good Reason: 1.5x base salary + 1.5x average bonus (or 1.5x target bonus if before 2024 bonus cycle), pro-rata bonus, 18 months medical benefits, outplacement, acceleration of sign-on RSUs/options; lump-sum in 60 days (release required) . |
| Change-in-control (CIC) | If terminated without Due Cause or for Good Reason within 3 months before or 12 months after a CIC: 2x base salary + 2x target bonus; benefits; “net-best” 280G cutback (no tax gross-up) . |
| Restrictive covenants | Non-compete 1 year post-termination (U.S. and other AAP countries; automotive aftermarket scope); non-solicit 2 years; confidentiality; non-disparagement . |
| Clawback | Subject to AAP’s Incentive Compensation Clawback Policy and plan-level clawback; no recoupments in 2024; 2023 immaterial restatement triggered policy but no affected awards . |
| Legal/other | Company to pay up to $60,000 of his legal fees in negotiating the agreement; commuting/relocation benefits as specified . |
Board Governance
- Role and independence: O’Kelly is CEO and a board member; he is not independent. The Board has an independent Chair (Eugene I. Lee, Jr.); all standing committees consist solely of independent directors .
- Committees: O’Kelly serves on no board committees; Audit, Compensation, Nominating & Corporate Governance, and Finance committees are fully independent .
- Meetings and attendance: The Board met 10 times in 2024; each incumbent director attended at least 75% of Board and committee meetings; independent directors hold regular executive sessions .
Dual-role implications: Independence risks from combining CEO and director roles are mitigated by an independent Chair, fully independent key committees, regular executive sessions without management, and majority independent board composition .
Compensation Structure Analysis (signals)
- Year-over-year mix and rigor: 2024 STI corporate metrics paid 0% and LTI PSUs (2022–2024) paid 0% due to underperformance; only 10% STI paid via individual objectives—demonstrating pay-for-performance alignment despite a low-performance year .
- Metric changes: 2024 STI increased emphasis on Operating Income (65%) and removed Free Cash Flow to focus on profitability; threshold levels required improvement vs prior year .
- Governance practices: Double-trigger vesting for change in control (no single-trigger), no option repricing, independence of comp consultant (F.W. Cook), robust stock ownership/retention guidelines, and clawback policy .
- Dilution context: Ask to increase 2023 Omnibus Plan shares by 2,170,000; overhang would rise from ~4.5% to ~7.8%—supporting retention through equity while increasing potential dilution .
Equity Ownership & Alignment (detail)
| Item | Amount/Status |
|---|---|
| Shares beneficially owned | 87,654 shares; <1% ownership . |
| Options exercisable within 60 days | 66,821 . |
| Underwater status | YE2024 price $47.29 vs strikes $58.16 (2023 sign-on) and $79.53 (2024) . |
| Ownership guideline | 6x base salary; 5-year window; retain 50% net vested shares until compliant; Company reports executives in compliance/progress toward requirements . |
| Hedging/pledging | Prohibited hedging; pledging prohibited unless stringent conditions met . |
Implications for selling pressure: Option grants are underwater at YE2024, reducing near-term exercise/selling. Time-based RSU vestings (e.g., ~26.3K annually from 2023 sign-on plus 2024/2025 grants) could create periodic tax-driven sales, but retention/ownership rules mitigate wholesale disposals .
Performance & Track Record
- 2024 snapshot: TSR $30.67 (from $100 base), GAAP net income $(366)m, GAAP operating income $(713)m, comparable store sales (0.7)%—driving low incentive payouts .
- Turnaround progress in 2025: Q1 2025 better-than-expected sales and profitability, 8 consecutive weeks of positive U.S. Pro comps, footprint optimization completed, full-year guidance reaffirmed (Net sales $8.4–$8.6B; adjusted OI margin 2.0–3.0%; adjusted EPS $1.50–$2.50) .
Compensation Peer Group & Say-on-Pay
- Peer group approach: Targets approximate median pay among peers; 2024 peers include AZO, GPC, ORLY, TSC, W.W. Grainger, LKQ, Ulta, etc.; refreshed in Aug 2024 (removed CarMax, Dollar General, Dollar Tree; added Group 1 Automotive, Applied Industrial Technologies, Floor & Décor, Sally Beauty) .
- Say-on-pay: 93.7% approval at 2024 annual meeting—broad shareholder support for the program .
Employment & Contracts (risk/retention levers)
- Severance economics: 1.5x salary+bonus without CIC, 2x salary+target bonus with CIC; pro-rata bonus and benefits; sign-on equity accelerates on qualifying separations—strong retention and protection against opportunistic turnover .
- Post-employment covenants: 1-year non-compete (global scope aligned to AAP geographies) and 2-year non-solicit reduce departure risk to direct competitors and key stakeholders .
- Clawback & no gross-ups: Clawback in place; no excise tax gross-ups; “net-best” 280G mitigates excessive parachute outcomes .
Board Service History and Roles
- Board service: Director since September 2023; no committee assignments; not independent; independent Chair (Eugene I. Lee, Jr.) leads the Board .
- Governance: Fully independent Audit, Compensation, Nominating & Corporate Governance, and Finance committees; regular executive sessions; majority independent board .
- Dual-role implications: While CEO-director roles can raise independence concerns, separation of Chair/CEO, independent committees, and executive sessions provide oversight counterweights .
Investment Implications
- Alignment and retention: Large multi-year equity grants (including 2025 RSUs/PSUs) and stringent ownership/retention rules align O’Kelly with long-term shareholders and support executive retention through the turnaround .
- Limited near-term selling pressure: Options are materially underwater at YE2024, reducing incentive to sell; RSU vesting may create modest, periodic tax-related selling but policy constraints apply .
- Pay-for-performance integrity: Zero LTI PSU payout for 2022–2024 and only 10% STI payout in 2024 underscore comp discipline—positive for governance-sensitive investors .
- Change agent execution risk: 2024 results were weak; Q1 2025 signals operational traction (Pro comps streak, footprint optimization), but guidance still implies low-single-digit margins—investors should monitor sustained RTSR and operating income improvement which directly drive PSU and STI outcomes .
- Dilution trade-off: Incremental 2.17M shares requested under the 2023 Omnibus Plan lifts overhang to ~7.8%, a reasonable cost to maintain competitive equity compensation during a multi-year turnaround, but still a dilutive headwind to consider .