DEF 14A 1 ny20001720x1_def14a.htm DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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

CHECK THE APPROPRIATE BOX:

☐ Preliminary Proxy Statement			☒ Definitive Proxy Statement
☐ Confidential, for Use of the Commission			☐ Definitive Additional Materials
Only (as permitted by Rule 14a-6(e)(2))			☐ Soliciting Material Pursuant to §240.14a-12

LITHIA MOTORS, INC.
(Exact Name of Registrant as Specified In Its Charter)

PAYMENT OF FILING FEE (CHECK ALL BOXES THAT APPLY):
☒ No fee required.
☐ Fee paid previously with preliminary materials
☐ Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11

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Letter from the Chief Executive Officer

Dear Shareholder,

We are pleased to invite you to attend Lithia & Driveway’s (LAD’s) virtual 2022 Annual Meeting of Shareholders on April 27, 2022 at 8:30 a.m., Pacific Daylight Time to share our strategy for profitably consolidating the largest retail sector in North America through creating personal transportation solutions wherever, whenever and however our consumers desire.

Against the backdrop of strong consumer demand and supply chain shortages, we delivered record performance in 2021. The Lithia channel demonstrated its resilience and we saw early contributions from our newest endeavors, GreenCars, Driveway and Driveway Finance. We are well on our way to achieving our 2025 Plan and are excited for the road ahead.

LAD continues to transform into a diversified, omni-channel retailer that maximizes the addressable market and thrives in any environment. Expanding our physical footprint through accretive acquisitions adds to our capital engine and we are in the early innings of overlaying adjacencies to drive further synergies and economies of scale.

Our values guide us beyond producing financial returns to serving our customers and communities, developing our people, reaching our potential and growing our company. Within our entrepreneurial and high-performance culture, we maintain a human capital policy that supports a diverse and energized workforce with career advancement, role mobility opportunities and strong health, safety and wellness initiatives.

We are fortunate to have such a talented group of people who are committed to modernizing the industry and fully activating our approximately 21,150 team members, expansive physical network and the largest and most diverse offering of owned inventory.

Our mission of Growth Powered by People and our values of Customers for Life, Improving Constantly, Taking Personal Ownership, and Have Fun are the driving forces behind our ability to outperform and compete in any environment. We believe this unique strategy and culture positions us to continue to lead our industry’s transformation and will enable us to earn a more meaningful share of the U.S. market.

Thank you very much for being a partner and shareholder in our company.

Bryan B. DeBoer

President and Chief Executive Officer

Lithia Motors, Inc

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NOTICE OF ANNUAL MEETING

OF SHAREHOLDERS

2022 ANNUAL MEETING INFORMATION

Meeting Date Wednesday April 27,2022	Annual Meeting Website www.virtualshareholder meeting.com/LAD2022	Meeting Time 8:30 a.m. (Pacific Daylight Time)	Record Date February 28, 2022
ITEMS OF BUSINESS
1.To elect the seven director nominees named in this proxy statement;
2.To conduct an advisory vote to approve named executive officer compensation; and
3.To ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year ending December 31, 2022.

To the Shareholders of Lithia Motors, Inc.

I am pleased to invite you to the 2022 Annual Meeting of Shareholders of Lithia Motors, Inc. (the “Annual Meeting”), which will be held virtually at 8:30 a.m. Pacific Daylight Time on April 27, 2022. To ensure the health and safety of our employees, directors and shareholders during these uncertain times, the Board of Directors has authorized participation via remote communication for our Annual Meeting. There will be no physical location for shareholders to attend. The Annual Meeting will occur virtually through an audio webcast, accessible at the link provided above. You may notify the Company of your desire to participate in the Annual Meeting by remote communication by logging into the 2022 Annual Meeting Website in advance of the meeting. Log-in will begin at 8:00 a.m. Pacific Daylight Time. To participate in the Annual Meeting, you will need your unique control number included on your proxy card (printed in the box and marked by the arrow) or on the instructions that accompanied your proxy materials.

If you have any questions regarding this information or the proxy materials, please visit our website at www.lithiamotors.com or contact our investor relations department at (541) 776-6591. Our proxy statement and 2021 Annual Report on Form 10-K can be accessed directly at the following Internet address: http://www.proxyvote.com. Just enter the control number located on your proxy card.

We appreciate your continued support of Lithia Motors and look forward to either joining you at the meeting or receiving your proxy.

Very truly yours,

Christopher S. Holzshu, Executive Vice President and Secretary

March 11, 2022

	HOW TO VOTE
				Only holders of record of our common stock at the close of business on February 28, 2022, the record date, will be entitled to notice of and to vote at the meeting and any adjournment thereof. A list of shareholders entitled to vote at the Annual Meeting will be available during the Annual Meeting at the 2022 Annual Meeting Website. You may vote or submit questions during the Annual Meeting by following the instructions available on the 2022 Annual Meeting Website during the Annual Meeting. Further information regarding voting rights and the matters to be voted upon is presented in our proxy statement.

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YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Annual Meeting, we urge you to vote and submit your proxy via internet, telephone or by completing, signing, dating and returning your proxy card or voting instruction form so that your shares will be represented at the Annual Meeting.

Our proxy statement and 2021 Annual Report on Form 10-K can be accessed directly at the following Internet address:

http://www.proxyvote.com.

Just enter the control number located on your proxy card.

	SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
	This document contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements often use words such as “will”, “anticipate”, “estimate”, “expect”, “should”, “may”, and other words and terms of similar meaning or reference future dates. The Company’s expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis; however, each forward-looking statement involves a number of risks and uncertainties, including those set forth in this document, those described in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q under the heading “Risk Factors”, and those that have been or may be described in other reports filed by the Company, including reports on Form 8-K. The Company cautions that forward-looking statements are inherently less reliable than historical information. The risks and uncertainties that could cause actual results to differ materially from estimated or projected results include, without limitation: Future national and local economic and financial conditions, including as a result of the COVID-19 pandemic, inflation and governmental programs and spending; the market for dealerships, including the availability of stores to us for an acceptable price; changes in customer demand, our relationship with, and the financial and operational stability of, OEMs and other suppliers; changes in the competitive landscape, including through technology and our ability to deliver new products, services and customer experiences and a portfolio of in-demand and available vehicles; risks associated with our indebtedness, including available borrowing capacity, interest rates, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms; the adequacy of our cash flows and other conditions which may affect our ability to fund capital expenditures, obtain favorable financing and pay our quarterly dividend at planned levels; disruptions to our technology network including computer systems, as well as natural events such as severe weather or man-made or other disruptions of our operating systems, facilities or equipment; Government regulations and legislation; the risks set forth throughout “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Part I, Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K, and in “Part II, Item 1A. Risk Factors” of our Quarterly Reports on Form 10-Q, and from time to time in our other filings with the SEC. The Company does not undertake any duty to update any of the forward-looking statements after the date of this document to conform them to actual results or to reflect changes in events, circumstances or its expectations. New factors emerge from time to time and it is not possible for the Company to predict or assess the effects of all such factors or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

	OTHER
	All references in this proxy statement to “Lithia”, “Lithia and Driveway”, “LAD”, “Lithia Motors”, the “Company”, “we”, “us”, or “our” refer to Lithia Motors, Inc. and its subsidiaries, except where the context otherwise requires or as otherwise indicated. The content on any website referred to in this Proxy Statement is not incorporated by reference in this Proxy Statement unless expressly noted.

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LITHIA MOTORS, INC. PROXY STATEMENT			7
2021 Achievements and Performance Highlights			7
Our Company Strategy			8
DIRECTORS AND NOMINEES			9
Summary of Director Experience and Qualifications			10
Director Biographies			11
Non-Director Executive Officers			13
CORPORATE GOVERNANCE Board Leadership and Structure			14
Board of Directors			14
2021 Board and Committee Composition			14
Board Committees			14
Director Independence			16
Lead Independent Director and Governance Practices			16
Note from our Lead Independent Director			17
Director Qualifications and Nominations			19
Our Board’s Risk Oversight Role			20
Cybersecurity			20
Code of Business Conduct and Ethics			21
Compensation of Directors			21
Non-Employee Director Compensation			21
2021 Director Compensation			22
Non-Employee Director Compensation Table			22
Deferred Compensation Agreements with Non-Employee Directors			23
Non-Employee Director Stock Ownership Policy; Hedging and Pledging Restrictions			23
CORPORATE SOCIAL RESPONSIBILITY Our Commitment to all Stakeholders			24
Environmental			25
Waste and Recycling			25
Social			26
Diversity and Inclusion			26
EXECUTIVE COMPENSATION Compensation Discussion and Analysis			27
Summary Compensation Table			43
PROPOSAL NO. 1 Election of Directors			51
PROPOSAL NO. 2 Advisory vote to approve the compensation of our named executive officers			52

PROPOSAL NO. 3 Ratify the appointment of KPMG LLP as our Independent Registered Public Accounting Firm for the Year Ending December 31, 2022			53
We Engaged KPMG After a Rigorous Review Process			53
Fees Paid to KPMG LLP Related to Fiscal Years 2021 and 2020			54
Pre-Approval Policies			54
Vote Required			54
Selection of KPMG as our Auditor			55
Audit Committee Actions			55
ADDITIONAL OWNERSHIP INFORMATION			57
GENERAL INFORMATION About the Annual Meeting			58
Online Meeting			58
Mailing Date			58
Matters for Consideration at the Annual Meeting			58
Proxies			59
Voting			59
Who Can Vote			59
Quorum			59
“Shareholder of Record” and “Beneficial Ownership”			59
How to Vote			60
How You Can Revoke Your Proxy or Change Your Vote			60
Attending the Annual Meeting			60
Admission			60
Asking Questions			61
Discretionary Authority			61
Annual Meeting Voting Results			61
Additional Information			61
Solicitation Expenses			61
Electronic Delivery of Proxy Materials			61
Householding of Proxy Materials			61
Annual Report on Form 10-K			62
Other Materials			62
Communications with the Board			62
2023 Shareholder Proposals or Nominations			62
Shareholder Proposals			62
Shareholder Director Recommendations			63
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH RELATED PERSONS			64

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LITHIA MOTORS, INC.

PROXY STATEMENT

This proxy statement, the accompanying 2021 Annual Report on Form 10-K, the Notice of Annual Meeting and the proxy card are being furnished to the shareholders of Lithia Motors, Inc., an Oregon corporation, in connection with the solicitation of proxies by the Company for use at our 2022 Annual Meeting of Shareholders (the “Annual Meeting”). The Annual Meeting will occur virtually through an audio webcast, accessible at www.virtualshareholdermeeting.com/LAD2022 on Wednesday, April 27, 2022, at 8:30 a.m. Pacific Daylight Time. On or about March 11, 2022, we mailed to our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access this proxy statement and our 2021 Annual Report on Form 10-K. The Notice provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail.

2021 Achievements and Performance Highlights

During 2021 we continued to execute on our 2025 Plan and recorded the highest revenue and EPS in our history. Of note, we:

•	Retailed over 530,000 units

•	Exceeded our December transaction volume targets for Driveway, expanding our reach beyond our local markets with an average shipping distance greater than 900 miles

•	Scaled Driveway Finance Corporation, our captive lender, to a $725 million portfolio at year-end and completed an inaugural ABS offering in November, providing significant capital flexibility

•	Acquired businesses expected to contribute $6.9 billion in annualized revenues and entered Canada, our first international market, through our partnership with Pfaff Automotive.

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Our Company Strategy

In July 2020, we announced our plan to transform our company into a diversified, omni-channel retailer with a nationwide physical network by 2025. Eighteen months later, we are pacing to meet or exceed those goals.

The base of our business remains our Lithia channel, a nationwide network offering four diversified business lines - new vehicle sales, used vehicle sales, consumer finance and aftermarket parts and service sales - that are highly profitable, resilient, and provide the capital that fuels our expansion. Our high margin parts and service business enable touchpoints throughout the consumer life cycle, providing efficiencies in advertising compared to our used-only competitors.

Growing our footprint through M&A adds to the capital engine, as acquired locations are cash flow positive on day one, and provide the physical network underlying Driveway, allowing us to reach consumers looking for a transparent, negotiation-free experience. Our M&A strategy targets after-tax returns of 15%, and we have averaged over 25% by the third year of ownership due to our disciplined approach focusing on reasonably priced targets that build out our network. As we shrink the distance between our locations and the consumer, we realize economies of scale in used vehicle procurement, reconditioning and logistics, further driving profitability. As our network expands, we are also able to offer a wider, more diverse selection of inventory.

With our entrepreneurial, decentralized model, the Lithia channel has the flexibility to reach consumers both in-store and digitally in a manner that is responsive to local market conditions. Combined with Driveway, which reaches a consumer desiring a fully online experience, the design underlying our 2025 plan positions us to address the largest proportion of the automotive retail market of any market participant. Collectively, Lithia and Driveway, or LAD, also provides access to adjacent markets to drive further growth. For example, Driveway Finance, one of our more developed adjacent business lines, enables us to earn at least three times the finance income compared to arranging financing through a third party. As we scale that business, the incremental profitability generated will provide further capital for expansion.

Our capital allocation strategy has successfully focused on maximizing shareholder returns, as evidenced by our rank as #3 in 10-year total shareholder return in the 2021 Fortune 500. While we target allocating 65% of our capital towards building out our network through M&A, 25% towards capital expenditures, innovation, and diversification, such as in Driveway and Driveway Finance and 10% to direct shareholder return, via dividends and share repurchases, we are flexible and re-allocate as necessary to maximize shareholder return. In addition, our focus on maintaining a leverage ratio of two to three times adjusted EBITDA provides significant capacity to opportunistically deploy capital, while also providing flexibility for unforeseen changes in the economic environment.

Underlying the design and key to our success is our culture of high performance and personal ownership. We attract, retain and promote individuals who thrive in a high-performing environment, and who welcome the challenge to improve and build aspirational plans to drive success. We also strive to cultivate personal growth in all our employees through new experiences, teamwork, professional development, mentoring, coaching and recognition.

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DIRECTORS AND NOMINEES

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Summary of Director Experience and Qualifications

Skills and Attributes of our Board

Our directors bring a balanced mix of skills, qualifications and experience and we believe their diverse backgrounds contribute to an effective and well-balanced Board. Listed below is a summary of the diverse skills and attributes of our Board of Directors:

Skills and Experience		Description
	Finance	Directors with an understanding of accounting, financial reporting, capital allocation processes and financial markets are essential to ensuring effective oversight of our financial resources, risks and processes, and provide valuable advice and insights with respect to establishing a successful capital strategy critical to our ongoing success.
	Legal and Compliance	Directors with risk management and compliance oversight experience guide our Board and management in executing their responsibilities to identify, evaluate and understand the magnitude of various risks facing the Company, and are key in designing appropriate policies and procedures to effectively mitigate and manage those risks.
	Executive Compensation	Directors who have experience and expertise with tax, legal, securities and accounting issues are integral in setting the compensation of our executive officers and designing and implementing effective incentive plans.
	Risk Management	Directors with experience in risk management guide our risk mitigation strategy beyond mere financial and accounting risk, to encompass cyber, enterprise, compensation, supply chain and ESG risk management.
	International	Directors with international or global markets experience bring valuable knowledge and perspective of global industry dynamics to the Company and its international operations, including exposure to different cultural perspectives and practices and different political and regulatory environments.
	Strategic & Senior Leadership	Directors with senior leadership experience in complex public, private and government organizations, whether as an officer or board member, can effectively oversee the management of the Company and bring a valuable perspective to important operational issues, strategy and initiatives to drive change and growth. These directors are generally highly effective at motivating, managing and inspiring others and have talent, professional development and succession planning skills.
	Board Service & Governance	Directors with corporate governance experience gained from service on company boards provide valuable insight into the dynamics and operations of the Board and the impact that governance and compensation decisions have on the Company and stockholders. Their skills support the Company's goals of strong corporate governance practices through Board and management accountability, transparency, legal and regulatory compliance and protection of stockholder interests.
	Marketing, Advertising & Investor Relations	Directors that have effectively engaged both customers and investors guide us as we seek to solidify an omni-channel customer experience while listening to and protecting the interests of our stockholders.
	Technology, Cybersecurity, & Digital Innovation	As we continue to drive digital innovation in our market and the broader environment, we rely upon Directors with experience in innovating across digital platforms and designing systems to protect our electronic infrastructure, as well as our information and the information of our customers.
	Mergers & Acquisitions	Directors with strategic planning and merger and acquisition experience can provide insight as we identify the best strategic manner in which to expand our business and drive growth either through innovative strategic initiatives or acquisitions and other business ventures. Such individuals can provide valuable guidance on how to develop a strategic plan and oversee the execution of key strategic initiatives and evaluating our progress of those initiatives.
	Human Rights & Community Responsibility	Directors who have experience advocating not just for shareholders, but stakeholders, provide valuable insight into protecting the rights of people, our employees and the communities in which we do business, and are advocates of social justice.
	Diversity & Inclusion	Directors who have experience and expertise in building cultures that are rich in gender and ethnic diversity, inclusion and equal opportunity help us incorporate those same ideals into our human capital management strategy.

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Director Biographies

SIDNEY B. DEBOER

Biography

Sidney B. DeBoer took Lithia Motors public in 1996 and is the Chairman of the Board. Mr. DeBoer served as Chief Executive Officer and Secretary from 1968 through 2011, and then Executive Chairman through the end of 2015. His charitable work on the Southern Oregon University Foundation Board, Oregon Community Foundation and the Oregon Shakespeare Festival has created a vibrant community for our Company’s headquarters. Mr. DeBoer attended Stanford University and the University of Oregon.

Board Qualification

Mr. DeBoer’s founder’s spirit and pioneering work in the public auto retail sector and as an automotive dealer has earned him numerous awards and recognition. His familiarity with our business, executive leadership knowledge and industry experience make him uniquely qualified to serve as our Chair.

BRYAN B. DEBOER

Biography

Prior to becoming Chief Executive Officer (CEO), Bryan B. DeBoer was Senior Vice President of Mergers & Acquisitions/Operations and then Chief Operating Officer driving the growth of Lithia and transforming the Company culture to an entrepreneurial and high-performance model. Upon joining Lithia in 1989, Mr. DeBoer grew through the store positions of Finance Manager, Used Vehicle Manager, General Sales Manager, General Manager and multi-store General Manager. Mr. DeBoer has a B.S. degree, summa cum laude, from Southern Oregon University in Business Administration. He also graduated from the National Automobile Dealers Association Dealer Academy.

Board Qualification

Mr. DeBoer has been CEO and President since 2012 and first became a director in 2008. Mr. DeBoer’s store experience, passion for mergers and acquisitions and demonstrated ability to develop strong manufacturer relationships drive our growth. His enthusiasm for the car business combined with a visionary spirit set the tone for our innovative and entrepreneurial culture.

SUSAN O. CAIN

Biography

Susan O. Cain had a long career at KPMG LLP, joining in 1978, and retiring as a partner in the San Francisco office in 1999. While with KPMG, she specialized in banking institutions and trust tax services. Ms. Cain was a Senior Instructor in accounting at Southern Oregon University, located in Ashland, Oregon since 2004, retiring in 2019. Ms. Cain is involved with various non-profit and charitable organizations including the Ashland Independent Film Festival and the Oregon Shakespeare Festival. Ms. Cain holds a B.A. degree in General Science from Oregon State University and a Master of Science in Taxation from Washington School of Law, Washington Institute of Graduate Studies.

Board Qualification

Ms. Cain joined our Board of Directors in 2009. She maintains her CPA license in California and brings to our Board of Directors a high level of accounting expertise. She serves as the Compensation Committee Chair and is an audit committee financial expert as defined under SEC rules. Ms. Cain was selected to serve on our Board of Directors because of her significant financial and accounting expertise and experience.

SHAUNA F. MCINTYRE

Biography

Shauna F. McIntyre is currently the interim President and CEO of Electric Last Mile Solutions, an electric commercial vehicle provider and has previously served as the CEO of Sense Photonics, a 3D and Lidar company. Ms. McIntyre also served in various roles at Google, including Program Lead of Google’s automotive services program, from October 2016 to April 2020. Previously, she held integral roles at Egon Zehnder International, Achates Power, Inc., Honeywell International, Inc., McKinsey & Company, and Ford Motor Company. Ms. McIntyre serves on the Board of Directors of Electric Last Mile Solutions, and was also a co-founding board member for the North American Council for Freight Efficiency (NACFE). Ms. McIntyre holds a B.S. from the University of California, Los Angeles, a M.S. from the University of California, Berkeley, and an M.B.A. from Harvard.

Board Qualification

Ms. McIntyre joined our Board of Directors in April 2019. Ms. McIntyre brings a wealth of knowledge and expertise to our Board in a wide variety of subjects within the automotive industry, including manufacturing, innovation, E-commerce, finance and operations. Ms. McIntyre was selected to serve on our Board of Directors because of her valuable strategic, industry and leadership experience.

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LOUIS P. MIRAMONTES

Biography

Louis P. Miramontes is an experienced board member and accomplished business executive. He is a strong leader and provides frequent counsel and input to CEOs on operating and strategic matters. Mr. Miramontes is a member of the Board of Directors of Rite Aid Corporation and Oportun Financial Corporation. He had a distinguished 38-year career at KPMG, where he served in many leadership roles, including managing partner of the San Francisco office and Senior Partner for KPMG's Latin America region. As an audit partner, he provided audit services to public and private clients in the retail, financial services and real estate sectors. Louis received his B.S. degree in Business Administration from California State University, East Bay.

Board Qualification

Mr. Miramontes joined our Board of Directors in 2018, he is our Lead Independent Director, Chair of our Audit Committee and a member of our Compensation Committee. Mr. Miramontes has extensive experience in accounting, financial reporting and corporate governance. He is also an audit committee financial expert as defined under SEC rules.

KENNETH E. ROBERTS

Biography

Kenneth E. Roberts was a partner with the law firm of Roberts Kaplan LLP (formerly Foster Pepper LLP) from 1987 until the firm joined with Lane Powell in January 2011. His private law practice focused on corporate finance, mergers and acquisitions. corporate governance, executive compensation and securities, representing public companies and community banks. Mr. Roberts is a graduate of Harvard Law School and Oregon State University with a B.S. in Business and Technology.

Board Qualification

Mr. Roberts joined our Board in 2012 after working many years as a leading outside corporate counsel. Mr. Roberts lends insightful analysis to our mergers and acquisitions strategies and corporate governance matters.

DAVID J. ROBINO

Biography

David J. Robino began his management career at The Maytag Corporation and Pepsi-Cola. He joined AC Nielsen in 1989, culminating as Senior Vice President of Nielsen International, based in Brussels, Belgium. After a successful Vice Presidency at AT&T's Business Markets Division, Mr. Robino left to lead Gateway, Inc. as Executive Vice President and Chief Administrative Officer and later Vice Chairman. Upon retiring from Gateway, Mr. Robino served as a member of the board of directors of Memec, Inc., then the world's leading distributor of specialty semiconductors, and Insight Enterprises, Inc., a global provider of information technology capabilities to enterprises. He has served as an adjunct instructor at Southern Oregon University since 2012. Mr. Robino has an M.S. in Industrial Relations from Iowa State University and B.A. in Social Studies from Graceland College.

Board Qualification

Mr. Robino joined our Board in 2016. Mr. Robino’s human capital, business, executive management and board experience over the course of his career at many large firms, provides us with expertise across a broad range of subjects. Mr. Robino chairs our Nominating and Governance Committee.

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Non-Director Executive Officers

CHRISTOPHER S. HOLZSHU

Biography

Christopher S. Holzshu is our Executive Vice President and Chief Operating Officer (COO), a role he has served in since November 2019. He previously served as Chief Financial Officer and Chief Human Resources Officer. Throughout his career with us he has gained a deep understanding of the operations of our stores and a special talent for relating to individuals at all levels of the organization. Mr. Holzshu joined Lithia in 2003 after working for several years at KPMG LLP, where he specialized in automotive manufacturing, financial services and other retail sectors. He holds a B.S. in Accounting from the University of Alaska.

SCOTT A. HILLIER

Biography

Scott A. Hillier is one of our Senior Vice President of Operations and has served in this role since 2008, overseeing store leadership. Mr. Hillier joined Lithia in 1986, working in our stores in roles including Finance Manager, General Sales Manager, General Manager, and multi-store General Manager. Mr. Hillier quickly developed a reputation for identifying talent and building teams which led to his promotion to Vice President of Human Resources in 2003. In his current role, Mr. Hillier helps foster our value of taking personal ownership for performance by mentoring store leadership including the Lithia Partners Group. Mr. Hillier graduated from Southern Oregon University with a B.S. in Inter-Disciplinary Studies.

GEORGE N. HINES

Biography

George N. Hines is our Senior Vice President, Chief Innovation and Technology Officer and has served in this role since July 2019. Before joining Lithia, Mr. Hines held technology and innovation leadership roles at Massage Envy Franchising and Viad Corp. Early in his career, he worked with Deloitte Consulting and Ernst & Young Management Consulting, where he advised clients in the telecommunications industry. George brings a passion for creating pleasant, frictionless experiences and innovative technologies. Additionally, he brings a global view to his work having lived and worked in Peru, Ecuador, Brazil, Spain, and the United Kingdom. He holds a B.S. in MIS from Millikin University and has most recently completed studies in the Stanford School for Design Thinking and Innovation.

TINA H. MILLER

Biography

Tina H. Miller is our Senior Vice President, Chief Financial Officer (CFO), leading the accounting, tax, corporate finance, financial planning and analysis, risk management and treasury functions, and has served in this role since August 2019. She joined Lithia in 2005, working in internal audit and corporate accounting before being promoted to Corporate Controller in 2015 and Vice President in 2018. Before Lithia, Ms. Miller worked as an auditor at Ernst & Young in their assurance practice. She graduated from Santa Clara University with a B.S. in Accounting and is a licensed CPA in Oregon.

DAVID G. STORK

Biography

David G. Stork is our Senior Vice President and Chief Administrative Officer and began serving in that role in 2021. Mr. Stork previously served as our Chief Legal Officer since December 2018. Before joining Lithia & Driveway, David was General Counsel and Head of Compliance at JELD-WEN. Inc, as well as working as General Counsel and Director of risk management for a large retailer, Krause Gentle Companies. His expertise in innovation, diversification, risk management, compliance, mergers and acquisitions and the enhancement of intellectual property are beneficial as Lithia grows and diversifies. David holds a bachelor's degree in Literature and Economics from Luther College in Literature and Economics and a Juris Doctorate from the University of Minnesota Law School.

MARGUERITE CELESTE

Biography

Marguerite Celeste joined Lithia as our Senior Vice President and Chief Marketing Officer in July 2021. Marguerite is an alum of NBC Universal, Dream Works Animation, and The Walt Disney Company. From 2011 to 2013, Ms. Celeste served as Director of Creative Services at Lithia. Marguerite embodies the insights and innovative acumen necessary to continue to reimagine and catapult Lithia & Driveway brands to reflect needs of the consumer. Her strong background in brand management, voice of customer, operational excellence, and creativity connect a vibrant voice to the company's vision to provide consumers with personal transportation solutions wherever, whenever, and however they desire. Marguerite holds a BA and H.Dip.Ed from University College Cork, Ireland.

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CORPORATE GOVERNANCE

Board Leadership and Structure

Board of Directors

Our Bylaws provide for not fewer than five and not more than nine directors. Our Board of Directors has the discretion to set the size of our board from time to time. Currently, our Board of Directors has set the number of directors at seven.

There is no requirement that directors attend our Annual Meeting of Shareholders, but directors are encouraged to do so. Our Board of Directors held 14 meetings in 2021. Each incumbent director attended at least 90% of all meetings of the Board and of the Board committees on which the director served. All of our incumbent directors attended our 2021 Annual Meeting of Shareholders.

2021 Board and Committee Composition

The Board has three standing committees, each of which operates under a charter that has been approved by the Board. The Chair of each committee reviews and discusses the agendas and materials for meetings with senior management in advance of distribution to the other committee members, and reports to the Board on actions taken at each committee meeting. The following table sets forth the current membership of each committee.

Sidney B. DeBoer

Susan O. Cain

✔

Bryan B. DeBoer

Shauna F. McIntyre

✔

Louis P. Miramontes

✔

Kenneth E. Roberts

✔

David J. Robino

✔

CB = Chairman of the Board I = Independent Director LI = Lead Independent Director C = Committee Chair

Board Committees

Our Board has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee. Each committee member is an independent director under NYSE listing standards, including, with respect to members of the Audit Committee and the Compensation Committee, under the enhanced independence standards that apply to members of those committees. Each of our Board committees has its own charter. At least one member of each of our Audit Committee and Compensation Committee may not belong to both committees. A written copy of our committee charters, Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Shareholder Communications Policy may be obtained by contacting our Investor Relations Department, Lithia Motors, Inc., 150 N. Bartlett Street, Medford, Oregon 97501. These documents are also available on our website at investors.lithiadriveway.com.

THE AUDIT COMMITTEE

The Audit Committee is responsible for the oversight of the integrity of our financial statements; compliance with legal and regulatory requirements; the qualifications and independence of our independent auditors; the performance of our internal audit function and independent auditors; our systems of internal controls; and financial risk management. The Audit Committee serves as a conduit to promote open communication between the independent auditors, the accounting department and internal auditors, management, and the Board in furtherance of our commitment to accurate financial reporting, sound financial risk practices, and ethical behavior. The

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Audit Committee routinely meets in executive session with representatives from KPMG, our Chief Financial Officer, and our Director of Internal Audit. Our Director of Internal Audit reports directly to the chair of the Audit Committee. The Audit Committee held four meetings during 2021. To ensure that directors are free to give sufficient attention to the duties of our Audit Committee, committee members may not serve on more than two other public company audit committees. In addition to meeting the independence requirement for audit committee members, each current member of the Audit Committee also meets the financial literacy and experience requirements contained in the corporate governance listing standards of the NYSE. Our Board has reviewed the qualifications and experience of the nominees standing for election and has determined that both Ms. Cain and Mr. Miramontes satisfy the requirements of an “audit committee financial expert” as defined by SEC rules.

THE COMPENSATION COMMITTEE

The Compensation Committee is responsible for our executive compensation philosophy. The committee annually reviews the performance of and determines the base salary and variable and long-term compensation for our Chief Executive Officer. The Compensation Committee also reviews and approves the compensation for other executive officers, and reviews and recommends the compensation for non-employee Board members.

The primary purpose of the Compensation Committee is to discharge the responsibilities of the Board relating to the compensation of the Chief Executive Officer and our other executive officers and make recommendations to the Board with respect to compensation of our non-employee directors. The Compensation Committee has overall responsibility for evaluating and, as appropriate, approving or recommending to the Board, compensation plans, policies and programs of the Company as they affect the executive officers. The Committee is also responsible for providing input to the Board regarding executive officer succession and talent development, human capital management, including diversity and inclusion, and providing guidance to the Board and management on these matters.

The Compensation Committee has the authority, in its sole discretion, to select, retain and obtain the advice of a compensation consultant and outside legal counsel as necessary to assist with the execution of its duties and responsibilities. In 2021, the Compensation Committee retained Pay Governance LLC (Pay Governance) to provide advice and counsel. Pay Governance provided compensation advice to the Committee on our Chief Executive Officer, Chief Financial Officer and the next three highest-paid executives. The Compensation Committee administers our 2013 Amended and Restated Stock Incentive Plan, 2009 Employee Stock Purchase Plan, Short-Term Incentive Plan, and Executive Management Non-Qualified Deferred Compensation and Supplemental Executive Retirement Plan. The Compensation Committee certifies and approves payments based on performance measures. The Compensation Committee held nine meetings in 2021. See “Compensation Discussion and Analysis” below for more information on our compensation philosophy and how the Compensation Committee determines the compensation of our executive officers.

The Compensation Committee assessed the independence of Pay Governance pursuant to SEC and NYSE rules and determined that no conflict of interest exists that would prevent Pay Governance from independently representing the Committee. In making this assessment, the Committee considered each of the factors set forth by the SEC and the NYSE with respect to the Pay Governance’s independence, including that Pay Governance provided no services for the Company other than pursuant to its engagement by the Committee. The Committee also determined there were no other factors the Committee should consider in connection with the assessment or that were otherwise relevant to the Committee’s engagement of Pay Governance.

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THE NOMINATING AND GOVERNANCE COMMITTEE

The Nominating and Governance Committee is responsible for assisting our Board in identifying qualified individuals to become Board members; recommending to our Board nominees for each Annual Meeting of the Shareholders; overseeing evaluations of the Board and its committees; developing, periodically reviewing, monitoring, and recommending to the Board effective corporate governance policies and procedures; and developing and enforcing a Code of Business Conduct and Ethics. The Nominating and Governance Committee held four meetings in 2021.

Director Independence

Our Corporate Governance Guidelines require our Board to be comprised of a majority of independent directors. Generally, under NYSE listing standards, a director is not independent if such director has a direct or indirect material relationship with Lithia or its management. In accordance with its charter, the Nominating and Governance Committee annually reviews the independence of all non-employee director nominees and reports its findings to the full Board of Directors, which makes a determination about the independence of each nominee. The Board of Directors and the Nominating and Governance Committee review and discuss all transactions and relationships between each director nominee or any member of such director’s immediate family and Lithia, its consolidated subsidiaries and affiliates, and management, both in the context of the specific independence standards enumerated in the NYSE listing standards, as well as other business and personal relationships that could compromise the independent judgment of a director. Other than the NYSE listing standards, we do not adhere to categorical standards for determining independence; rather, we review and evaluate the specific facts and circumstances of each transaction and relationship to determine whether the director is independent. As a result of this review, our Board of Directors affirmatively determined that each of Mses. Cain and McIntyre and Messrs. Miramontes, Roberts, and Robino is independent under NYSE listing standards.

Lead Independent Director and Governance Practices

Lithia’s governance documents provide our Board with flexibility to select the leadership structure that is best for the Company. If the Chairman of our Board of Directors is not an independent director, our Board of Directors annually selects an independent director to serve as the “Lead Independent Director” responsible for coordinating the activities of the independent directors. If the Chairman of our Board of Directors is an independent director, our Board of Directors may nonetheless select a Lead Independent Director from one of the other independent directors.

Bryan B. DeBoer is our President and Chief Executive Officer, and Sidney B. DeBoer is our Chairman of the Board. At this time, we believe that the separation of the CEO and Chairman positions is beneficial as it allows the CEO to focus his energy and time on operating the Company while simultaneously allowing the Chairman to exercise his leadership strengths. Because Sidney B. DeBoer is not an independent director, our Board of Directors appointed Louis P. Miramontes as Lead Independent Director commencing on April 25, 2019.

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Note from our Lead Independent Director

It is my pleasure to provide you with my Lead Independent Director communication for the 2021 operating year. I want to highlight some of the important ways the Board works together to provide independent oversight of management and stewardship of your interests.

Independent Board Oversight: I work closely with the CEO, the Chairman, and fellow independent directors to facilitate meaningful dialogue among all directors on major business issues, transactions, and opportunities. I assist in setting the agenda for each Board meeting and preside over all executive sessions when the Independent Board members meet.

Board Refreshment and Diversity: Board succession is an important responsibility of the Board. Succession planning and Board refreshment is always on the forefront of our thinking as we continue to seek exceptional candidates with appropriate skills and diverse backgrounds.

Corporate Social Responsibility: Responsible growth is the core of our business philosophy and strategy. As is further discussed in our Corporate Social Responsibility section and in the CD&A below, Lithia’s ESG initiatives are an integral component of how the Board oversees the business. Our commitment to the environment, the communities in which we do business, and the health, safety and equal opportunity for our employees is one of the foundations of our long-term success. You can access the details of this commitment in our Corporate Social Responsibility Report, which can be found at investors.lithiadriveway.com.

Commitment to Strong Governance Standards: We follow and abide by the following best practices:

Independence and Board Composition

•	The Board currently has seven members, five of whom are independent and two of whom are women.

•	There are three standing committees, each made up entirely of independent directors.

•	As the Lead Independent Director, I regularly meet with the other independent directors without management present.

Capitalization

In 2021, we completed debt and equity offerings which continue to keep us well capitalized for growth opportunities or business challenges we may face. Further, in response to comments from our investors and five years ahead of schedule, we completed the conversion of Sidney DeBoer’s Class B common stock into Class A common stock effective February 26, 2021. As a result, we no longer have a dual-class capital structure and all outstanding shares have the same value and voting power.

Board Practices

•	The Board and its standing committees perform self-evaluations on an annual basis.

•	The Board imposes age and term limits on independent directors.

•	Each standing committee operates under a committee charter.

•	The Board oversees risk management practices.

•	The Board manages sound environmental, social and governance practices.

•	The Board regularly receives information concerning, and provides input on, succession planning.

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•	The Board and its committees met 14 times in 2021.

•	Annually, an independent third party facilitates a “360 degree” review of our Chief Executive Officer with the other Board members and the officers reporting directly to the Chief Executive Officer. The results of that review are shared with the independent directors.

•	An independent third party also annually conducts a review of the performance of each director, each Board committee, and the Board as a whole.

•	We have adopted Corporate Governance Guidelines and a Code of Business Conduct and Ethics (each of which is available on our website at investors.lithiadriveway.com), and an insider trading policy.

Leadership Structure

•	The Chair of the Board and the CEO are separate.

Voting and Nominating

•	All of our directors are elected annually.

•	There is majority voting in uncontested director elections.

•	The Board has adopted proxy access permitting eligible shareholders to nominate director candidates.

Stock Ownership Requirement

•	Directors and executive officers all are required to satisfy minimum stock ownership requirements.

I thank you for your support. The board is committed to serving your interests and we look forward to sharing our progress in meeting our short and long-term objectives.

Louis P. Miramontes

Lead Independent Director

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Director Qualifications and Nominations

The Nominating and Governance Committee is responsible for identifying and evaluating potential director nominees for election to our Board of Directors each year. The Committee seeks a selection of directors who as a group will possess diverse skills and knowledge, including in such area as finance, marketing, management, and technology, as well as automotive retailing, that will contribute to the Board’s overall effectiveness and the Company’s overall corporate goals and responsibility to its shareholders.

As part of the nomination process, the Nominating and Governance Committee annually reviews and evaluates the skills, talents, other characteristics, and contributions of the current directors in the context of the desired composition of our Board, our operating requirements, and the interests of our shareholders. The committee also reviews and interviews candidates for our Board of Directors whose background and experience suggest the candidates may be valuable to board members considering the current Board composition. The Nomination and Governance Committee may propose to nominate current Board members or replace or add new Board members. Potential candidates may be suggested by various sources, including management, Board members, shareholders, business leaders and other industry executives and directors. We may from time-to-time engage a director search firm.

Specifically, the Nominating and Governance Committee evaluates potential director nominee candidates, based on broad criteria that include the individual’s skills, experience and other factors in the context of the current composition of our Board of Directors, to maintain our Board’s overall diversity. Among other aspects, the Nominating and Governance Committee evaluates the following factors when evaluating director nominees: business experience, other directorships, business and personal relationships with management, educational background, expertise in finance and accounting, knowledge of financial reporting and the business of the Company, and industry experience. In this context, diversity encompasses not only gender, race, and ethnicity, but also differences of viewpoint, personal and professional experience, education, skill, and other individual qualities and backgrounds. At a minimum, director nominees must have the ability to dedicate sufficient time to Board activities, and independent director nominees must meet applicable NYSE independence standards and not have any conflicts of interest with the Company. The Nominating and Governance Committee reviews its effectiveness in balancing these criteria when assessing the composition of our Board.

Directors are not considered independent if they have been on the Board for 15 or more years, and no person may serve as an independent director over the age of 79.

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If a director is an active member of the board of directors of more than three other public companies, then the Nominating and Governance Committee, when performing its annual review of the composition of the Board, will take into consideration the competing time requirements of the director in fulfilling the directors' duties as a member of the Board.

We require all of our directors to annually sign an acknowledgment of their confidentiality obligations, obligations under our insider trading policy, and other applicable policies to reinforce their commitment to protect our confidential information and our business reputation and to comply with applicable securities laws.

We seek to attract and retain qualified candidates for Board membership regardless of the origin of recommendation, and there are no differences in the manner in which the Nominating and Governance Committee evaluates nominees for director based on whether the nominee is recommended by a shareholder or the committee itself. The Nominating and Governance Committee will consider potential nominees recommended by any record or beneficial shareholder. See “Shareholder and Other Interested Party Communications-Shareholder Director Recommendations” below.

Our Board’s Risk Oversight Role

Our Board of Directors monitors the risks facing our business by evaluating our risk management processes, including the processes established to monitor how management reports material risks to our Board of Directors and how our executive team manages the various risks that our business faces. Our Board of Directors annually reviews the potential severity of various risks faced by our Company (including cyber risks, geographic risks, and the potential impact of new laws on the business) and the likelihood that they will occur. Our Board of Directors collaborates with management on developing the Company's annual risk management plan and, as part of that process, helps management ensure that those risks and uncertainties are considered in ongoing operations and in the Company’s risk management plan. Our Board of Directors has delegated responsibility for certain areas of its risk oversight to its standing committees.

The Compensation Committee, together with our Board of Directors, reviews and manages our compensation policies and programs to ensure they do not encourage excessive risk-taking by our executives and employees. The Compensation Committee reviews a summary and assessment of such risks at least annually and in connection with the discussion or review of individual elements of compensation. In light of these features, we conclude that the risks arising from our executive and employee compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

The Audit Committee reviews our material financial risk exposures and the process by which management assesses and manages financial risks. The Audit Committee also meets with management to discuss the steps management has taken to assess, monitor and mitigate risks that the Company faces. While our Board of Directors oversees risk management, our management is charged with managing risk through effective internal controls and processes, which facilitate the identification and management of risks, and management regularly discusses risk management with our Board of Directors.

Cybersecurity

Protecting the privacy and integrity of information and preventing cyber-crimes is a key focus of the Company. Integral to the automotive retail business and auto retail financing is being a custodian of confidential customer information. We work proactively to prevent material data breaches.

Our Board of Directors oversees our cybersecurity and data protection strategy. Our Company operates with an internal policy and control framework for data protection, which is compliant with regulatory requirements and ensures that information is handled in a

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responsible and secure manner. We also have engaged an independent and national cybersecurity firm to analyze and help us enhance our cybersecurity strategy, policies and procedures to further reduce risk and enable secure growth. Management regularly reports risk exposures to the Board as well as the steps taken to monitor and control them.

Code of Business Conduct and Ethics

We adopted a Code of Business Conduct and Ethics that applies to all our officers, directors and employees, including our principal executive, financial and accounting officers. A complete copy of our Code of Business Conduct and Ethics is available on our website at www.lithiamotors.com. You may request a copy by mail from our Investor Relations Department, Lithia Motors, Inc., 150 N. Bartlett Street, Medford, Oregon 97501. We intend to publicly disclose any amendment to and any waiver of the Code of Business Conduct and Ethics on our website.

Compensation of Directors

Non-Employee Director Compensation

Our directors serve from election at each Annual Meeting of Shareholders until the following annual meeting or until the director’s successor is elected and qualified. The Compensation Committee annually reviews non-employee director compensation and recommends any applicable changes to our Board of Directors. The Compensation Committee engages independent consultants to review the market competitiveness of the compensation paid to the non-employee directors compared to Company peers. The Compensation Committee engaged Pay Governance in 2021 to help review and assess non-employee director compensation for the 2021-2022 Board service year. Pay Governance recommended, and the Board of Directors approved, changes to the director compensation program to retain competitive positioning for the 2021-2022 Board service year. The changes include an increase to the cash retainer amounts and equity grants, as noted below and place the compensation at the median compared to Company peers, which are the same companies in the peer group used for executive compensation comparisons.¹ The changes in the director compensation program are effective for the 2021-2022 service year. Accordingly, the actual compensation paid to a non-employee director in the 2020-2021 calendar year is earned under two separate compensation programs. Except for Sidney B. DeBoer, directors who are employees of the Company are not compensated separately for their service as directors. As noted in the Non-Employee Director Compensation Table, for his services as a director, Sidney B. DeBoer receives the same compensation, in the same form, as the Company pays to its non-employee directors. Separately, Sidney B. DeBoer receives payments for his prior services rendered as an employee that are described below under “Certain Relationships and Transactions with Related Persons” on page 64. Executive officers of the Company do not recommend or determine non-employee director compensation. Our non-employee directors are Mses. Cain and McIntyre and Messrs. Miramontes, Roberts and Robino.

We pay a majority of our non-employee directors’ compensation as equity awards. The Compensation Committee believes that paying a majority of the annual compensation in equity provides non-employee directors with a vested interest in our long-term financial success and aligns their interests with those of our shareholders.

1	The new peer group under the “Peer Group and Benchmarking” on page 39 has been used for the 2021/2022 calendar year.

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The compensation structure for our non-employee directors for the 2021-2022 service year was as follows:

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$100,000 cash ($5,000 increase from the 2020-2021 calendar year) plus an additional $20,000 cash ($5,000 increase from the 2020-2021 calendar year) to each director for each committee chair position the director holds and $30,000 cash ($15,000 increase from the 2020-2021 calendar year) to each director who serves as a Lead Independent Director or as chairman of the Board. In each case, cash amounts are paid in 12 monthly installments over the service period.

•	An award for a number of RSUs, which are settled in shares of our common stock, with a value of $160,000 ($20,000 increase from the 2020-2021 calendar year). The number of RSUs awarded is based on the average closing share price for the 40 trading days prior to the award grant date.

•

RSU awards to our non-employee directors are granted immediately after our annual shareholder meeting and vest over one year, with 25% vesting on the first business day of the month after each regularly scheduled quarterly meeting of our Board of Directors if the director continues to serve on that day. All equity grants to non-employee directors are subject to our stock ownership policy. See “Non-Employee Director Stock Ownership Policy; Hedging and Pledging Restrictions” below.

2021 Director Compensation

Non-Employee Director Compensation Table

The following table summarizes compensation paid to non-employee directors and to our Chairman during calendar year 2021, which amounts represent the 2021 portion of both the 2020-2021 Board term and the 2021-2022 Board term:

Name	Fees Earned or Paid in Cash ($)⁽¹⁾	Stock Awards ($)⁽²⁾	All Other Compensation ($)⁽³⁾	Total Compensation
Sidney B. DeBoer⁽⁴⁾	$122,500	$163,158	$7,785	$293,443
Susan O. Cain	$116,667	$163,158	$4,060	$283,885
Shauna F. McIntyre	$98,333	$163,158	$—	$261,491
Louis P. Miramontes	$141,667	$163,158	$—	$304,825
Kenneth E. Roberts	$98,333	$163,158	$8,194	$269,685
David J. Robino	$116,667	$163,158	$—	$279,825

(1)	The fees reflected in the column “Fees Earned or Paid in Cash” in the above table are the actual fees earned in calendar year 2021.

(2)

The amounts set forth in this column reflect the grant date fair value of all awards granted in 2021 calculated in accordance with FASB ASC Topic 718 and excluding the effects of any forfeitures. (See Note 10 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for the valuation and assumptions and other information related to our stock awards).

(3)	Amounts paid by us on behalf of our Board members for long-term care insurance premiums.

(4)	Does not include amounts paid to Mr. DeBoer under the Transition Agreement, which are described under “Certain Relationships and Transactions with Related Persons” on page 64.

The following table sets forth all stock units held by each non-employee director as of December 31, 2021:

	Name			Unvested Stock Awards (#)
	Sidney B. DeBoer			101
	Susan O. Cain			101
	Shauna F. McIntyre			101
	Louis P. Miramontes			101
	Kenneth E. Roberts			101
	David J. Robino			101

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Deferred Compensation Agreements with Non-Employee Directors.

We offer our non-employee directors the opportunity to defer receipt of their compensation by entering into a Deferred Compensation Agreement with the Company. Under this agreement, participants who elect to defer compensation may defer receipt of all or a portion of their cash compensation and any stock award. In 2021, Louis Miramontes elected to defer his stock compensation.

Non-Employee Director Stock Ownership Policy; Hedging and Pledging Restrictions

We expect our non-employee directors to acquire and hold sufficient shares of our common stock to meaningfully participate in the risks and rewards of ownership with our shareholders. Accordingly, under our Stock Ownership Policy for Directors, non-employee directors are required to acquire and retain the net after-tax shares received as compensation until the director’s accumulated holdings have a market value equal to at least five times the base cash compensation paid to the director in the then-current service year. (If a director does not or ceases to comply with the policy, the director is expected to retain 100% of the net after-tax shares received upon the settlement of any equity incentive award until the stock ownership minimums are attained.) In determining compliance with the policy, share ownership includes RSUs subject to time-vesting and indirect share ownership.

Our Insider Trading Policy and our Stock Ownership Policy for directors specifies that they may not (1) engage in hedging or monetization transactions, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds or (2) hold Company securities in a margin account or otherwise pledge Company securities as collateral for a loan. Securities pledged as of March 15, 2013, however, may continue to be pledged under existing or replacement arrangements. The number of securities that were pledged prior to such date have decreased over time. Sidney B. DeBoer is a member and the manager of Lithia Holding, which has the sole voting and investment power with respect to 100,000 shares of common stock held by Lithia Holding. These shares are pledged by Lithia Holding to secure a loan to Lithia Holding. Kenneth E. Roberts has a line of credit that is secured by the securities held in one of his brokerage accounts, including 48,000 shares of common stock of Lithia; no amounts were drawn on this line of credit as of February 28, 2022.

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CORPORATE SOCIAL RESPONSIBILITY

Our Commitment to all Stakeholders

Lithia’s goals include enhancing the quality of life of our team and customers and to create a better world for us all to be part of. We are passionate about improving constantly and reducing our environmental impact through continued innovation and teamwork. We recognize that responsible growth is crucial to the future success of our company. For this reason, our strategy for long-term value creation goes beyond financial metrics and considers the needs of all stakeholders in Lithia’s operations to bring about positive change. This focus is an important Board responsibility. Below are our environmental and social initiatives, and our good governance highlights are covered above in the Note from our Lead Independent Director.

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Environmental

We report our environmental activities based on the framework of SASB and GRI. Complete reporting, as well as our environmental and social initiatives, may be found on our corporate responsibility website: lithiacorporateresponsibility.com. Our environmental strategy prioritizes the areas in which we can affect the most positive change, one being the transition to electric vehicles. As such, we have developed and launched the GreenCars brand to encourage consumers to explore planet-conscious transportation options. Throughout the Lithia & Driveway ecosystem, GreenCars aspires to lay the foundations for a more
sustainable world, and for a rapid transition to electromobility. Whether it’s a comparison grid to see side-by-side features or in-depth guides on how electric cars and hybrids work, we want consumers to feel confident and supported when exploring the world of electric vehicles. GreenCars also provides a nationwide EV charging network. A map of locations can be found at greencars.com. The total number of charging stations across Lithia & Driveway’s network of 279 stores has increased from 396 in 2020, to 602 in 2021. In addition, as part of our GreenKids initiative and the 2021 Earth Day Celebration, GreenCars partnered with select high schools across the country and the Arbor Day Foundation to plant a tree for every EV test drive at participating Lithia & Driveway dealerships. Thanks to drivers who participated in this special event, we planted 5,000 trees in Econfina, Florida to replenish the area devastated by Hurricane Michael in 2018.

Waste and Recycling

Many of our locations have committed to and implemented extensive recycling programs, thus living the core value to Take Personal Ownership. Our dealerships have developed creative ways to reduce and recycle waste, such as recycling used engine oil for in-house fuel heaters. This effort offsets energy costs while recycling an otherwise wasted product.

A portion of our dealerships are also recycling used antifreeze, lead acid batteries, metal scraps, used tires, paper waste and many other waste streams produced at the dealerships that would otherwise end up in landfills. We continue to develop practices and programs to recycle and reduce our waste streams.

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Social

At Lithia, our mission is to provide a competitive diverse benefit package that supports the physical, financial, and work-life wellness of our employees and their families. Our dealerships represented 25% of the top 20 best dealerships to work for in 2021, as rated by Automotive News. The Employee Assistance Program is paid for by Lithia and is available to help employees through the pressures of day-to-day living. Employees and their families have access to unlimited consultations and up to three face-to-face counseling sessions per year. In 2021 Lithia & Driveway also paid out $1.1 million to employees for completing their wellness exam.

As of December 31, 2021, we employed approximately 21,150 persons on a full-time equivalent basis in our nationwide network of 279 retail locations, thus offering full benefits packages to 95% of our employees. In both 2021 and 2020, approximately 95% of our workforce earned above minimum wage.

Diversity and Inclusion

“Diversity has been the secret to our store’s success. You cannot hire and promote people just like you. You want the best, those who connect with customers, bring different viewpoints, challenge your ideas, and the status quo. This is the future of our company.”

At Lithia, we recognize becoming more diverse, inclusive, and thereby reflecting our customers, will increase our effectiveness in addressing the needs of consumers and that diversity of perspectives will be critical to our ability to innovate in a challenging industry. In 2021, our workforce was comprised of approximately 18% female employees and approximately 44% of minorities. Our management consisted of approximately 17% females and approximately 35% minorities in leadership positions.

We also launched our Culture Council in 2021, which is designed to promote diversity, equality and inclusion (DEI) in our workforce by identifying areas to improve, raising awareness, and integrating DEI elements into how we operate, train and develop our teams.

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Introduction

This Compensation Discussion and Analysis discusses Lithia’s compensation program for its Chief Executive Officer, Chief Financial Officer, and next three highest paid executives (named executive officers or NEOs), including its philosophy, objectives and how our 2021 performance drove compensation for 2021. Our current named executive officers are:

Name

Age

Current Position(s)

Name

Age

Current Position(s)

Bryan B. DeBoer

Bryan B. DeBoer has been our Chief Executive Officer (CEO) and President since 2012.

Tina H. Miller

Tina H. Miller is our Senior Vice President, Chief Financial Officer (CFO), leading the accounting, tax, corporate finance, financial planning & analysis, risk management and treasury functions, and has served in this role since August 2019.

Christopher S. Holzshu

Christopher S. Holzshu is our Executive Vice President and Chief Operating Officer (COO), a role he has served in since November 2019.

Scott A. Hillier

Scott A. Hillier is our Senior Vice President of Operations and has served in this role since 2008, overseeing store leadership.

George N. Hines

George Hines is our Senior Vice President, Chief Innovation and Technology Officer (CITO) and has served in this role since July 2019.

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Executive Summary

Lithia’s pay-for-performance philosophy links real pay delivery to the achievement of our operational objectives and long-term strategy and the enhancement of shareholder value. Below are certain performance and compensation highlights for 2021 at a glance.

Performance Highlights

2021 saw record revenues and adjusted EPS which were primarily driven by successful navigation of the abnormal supply and demand environment and contributions of acquired businesses. 2021 revenue increased 74% to a record $22.8 billion from $13.1 billion in 2020 and adjusted EPS increased 120% to $40.03 from $18.19 for 2020. Used vehicle growth, growth in e-commerce sales and Driveway’s incremental revenue growth, and increase in finance and insurance and service, body and parts revenues more than compensated for a modest decrease in new vehicle revenues. Our synergistic businesses are a capital engine, providing significant profitability and flexibility for the road ahead. As the industry transitions toward electrification, Lithia will anticipate, adapt, execute, and proactively lead this change to sustainable transportation.

Performance Impact on Compensation

2	A reconciliation to GAAP EPS and net income are found on p. 35 of our 2021 10-K.

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2021 Short-Term Incentive

Management’s exceptional operational and strategic performance, which drove our EPS and revenue, resulted in our short-term incentive plan paying out at 200% for Messrs. DeBoer, Holzshu, and Hines and Ms. Miller. Our short-term incentive plan for Mr. Hillier also incorporated a store profits component and paid out at 200% following strong profitability notwithstanding global economic instability.

2021 Long-Term Incentive

Equity awards under our long-term incentive plan, subject to EPS- and revenue- based performance and time-based vesting, satisfied their performance criteria at 150% of target.

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Listening to Our Shareholders

Lithia’s Compensation Committee prioritizes listening to the views of our shareholders. We rely on regular shareholder outreach and engagement activities conducted by our CEO and other members of our management team, as well as more formal channels including the opportunity for shareholders to cast a non-binding advisory vote regarding executive compensation at Lithia’s annual shareholder meeting. These communications provide an important platform to receive feedback from investors, promote transparency between the Board and our shareholders and help build informed and productive relationships.

Following historically successful shareholder outreach and a strong 2021 say-on-pay vote with 98.8% of votes cast in favor, in 2021, we engaged with shareholders representing 23 of our top 30 shareholders, on a variety of topics, including our executive compensation program. These top 23 shareholders collectively own 49% of the Company’s outstanding capital stock.

We adjusted our compensation program for 2021 by supplementing our EPS goal with a revenue growth goal in our 2021 short-term and long-term incentive plans. We believe this additional metric was appropriate to broaden our focus on performance in 2021 as we executed on our growth strategy as we believe revenue growth should drive a portion of our performance-based compensation. We also added ESG factors to the strategic objectives portion of the short-term incentive plan.

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Short-term incentive plan – In December 2020, the Board approved the 2021 short-term incentive plan, which replaced the prior short-term incentive plan. The 2021 short-term incentive plan gave the Company more flexibility to establish cash incentives in light of the repeal of the performance-based compensation exception to Section 162(m) of the Internal Revenue Code and increased the maximum annual award amount from $5 million to $10 million, which annual limit was prevalent among the companies within our 2021 peer group. Under the 2021 plan, EPS was weighted 60%, revenue growth was weighted 20% and strategic objectives were weighted 20%, with the exception of Scott A. Hillier whose incentive plan weighting was 40% EPS, 20% revenue growth and 40% store net profit objectives. In addition, we added the ESG factors of diversity and inclusion, and employee and customer satisfaction, to the strategic objectives to measure our progress in fulfilling our mission and our values.

•

Long-term incentive plan – EPS was weighted 75% and revenue growth was weighted 25%. In evaluating our compensation practices in 2021, the Compensation Committee was mindful of the support our shareholders expressed for Lithia’s philosophy and practice of linking compensation to operational, strategic, and financial objectives, and the enhancement of shareholder value. In 2021, the Compensation Committee continued to monitor our executive compensation programs to ensure that Company performance continues to drive compensation. The Compensation Committee will continue to seek out shareholder feedback in the future and has made the following changes for 2022 based on such feedback to its compensation program.

2022 Compensation Approach

In being mindful of the input from our shareholders and the proxy advisors, Lithia has adjusted our compensation program for 2022 to incorporate the following compensation governance best practices:

•	Short-term incentive plan – To provide greater transparency of and ability to measure the components of the strategic plan, Lithia will evaluate strategic goals and ESG initiatives based on our progress on the following:

○	Five-year plan that targets revenues of $50 billion and $50 EPS through growth in our core business, network development, and e-commerce channels.

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○	ESG initiatives that focus on progress as reflected in our Corporate Responsibility Report (and its 10 Corporate Goals) and as reported in our Cultural Performance Scorecard.

•

Long-term incentive plan/Driveway – For strategic reasons, a portion of the fiscal year 2022 performance restricted stock (PRSUs) included RSUs with multiyear performance goals relating to the on-line sale of vehicles through Driveway and multiyear time vesting. These PRSUs are earned based on vehicle sales goals in three equal tranches over up to approximately three years with vesting and settlement occurring after each tranche is earned over three years.

•

Clawback policy – In order to align with market-based best practices, the Compensation Committee expanded Lithia’s clawback policy in December of 2021 beyond financial restatements to include forfeiture of cash incentives and stock awards in the event of misconduct that results in reputational harm to Lithia.

Our Compensation Practices Benefit our Shareholders

Our executive compensation programs have strong governance components that further strengthen our pay-for-performance compensation philosophy, including the following:

What We Do		What We Do Not Do
✔	Align pay and performance, with significant percentages of target total direct compensation (TDC) based expressly on performance (85% for the CEO and 63% for the other NEOs)	✗No “golden parachute” gross-ups ✗No hedging/pledging/short-sales of company stock ✗No dividends paid on unvested shares ✗No perquisities beyond life and injury/disability related insurance coverage ✗No options/SARs granted below FMV ✗No repricing of options (which we do not currently grant) without shareholder approval ✗No excessive severance ✗No guaranteed salary increases, bonuses, or long-term incentive awards ✗No adjustment or modification of any outstanding cash or long-term equity incentive in response to COVID-19 pandemic and recent volatile market conditions
✔	Rigorous EPS, revenue and strategic performance goals, with audited strategic attainment determinations
✔	Meaningful stock ownership guidelines for directors and executives
✔	Clawback policy covering cash incentives and stock awards due to financial restatement or misconduct resulting in reputational harm
✔	Double-trigger change in control provisions
✔	Entirely independent Compensation Committee
✔	Independent compensation consultant
✔	Annual compensation program and policies risk assessment
✔	Ability to exercise negative discretion on earned bonus amounts

Compensation decisions and other details are discussed in the remainder of this section “Compensation Discussion & Analysis”.

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Compensation Philosophy

Our vision guides our mission, and our mission drives our business strategy and our compensation philosophy. All four of these areas are informed by our values.

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Compensation Components

The three major elements of our executive officers’ regular total direct compensation (TDC) are: (i) base salary, (ii) a cash-based short-term incentive plan, and (iii) an equity-based long-term incentive plan. While performance drives all aspects of our compensation, for 2021, 85% of target annual TDC for the CEO was expressly performance-based and approximately 68% of the target annual TDC for the other named executive officers was expressly performance-based, reflecting Lithia’s pay-for-performance philosophy.

2021 Target Compensation Mix

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2021 Compensation Program Design & Results

Base Salary

We provide base salaries to our executive officers to compensate them for their services rendered during the year and to provide them with a level of competitive and stable fixed compensation.

The Compensation Committee approves the 2021 base salary for our CEO based on competitive market factors, the CEO’s duties and responsibilities, comparison of relative CEO pay within the Peer Group mentioned below, the CEO’s performance and the relative pay of our senior management team. The base salaries of all other NEOs are developed by the CEO and our independent compensation consultant based on similar factors and are analyzed and approved by the Compensation Committee. Based on their tenure, experience and expertise in the CFO and CITO role, respectively, Ms. Miller and Mr. Hines received a competitive increase in base salary.

Named Executive Officer	2020 Base Salary ($)	2021 Base Salary ($)	Base Salary Increase
Bryan B. DeBoer	1,106,000	1,106,000	—%
Tina H. Miller	384,000	420,000	9 %
Christopher S. Holzshu	720,000	720,000	—%
Scott A. Hillier	500,000	500,000	—%
George N. Hines	435,000	450,000	3%

Short-Term Incentive Plan

Consistent with prior years and the advice of our independent compensation consultant, the short-term incentive plan rewards executives for attaining pre-determined, objective goals related to earnings per share (EPS), which have long been utilized for this performance-based plan, revenue growth which is useful measurement of our overall company health, execution of our strategic development plan based on revenue and EPS growth which focuses on acquisitions, multi-channel innovation, ESG and other initiatives, and store profits, as applicable. The Compensation Committee does not have the discretion to payout short-term incentive plan awards if the applicable performance criteria have not been met.

How our 2021 Short-Term Incentive Plan Works

In 2021, our short-term incentive plan compensated executives for achieving annual performance goals in each of the above criteria. Each NEO had a maximum cash bonus potential based on a market competitive percentage of base salary ranging from approximately 56% to 135%, which is paid out according to the attainment of the above referenced performance goals. Each executive’s target bonus, expressed as a percentage of salary, and their weighted performance goals, are as follows:

Adjusted EPS

Revenue

Growth

Strategic

Objectives

(including ESG)

Store Profits

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Establishment of 2021 Targets and Actual Cash Payouts

We believe using metrics that promote high performance and profitable growth are critical. These performance criteria are approved annually by the Compensation Committee and are designed to reward both short-term and long-term value creation, support growth in profitability, maximize our capital deployment strategies and increase share value. Management provides the Compensation Committee with a quarterly review of the short-term incentive plan attainment pacing. Short-term incentive plan payouts are calculated based on straight-line interpolation between the threshold, target, and maximum payout percentages. If we do not achieve threshold performance, then no short-term incentive plan is earned or paid. The Compensation Committee has discretion to reduce awards under the short-term incentive plan.

•Adjusted EPS Goals: The adjusted EPS goals³ for 2021 were set based upon the Company’s Board approved business plan as set forth below. The 2021 adjusted EPS target was less than the 2020 actual adjusted EPS of $18.19 because the Board plan incorporated an expectation that the global pandemic and the anticipated chip shortage would depress per vehicle profits.				2021 ADJUSTED EPS ATTAINMENT
		EPS Target ($)	% of Payout
	Maximum	18.75	200%
	Target	15.50-17.00	100%
	Threshold	12.25	25%
Adjusted EPS was strong this year, reaching $40.03 diluted per share and exceeded our target goal of $17.00 by $22.99. Accordingly, this portion of each executive’s 2021 short-term incentive plan award paid out at 200%.

•Revenue Growth: The revenue growth goals for 2021 were set based upon the Company’s Board approved business plan. For 2021, the target of $14.30 billion was higher than 2020 results of $13.1 billion and in line with our 5-year revenue growth plan.

2021 REVENUE GROWTH ATTAINMENT

Revenue Goal ($)

% of Payout

Maximum

16.25 B

200%

Target

13.65-14.30 B

100%

Threshold

13.00 B

25%

Revenue Growth was strong this year, reaching $22.80 billion and exceeded our target goal of $14.30 billion by $8.50 billion. Accordingly, this portion of each executive’s 2021 short-term incentive plan award paid out at 200%.

•

Strategic Objectives: Bryan B. DeBoer, Christopher S. Holzshu, Tina H. Miller, and George N. Hines’ short-term incentive plan payouts also depend on attainment of specific strategic objectives. Our 2021 strategic objectives focused on innovation in and diversification of our revenue streams and were expanded to include ESG goals. These goals are rigorous and intended to focus management on integration of new and past acquisitions, exploration of new products and services, strategic leadership hires and development, capital market progress, relative price-to-earnings ratio, and progress towards ESG initiatives,

3	A reconciliation to GAAP EPS is found on p. 35 of our 2021 10-K.

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including diversity and inclusion, employee well-being, energy efficiency, community commitment, and public education. Each year management determines the extent to which strategic objectives are accomplished, which is then presented to the Compensation Committee for approval. Payout percentages are as follows:

				% of Payout
	Significantly Above Target			200%
	Above Target			150%
	Target			100%
	Below Target			25%
	Significantly Below Target			0%

We successfully executed on our strategic objectives this year, including exceeding our acquisition-ROI targets, expanding our acquisitions into Canada, meeting our milestones on Driveway and Greencars, and effecting an asset-backed securities offering with Driveway Finance Corporation, further driving increased acquisition-based revenue and share value. We made significant progress on the environmental and social goals detailed in the Corporate Social Responsibility section of this proxy found on page 24, above. Accordingly, the execution of our 2021 strategic objectives, as certified and approved, warranted a payout of this portion of each executive’s 2021 short-term incentive plan award under the above schedule at 200%.

•

Store Profit Goals: Scott A. Hillier’s short-term incentive plan payouts also depend on attainment of specific store profits goals in key markets, which, for competitive reasons, we do not disclose on a separate basis, as we consider it competitively harmful to make that information public. Our objective is to set challenging performance goals for our executives throughout the Company, and we believe that achieving these challenging performance goals in these markets is demanding. This portion of an executive’s short-term incentive plan award is calculated based on a percentage of goals attainment, with a maximum possible attainment of 200%. Store profit goals were achieved at 200%.

2021 Actual Bonus

Based on 2021 attainment of these goals, the 2021 short-term incentive plan payouts were as follows:

Named Executive Officer	Target Short-Term Incentive Plan as % of Base Salary	Actual 2021 Payout as % of Target	Actual 2021 Payout ($)
Bryan B. DeBoer	135%	200%	2,996,000
Tina H. Miller	71%	200%	600,000
Christopher S. Holzshu	100%	200%	1,440,000
Scott A. Hillier	80%	200%	800,000
George N. Hines	56%	200%	500,000

Long-Term Incentive Plan

Our equity-based long-term incentive plan leverages Lithia’s public company status to reward employees for achieving quantitative financial performance and revenue growth objectives approved annually by the Compensation Committee. The use of metrics that promote high performance and profitable growth is critical. Performance targets are determined by considering forecasted EPS, revenue growth, and analyst estimates. EPS is a useful measurement of our overall profitability and is strongly correlated with changes in our stock price and revenue growth is a useful measurement of our overall company health.

We believe issuing performance and time-vested restricted stock units (RSUs) rather than stock options better aligns our executive team with our shareholders because restricted stock units experience the upside as well as the downside of stock price changes. EPS

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performance and revenue vesting criteria link realized value to the achievement of critical operational and financial objectives and delivering superior long-term shareholder returns. Additional time-based vesting criteria support retention and align the interests of our executive officers with those of our shareholders over the long-term, while promoting a culture of ownership.

How our 2021 Long-Term Incentive Plan Works

In 2020, the Compensation Committee approved long-term incentive awards for our executive officers consisting of, in the aggregate, 33,343 RSUs subject to both performance- and time-based vesting criteria, as set forth in the table below. The Compensation Committee approved the number of RSUs awarded to NEOs and other key employees after considering, among other things, peer comparisons, Company financial performance and absolute and relative total shareholder return, awards granted in prior years, the percentage of total compensation and targets determined based upon the Company’s Board approved business plan by using adjusted EPS and revenue growth for 2021, and the recommendation of our independent compensation consultant.

Named Executive Officer	Target RSUs (#)	Max RSUs (#)	Total Target Value of 2021 Equity Awards ($)
Bryan B. DeBoer	21,270	31,905	6,000,000
Tina H. Miller	2,057	3,086	580,000
Christopher S. Holzshu	6,381	9,572	1,800,000
Scott A. Hillier	2,305	3,458	650,000
George N. Hines	1,330	1,995	375,000

Each year, the Compensation Committee approves the degree to which an executive’s long-term incentive award satisfies the applicable performance vesting criterion. Thereafter, the RSUs satisfying the performance criteria time vest in three equal parts on the 2^nd, 3^rd, and 4^th anniversary of date of grant. The executives’ weighted performance goals for 2021 are as follows:

In the event of the retirement of an NEO or in certain cases, termination of employment other than for cause, and to the extent the NEO (i) meets certain retirement eligibility criteria described in the award agreement (which criteria differ for individual executives and award years but require, at a minimum, that an individual’s combined age and service must equal at least 65) and (ii) complies with certain post-retirement assistance requirements and covenants, all PRSUs will continue to vest and any earned PRSUs, based on the satisfaction of the performance metrics, will be settled in shares following the satisfaction of their time vesting requirements.

Lithia believes that the retirement vesting feature of all PRSUs is appropriate and motivating because it provides protection to long-tenured NEOs considering the PRSU vesting and performance period and is a prevalent practice among the companies within the Peer Group that grant performance-based RSUs. Further, PRSUs will be forfeited and provide no value to its holder to the extent a NEO violates specific post-retirement covenants.

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Establishment of 2021 Targets and Actual RSU Vesting

Adjusted EPS Goals: The adjusted EPS⁴ goals for 2021 long-term incentive awards were set in conjunction with EPS goals for the short-term incentive plan, described above, based upon the Company’s Board approved business plan. Long-term incentive awards performance-vest based on straight-line interpolation between the threshold, target, and maximum payout percentages. If we do not achieve floor performance for adjusted EPS, then no awards vest. The 2021 adjusted EPS target was less than the 2020 actual adjusted EPS because the Board plan incorporated an expectation that the global pandemic and the anticipated chip shortage would depress per vehicle profits. For 2021, adjusted EPS performance target of as follows:				2021 ADJUSTED EPS ATTAINMENT
		EPS Target ($)	% of Performance Vesting
	Maximum	18.75	150%
	Target	15.50-17.00	100%
	Threshold	12.25	75%
	Floor	0.01-12.24	50%

Adjusted EPS was strong this year, reaching $40.03 diluted per share and exceeded our target goal of $17.00 by $22.99. Accordingly, this portion of each executive’s 2021 long-term incentive plan award paid out at 150%.

Revenue Growth: The revenue growth goals for 2021 long-term incentive awards were set in conjunction with revenue growth goals for the short-term incentive plan, described above, based upon the Company’s Board approved business plan. Long-term incentive awards performance-vest based on straight-line interpolation between the threshold, target, and maximum payout percentages. If we do not achieve floor performance, then no awards vest. For 2021, the target of $14.30 billion was higher than 2020 results of $13.1 and in line with our 5-year revenue growth plan, as follows:

2021 REVENUE GROWTH ATTAINMENT

Revenue Goal ($)

% of Payout

Maximum

16.25 B

150%

Target

13.65-14.30 B

100%

Threshold

13.00 B

75%

Floor

0.01-12.99 B

50%

Revenue Growth was strong this year, reaching $22.80 billion and exceeded our target goal of $14.30 billion by $8.5 billion. Accordingly, this portion of each executive’s 2021 long-term incentive plan award paid out at 150%.

Based on 2021 attainment of these goals, each RSU under the 2021 long-term incentive plan will performance vest at 150% of target and shall time vest in equal parts over the next three years. RSUs that did not satisfy their performance criteria shall be forfeited without consideration.

4	A reconciliation to GAAP EPS is found on p. 35 of our 2021 10-K.

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Perquisites

Consistent with our pay-for-performance compensation philosophy, we believe perquisites for executive officers should be limited in scope and value, and should only be offered when they provide necessities or conveniences that allow our executive officers to focus on and optimally perform in their role with Lithia. We provide our NEOs with insurance premiums for long-term care assistance, long-term disability and life and accidental death and dismemberment on their behalf.

Compensation Decision Making Process

The Compensation Committee begins its process of deciding how to compensate Lithia’s named executive officers by considering the competitive market data provided by its independent compensation consultant and the Human Resources Department.

Peer Group and Benchmarking

Our Peer Group is reviewed each year by our independent compensation consultant using an objective and defined methodology that identifies companies reasonably similar to us in terms of industry, industry profile, size, and market capitalization to revenue ratio and profit margins. Below is a list of the companies we included in our Peer Group for compensation decisions with respect to non-employee director compensation for the 2020-2021 Board service year and executive officer compensation for 2021:

RUSHA

Rush Enterprises, Inc.

PAG

Penske Automotive Group, Inc.

KMX

CarMax Inc.

GPI

Group 1 Automotive, Inc.

MUSA

Murphy USA Inc

HOG

Harley-Davidson, Inc.

ODP

Office Depot, Inc.

SAH

Sonic Automotive, Inc.

AutoNation, Inc.

ORLY

O'Reilly Automotive Inc.

ABG

Asbury Automotive Group Inc.

AZO

AutoZone, Inc.

AAP

Advance Auto Parts Inc.

DKS

Dick's Sporting Goods Inc.

As Lithia continued to grow organically and through acquisitions, the Compensation Committee asked Pay Governance to review the Peer Group for its appropriateness in March 2021 with the objective of:

•	Revising the Peer Group to include companies that are broadly representative of Lithia’s key characteristics, including size, profitability, retail, and direct to consumer, and that might operate in Lithia’s labor market for executive and director talent.

•	Ensuring the Peer Group median for revenue, market capitalization, and pre-tax profit is close to Lithia’s size scope.

Given the limited number of direct auto retail competitors, Pay Governance determined that the peer selection field should be expanded to include other specialty retail companies, including some of relevant size and profitability, but with small to mid-size consumer purchases. After reviewing Pay Governance’s analysis, the Compensation Committee determined that eight companies from the Peer Group continue to be representative of the markets in which we compete. Six companies of smaller size were removed from the Peer Group and substituted with nine new companies with similar size, profitability, and other characteristics. As a result, the Compensation Committee approved the following seventeen companies that we believe are similarly situated for purposes of the non-employee director compensation for the 2021-2022 Board service year and executive officer compensation for 2022:

KMX

CarMax Inc.

TJX*

The TJX Companies, Inc.

AutoNation, Inc.

DLTR*

Dollar Tree, Inc.

AAP

Advance Auto Parts Inc.

GPC*

Genuine Parts Company

PAG

Penske Automotive Group, Inc.

GPS*

The Gap, Inc.

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GPI

Group 1 Automotive, Inc.

LKQ*

LKQ Corporation

ORLY

O'Reilly Automotive Inc.

BBBY*

Bed Bath & Beyond Inc.

AZO

AutoZone, Inc.

TSCO*

Tractor Supply Company

DKS

Dick's Sporting Goods Inc.

WSM*

Williams-Sonoma, Inc.

DG*

Dollar General Corp

* New peer group companies

How We Use the Peer Group

The positions of our named executive officers were compared to their counterpart positions in our Peer Group, and the compensation levels for comparable positions in the Peer Group were examined for guidance in determining:

•	base salaries;

•	cash awards under our short-term incentive plan; and

•	the amount and mix of equity awards under our long-term incentive plan.

The Compensation Committee approves base salaries, short-term incentive plan awards and long-term incentive awards on a case-by-case basis for each named executive officer, taking into account, among other things, individual and company performance, role expertise and experience and the competitive market, advancement potential, recruiting needs, internal equity, retention requirements, unrealized equity gains, succession planning, and best compensation governance practices. The Compensation Committee does not tie individual compensation to specific target percentiles.

How the Compensation Committee Makes Decisions and Policies

The Compensation Committee has the final responsibility to approve all matters of compensation and benefits for executive officers, and from time to time it seeks input and recommendations from the CEO and the Human Resources Department. The Compensation Committee also meets privately with its independent compensation consultant, and considers the Board’s input and advice, when establishing the CEO’s compensation. Our independent compensation consultant has worked directly with and on behalf of the Compensation Committee to assist the Compensation Committee in satisfying its responsibilities; and will undertake no projects for management except at the approval of the Compensation Committee chair. The Compensation Committee reports to the Board of Directors on the major items covered at each Compensation Committee meeting.

The Compensation Committee assessed the independence of its compensation consultant during 2021 and believes that there are no conflicts of interest. In reaching this conclusion, the Compensation Committee considered applicable SEC rules and regulations and the corresponding New York Stock Exchange independence factors regarding compensation advisor independence.

In determining executive compensation, the Compensation Committee also considers, among other factors, the possible tax consequences to Lithia and to its executives.

The Compensation Committee may consider the accounting consequences to Lithia of different compensation decisions and the impact on shareholder dilution. However, neither of these factors by themselves will compel particular compensation decisions.

The Compensation Committee annually grants equity-based long-term incentive awards to executive officers after the close of the prior year and the review and evaluation of each executive officer’s performance. The Compensation Committee’s policy is to generally grant long-term incentive awards only during open trading windows and to establish grant dates in advance, generally establishing those dates near the beginning of each fiscal year.

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Executive Compensation Governance Components

Stock Ownership Guidelines

NEOs and non-NEO Vice Presidents are expected to acquire and hold shares of our Class A common stock with a market value equal to a multiple of their base salary, as indicated in the table below, within seven years of service in their position. Our stock ownership policy more closely aligns the interests of our NEOs with the interests of our shareholders and exposes our NEOs to downside equity performance risk. A Stock Ownership Compliance review is performed quarterly, and a policy reminder is sent to employees on an annual basis.

Position	Multiple of Salary	Years of Service
CEO	5	7
EVP	3	7
SVP	2	7

As of December 31, 2021, all of our executive officers were exceeding the minimum stock ownership requirements.

Recoupment (or “Clawback”) Policy

Compensation paid based on performance, including awards under our short-term and long-term incentive plans, is subject to our recoupment (“clawback”) policy. In the event of a restatement of incorrect financial results, this policy enables the Compensation Committee, if it determines appropriate and subject to applicable laws, to seek reimbursement from executive officers of:

1.	cash paid to executive officers under our short-term incentive plan to the degree overpaid based on the restated financial results; and

the incremental shares of Lithia common stock settled for any RSUs in excess of the shares of Lithia common stock that would have been settled for such RSUs based on the restated financial results, or the value of such incremental shares to the extent an executive officer sells any incremental shares.

In the event the Compensation Committee reasonably determines that an executive engaged in misconduct that resulted in reputational harm to Lithia, this clawback policy also enables the Compensation Committee, if it determines appropriate and subject to applicable laws, to seek reimbursement from executive officers of:

1.	all or a portion of cash paid to executive officers under our short-term incentive plan; and

2.	return any shares acquired by the executive pursuant to a stock award.

Anti-Hedging Policy

Our insider trading policy for all employees and our stock ownership policy for executive officers specify that they may not (1) engage in hedging or monetization transactions, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds or (2) hold Company securities in a margin account or otherwise pledge Company securities as collateral for a loan.

Compensation Risk Management

Each year our Compensation Committee reviews whether our compensation policies and practices encourage executives or other employees to take unnecessary or unreasonable risks that could threaten the long-term value of the Company, or that are reasonably likely to have a material adverse effect. The Compensation Committee believes that our practices adequately manage this risk because:

•	we limit the amount of fixed compensation in the form of base salary based on data from our market survey;

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•	the primary criteria we use for performance compensation components are “bottom line” measures such as net profit and adjusted EPS, which we believe are less susceptible to manipulation for short-term gain than are “top line” measures;

•	cash payments are capped under our short-term incentive plan;

•	the incentive plans for executive management have the flexibility to put weight on Company-wide or divisional performance measures;

•	our short-term incentive plan preserves discretion to permit the Committee to elect not to pay otherwise achieved amounts for any reason;

•	a meaningful component of compensation is long-term incentive plan equity grants with extended vesting periods designed to ensure that our executives value and focus on the Company's long-term performance; and

•	NEOs have equity positions in Lithia and are subject to stock ownership policies, which we believe increases their focus on long-term shareholder value.

Insider Trading Policy

The Company's insider trading policy applicable to all directors and employees prohibits insider trading when the person is aware of material nonpublic information and restricts directors and executive officers and certain other employees determined to have potential access to insider information from trading in Company stock during predetermined closed periods. In addition, executive officers and directors are required to pre-clear any trades.

Compensation Committee Report

The Committee has reviewed and discussed the “Compensation Discussion and Analysis,” included elsewhere in this proxy statement, with management, and, based on such review and discussions, the Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement and incorporated by reference in Lithia's Annual Report on Form 10-K.

Submitted by the Compensation Committee of the Board of Directors:

Susan O. Cain (Chair)

Shauna F. McIntyre

Kenneth E. Roberts

David J. Robino

Compensation Committee Interlocks & Insider Participation

The following directors served on the Compensation Committee during 2021: David J. Robino, Susan O. Cain, Shauna F. McIntyre and Kenneth E. Roberts, none of whom was a Company officer or employee during 2021, was formerly a Company officer or had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K. During 2021, none of our executive officers served as a member of a board of directors or as a member of a compensation committee of any entity that has one or more executive officers serving as a member on our Board or any committee of our Board.

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Summary Compensation Table

The following table provides certain information concerning compensation for each of our 2021 NEOs.

Name and

Principal Position

Year

Salary

Stock

Awards⁽¹⁾

Non-Equity

Incentive Plan

Compensation

Change in Pension Value

and Nonqualified

Deferred Compensation

Earnings⁽²⁾

All Other

Compensation⁽³⁾

Total

Bryan B. DeBoer	2021	$1,106,000	$6,146,047	$2,996,000	$77,320	$206,992	$10,532,359
President and Chief Executive Officer	2020	$1,106,000	$3,856,830	$2,996,000	$85,338	$206,243	$8,250,411
President and Chief Executive Officer	2019	$1,106,000	$3,295,024	$2,846,200	$54,251	$9,341	$7,310,816
Tina H. Miller	2021	420,000	$594,378	$600,000	$5,425	$56,448	$1,676,250
Chief Financial Officer	2020	384,000	$299,596	$384,000	$4,726	$55,699	$1,128,022
Chief Financial Officer	2019	287,500	$484,846	$273,500	$2,002	$13,367	$1,061,215
Christopher S. Holzshu	2021	$720,000	$1,843,814	$1,440,000	$32,359	$106,039	$4,142,212
Chief Operating Officer	2020	$720,000	$1,179,721	$1,440,000	$35,143	$105,290	$3,480,154
	2019	$693,000	$1,102,001	$1,187,500	$21,887	$8,388	$2,931,786
Scott A. Hillier	2021	$500,000	$666,039	$800,000	$30,774	$82,437	$2,079,250
Senior Vice President of Operations	2020	500,000	$589,861	$770,000	$34,127	$66,688	$1,960,676
Senior Vice President of Operations	2019	490,000	$603,366	$750,750	$22,210	$9,786	$1,876,112
George N. Hines⁽⁴⁾ Senior Vice President, Chief Information Officer	2021	$450,000	$384,309	$500,000	$3,016	$57,649	$1,394,974

(1)

These amounts reflect the grant date fair value for performance and time-vesting RSUs granted in the year, computed in accordance with FASB ASC Topic 718 and excluding any estimated forfeitures. These amounts are not paid to or realized by the executive. If the maximum level of performance were to achieved for the awards granted in 2021, the grant date value for those awards would be $9,219,071 for Mr. DeBoer, $891,567 for Ms. Miller, $2,765,721 for Mr. Holzshu, $999,059 for Mr. Hillier, and $576,463 for Mr. Hines. For each type of RSU award, the attainment levels used in the calculation of the grant date fair value was based on the probable outcomes at the time of grant. For a more detailed discussion of the assumptions used to determine the grant date fair values and other related information, see Notes 1 and 10 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

(2)	These amounts are the above-market interest earned in the applicable year on contributions to our Executive Management Non-Qualified Deferred Compensation and SERP.

(3)	All Other Compensation in 2021 consisted of the following:

Name

401(k) Match

Insurance Premiums^(a)

Contributions to

Nonqualified Deferred

Compensation Plan

Total

Bryan B. DeBoer	$1,750	$5,242	$200,000	$206,992
Tina H. Miller	$1,750	$4,698	$50,000	$56,448
Christopher S. Holzshu	$1,750	$4,289	$100,000	$106,039
Scott A. Hillier	$1,750	$5,687	$75,000	$82,437
George N. Hines⁽⁴⁾	$1,750	$5,899	$50,000	$57,649

(a)	Insurance premiums include amounts paid by us on behalf of the executive for short-term disability insurance, long-term

disability insurance, long term care insurance and life insurance policies.

(4)	2021 is Mr. Hines first year as a Named Executive Officer.

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Grants of Plan-Based Awards Table for 2021

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards

Estimated Future Payouts

Under Equity Incentive Plan

Awards (# of shares) ⁽³⁾

Grant Date Fair

Value of Stock

and Option

Awards ($)⁽⁴⁾

Name

Grant

Date ⁽¹⁾

Compensation

Committee

Action Date

Threshold

($)

Target

($)⁽²⁾

Maximum

($)

Threshold

(#)

Target

(#)

Maximum

(#)

Bryan B. DeBoer	1/1/2021	12/16/2020	374,500	1,498,000	2,996,000	10,635	21,270	31,905	$6,146,047
Tina H. Miller	1/1/2021	12/16/2020	75,000	300,000	600,000	1,029	2,057	3,086	$594,378
Christopher S. Holzshu	1/1/2021	12/16/2020	180,000	720,000	1,440,000	3,191	6,381	9,572	$1,843,814
Scott A. Hillier	1/1/2021	12/16/2020	100,000	400,000	800,000	1,153	2,305	3,458	$666,039
George N. Hines	1/1/2021	12/16/2020	62,500	250,000	500,000	665	1,330	1,995	$384,309

(1)	The Compensation Committee establishes the performance criteria and applicable achievement percentages. (See the discussion under “Performance Bonus” above).

(2)	See paragraph below for discussion related to Target amounts.

(3)	Performance and time-vesting RSU award, which includes a performance condition and a continuing service condition.

(4)

These amounts reflect the grant date fair value for awards granted under the 2013 Amended and Restated Stock Incentive Plan. The attainment level used to calculate the grant date fair value for the performance and time-vesting grants was 100 % based on the probable outcome at the time of grant. For a more detailed discussion of the assumptions used to determine the grant date fair value and other related information, see Notes 1 and 10 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

The amounts shown under “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” represent the threshold, target and maximum amounts payable under the Short Term Incentive Plan. The actual amount paid for 2021 is included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The Cash Short-Term Incentive Plan is structured such that the total amount earned each period is tied directly to our performance for the period. To see the performance criteria used in 2021 and for additional discussion about the Short-Term Incentive Plan, see “Compensation Discussion and Analysis – 2021 Executive Compensation by Element- Short-Term Incentive Plan” above.

The amounts shown under “Estimated Future Payouts Under Equity Incentive Plan Awards” represent the threshold, target and maximum amounts payable pursuant to performance and time-based restricted stock units granted under our Stock Incentive Plan and are subject to forfeiture depending on whether we achieve specified performance criteria over a four-year period. To see the performance criteria used for the 2021 grants and for additional discussion about the awards, see Compensation Discussion and Analysis - 2021 Executive Compensation by Element - Equity Awards.”

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Outstanding Equity Awards 2021 Fiscal Year-End

The following table sets forth the outstanding equity awards held by our NEOs as of December 31, 2021:

Name

Grant Date

Number of Shares

or Units of Stock

That Have Not

Vested

(#)⁽¹⁾

Market Value of Shares

or Units of Stock That

Have Not Vested

($)⁽²⁾

Equity Incentive Plan

Awards: Number of Unearned

Shares, Units or Other Rights

That Have Not Vested

(#)⁽³⁾

Equity Incentive Plan

Awards: Market or Payout Value of Unearned

Shares, Units or Other Rights

That Have Not Vested

($)⁽²⁾

Bryan B. DeBoer	1/1/2018	8,585 (4)	2,549,316	—
	1/1/2019	45,378 (5)	13,474,997	—
	1/1/2020	40,321 (6)	11,973,321	—
	1/1/2021	31,905 (7)	9,474,190	—
Tina H. Miller	1/24/2018	195 (4)	57,905	—
	1/1/2019	852 (5)	253,001	—
	8/1/2019	2,699 (5)	801,468	—
	1/1/2020	3,132 (6)	930,047	—
	1/1/2021	3,087 (7)	916,685	—
Christopher S. Holzshu	1/1/2018	2,919 (4)	866,797	—
	1/1/2019	14,062 (5)	4,175,711	—
	1/1/2020	12,333 (6)	3,662,284	—
	1/1/2021	9,572 (7)	2,842,405	—
Scott A. Hillier	1/1/2018	1,824 (4)	541,637	—
	1/1/2019	8,310 (5)	2,467,655	—
	1/1/2020	6,168 (6)	1,831,588	—
	1/1/2021	3,459 (7)	1,027,150	—
George N. Hines	8/28/2018	738 (4)	219,149	—
	1/1/2019	2,131 (5)	632,800	—
	1/1/2020	2,848 (6)	845,714	—
	1/1/2021	1,996 (7)	592,712	—

(1)	All shares are related to restricted stock units subject to time-vesting restrictions.

(2)	Assumes a stock price of $296.95, the closing price of our common stock on December 31, 2021.

(3)	All shares are related to restricted stock units subject to performance conditions and time-vesting restrictions.

(4)	Vests 100% on January 1, 2022.

(5)	Vests 50% on January 1, 2022 and 50% on January 1, 2023.

(6)	Vests 33% on January 1, 2022 and 2023 and 34% on January 1, 2024.

(7)	Vests 33% on January 1, 2023 and 2024 and 34% on January 1,2025.

Stock Vested for 2021

The following table summarizes shares acquired on vesting of RSUs during 2021 for each NEO:

				Stock Awards
	Name			Number of Shares Acquired on Vesting (#)			Value Realized on Vesting ($)⁽¹⁾

Bryan B. DeBoer	40,121	11,742,213
Tina H. Miller	2,117	619,582
Christopher S. Holzshu	13,519	3,956,606
Scott A. Hillier	8,045	2,354,530
George N. Hines	1,787	523,001

(1)	Equals the value of the shares acquired based on the closing price of our common stock on the vesting date.

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Non-Qualified Deferred Compensation for 2021

The table below reflects the contributions, earnings, withdrawals and distributions during 2021 and the account balances as of December 31, 2021 for each NEO under our Non-Qualified Deferred Compensation and SERP.

Name

Executive

Contributions in

Last FY⁽¹⁾

Registrant

Contributions in

Last FY⁽²⁾

Aggregate

Earnings in Last

FY⁽³⁾

Aggregate

Withdrawals/

Distributions

Aggregate Balance

at Last FYE⁽⁴⁾

Bryan B. DeBoer	749,000	$200,000	$304,621	$—	$6,399,078
Tina H. Miller	—	$50,000	$9,206	$—	$193,482
Christopher S. Holzshu	—	$100,000	$55,758	$—	$1,154,161
Scott A. Hillier	—	$75,000	$53,112	$—	$1,097,642
George N. Hines	—	$50,000	$5,025	$—	$107,583

(1)	The executive contributions amount in this column is included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table above.

(2)	The registrant contributions amounts in this column are included in the All Other Compensation columns of the Summary Compensation Table above.

(3)	A portion of these amounts are related to above-market earnings on compensation that is deferred and is reported in Change in Pension Value and Non-Qualified Deferred Compensation Earnings in the Summary Compensation Table above.

(4)

Of the amounts in this column, the following amounts were also included in the “Total Compensation” column of the Summary Compensation Table for 2021 and 2020, except that the amounts shown for Mr. Hines have been reported in the Summary Compensation Table only for 2021. No contributions were made in 2019:

Bryan B. DeBoer	$200,000	$200,000
Tina H. Miller	$50,000	$50,000
Christopher S. Holzshu	$100,000	$100,000
Scott A. Hillier	$75,000	$60,000
George N. Hines	$50,000	$—

Our Non-Qualified Deferred Compensation and SERP permits us to contribute awards for participants that will have deferred payout. Under this plan, senior executives may defer receipt of portions of their compensation (up to 50% of base salary, and 100% of variable compensation) in any given year, with all deferred amounts earning interest at an annual rate set by the Compensation Committee. (See “Compensation Discussion and Analysis – Pay Mix, Performance Metric and Goal Setting – Non-Qualified Deferred Compensation and Supplemental Executive Retirement Plan (SERP)”).

Potential Payments Upon Termination or Change in Control

Potential Payments Upon Termination of Employment

In certain circumstances, such as in connection with succession planning or the death or disability of our senior executive officers, it is appropriate to provide severance payments, accelerated vesting of RSUs and certain other limited payments to those executives.

Benefits payable to NEOs upon death, disability or retirement

For all RSUs granted to NEOs in 2021, if the NEO becomes disabled while employed by us, the RSUs continue to vest as scheduled for so long as the NEO remains disabled. If death or qualified retirement occurs, the RSUs continue to vest as in accordance with their terms. For this purpose, the criteria for a qualified retirement differs for individual executives and award years but requires, at a minimum, that an individual’s combined age and service must equal at least 65 and as of December 31, 2021, only Mr. DeBoer, Mr. Holzshu and Mr. Hillier satisfied such requirements.

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For all SERP contributions granted to NEOs in 2021, if the NEO becomes disabled or passes away while employed by us, the contribution becomes 100% vested. If qualified retirement occurs, the contributions will continue to vest in accordance with their terms. For this purpose, a qualified retirement means the NEO voluntarily terminates employment and is at least 55 years of age and has completed 10 years of service at the time of such termination and as of December 31, 2021, only Mr. DeBoer and Mr. Hillier satisfied such requirements.

The following table sets forth the estimated benefits that would have been payable to our NEOs who were in office at the end of the year under the RSUs and Non-Qualified Deferred Compensation and SERP Plan if each NEO’s employment had been terminated on December 31, 2021 because of death, disability, or retirement and the price per share of our common stock is the closing market price on that date of $296.95.

Bryan B. DeBoer	$27,997,634	$37,471,824	$25,448,318
Tina H. Miller	$2,042,422	$2,959,107	$—
Christopher S. Holzshu	$8,704,792	$11,547,198	$8,704,792
Scott A. Hillier	$4,840,879	$5,868,029	$4,299,242
George Hines	$1,697,663	$2,290,375	$—

*	Includes all outstanding and unvested awards that would be paid out.

Potential Payments Upon Change in Control

Change in Control and Severance Agreements

Lithia believes our executives should be appropriately compensated if the completion of a change in control transaction results in a loss of their job, and that providing severance payments, accelerating the vesting of RSUs and certain other limited payments mitigate executives’ potential personal concerns and appropriately align their interests with those of our shareholders in the context of a potential change in control transaction. Each of our CEO, Executive Vice President, Senior Vice Presidents and Vice Presidents has a change in control agreement with the Company.

If we are facing a potential change in control transaction and the proposed transaction would likely negatively affect one or more of our senior executives, we believe it is risky to assume that those senior executives will work against their financial interest, even if the proposed transaction would be in the best interest of our shareholders. We believe that, in such case, our executives should not be motivated by financial self-interest but rather should be appropriately compensated if the completion of the transaction results in a loss of their job. Accordingly, we believe that providing “double-trigger” severance payments, accelerating the vesting of RSUs and certain other limited payments are an appropriate means of achieving alignment between the interests of our senior executives and our shareholders in the context of a potential transaction that would result in a change in control.

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Change in Control Agreements

We are party to double-trigger Change in Control Agreements with Bryan B. DeBoer, Tina H. Miller, Christopher S. Holzshu, Scott A. Hillier, and George N. Hines. Under those agreements, if, after a change in control, the executive is terminated without cause or resigns for good reason, each as defined below, we will pay the executive:

Employee

Title

Salary

Bonus

Time Vested

RSU

1-Year Performance

RSU

Long-Term Performance

RSU

Bryan B. DeBoer

President and Chief Executive Officer

24 months

2 years

Accelerated vesting

Accelerated vesting based on previous 3 years average

Accelerated vesting at highest level

Tina H. Miller

Senior Vice President and Chief Financial Officer

24 months

2 years

Accelerated vesting

Accelerated vesting based on previous 3 years average

Accelerated vesting at highest level

Christopher S. Holzshu

Executive Vice President and Chief Operating Officer

24 months

2 years

Accelerated vesting

Accelerated vesting based on previous 3 years average

Accelerated vesting at highest level

Scott A. Hillier

Senior Vice President of Operations

24 months

2 years

Accelerated vesting

Accelerated vesting based on previous 3 years average

Accelerated vesting at highest level

George N. Hines

Senior Vice President and Chief Marketing Officer

24 months

2 years

Accelerated vesting

Accelerated vesting based on previous 3 years average

Accelerated vesting at highest level

Continuing Change in Control Benefits

Continuing long-term care insurance premiums for 24 months after the separation date; and continuing health insurance benefits until the earlier of (a) 18 months after the separation date, (b) the full COBRA period required by law or (c) when the executive becomes eligible for employer-sponsored health insurance from a subsequent employer.

The Change in Control Agreements also contain non-solicitation, non-competition and non-disparagement provisions, but (i) those provisions are dependent on the executive electing to receive the change in control benefits identified above and (ii) the Company’s remedy if the executive violates the non-competition provisions is limited to causing the executive to forfeit profit sharing or other bonus compensation that has not yet been paid to the executive, excluding any equity awards awarded before January 1, 2018. If applicable, the non-solicitation and non-competition provisions are effective for two years following the date of the executive’s separation from service with us. If applicable, the non-disparagement provision is effective for three years from that date. The Change in Control Agreements also contain provisions regarding non-disclosure (for three years from the date of the executive’s separation from service) and assignment of interest in all creative works that are not dependent on the executive receiving any change in control benefits under the agreement.

Under the Change in Control Agreements:

•

A “Change in Control” occurs if: (A) the Company merges or consolidates with another entity and, as a result, less than 50% of the combined voting power of the resulting entity immediately after the merger or consolidation is held by persons who were the holders of the Company’s voting securities immediately before the merger or consolidation; (B) any person, entity, or group of persons or entities, other than through merger or consolidation, acquires 50% or more of the total fair market value or total voting power of the Company’s outstanding stock (excluding such a change through the transfer of the Company’s outstanding stock or interests in Lithia Holding to the Sidney B. DeBoer Trust or the election of Bryan DeBoer or the Sidney B. DeBoer Family Trust as the manager of Lithia Holding) or acquires substantially all of the Company’s assets; (C) any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 50% or more of the total voting power of the stock of the Company

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(excluding such a change through the transfer of the Company’s outstanding stock or interests in Lithia Holding to the Sidney B. DeBoer Trust or the election of the Sidney B. DeBoer Family Trust as the manager of Lithia Holding); or (D) a majority of the members of the Company’s Board of Directors are removed from office by a vote of the Company’s shareholders over the recommendation of our Board or replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board of Directors before the date of the appointment or election;

•

“Cause” for termination of employment means any one or more of the following: (A) willful misfeasance, gross negligence or conduct involving dishonesty in the performance of the executive’s duties, as determined by our Board of Directors; (B) conviction of a crime in connection with the executive’s duties or any felony; (C) conduct significantly harmful to the Company, as reasonably determined by our Board of Directors, including but not limited to intentional violation of law or of any significant policy or procedure of the Company; (D) refusal or failure to act in accordance with a stipulation, requirement or directive of our Board of Directors (provided such directive is lawful); or (E) failure to faithfully or diligently perform any of the duties of the executive’s employment which are specified in the Change in Control Agreement, articulated by our Board of Directors, or are usual and customary duties of the executive’s employment if the executive has not corrected the problem or formulated a plan for its correction with our Board (if such failure is not susceptible to immediate correction) within 30 days after notice to the executive; and

•

“Good Reason” for an executive’s resignation means (A) any one or more of the following occurs without the executive’s consent: (1) a material diminution of the executive’s base compensation (unless consistent with an across-the-board pay reduction for all senior management and not in excess of 20%); (2) a material change in the geographic location at which the executive must perform services for the Company; (3) a material diminution in the executive’s authority, duties or responsibilities, or (4) any action or inaction by the Company that constitutes a material breach of the Change in Control Agreement; (B) the executive provides notice to the Company of the existence of the condition within 90 days of the initial existence of the condition; (C) the Company has 30 days following receipt of such notice to remedy the condition and fails to do so; and (D) the executive resigns within twelve months of such event occurring. For purposes of clause (A)(3) of the previous sentence, whether a material diminution in the executive’s authority has occurred shall be determined in part by comparing the authority and positions of the persons to whom the executive directly reports immediately prior to the Change in Control or the announcement of the Change in Control with the authority and positions of the persons to whom the executive directly reports immediately after the claimed diminution in the executive’s authority. For example, if the executive was the CEO of the Company before the Company was acquired by a competing business, a material diminution in the CEO’s authority would include, but not be limited to, the CEO not serving as the CEO of the consolidated competing business after its acquisition of the Company.

Notwithstanding the provision for change in control benefits in the Change in Control Agreements, each Change in Control Agreement contains a provision stating that if any benefit payable by us to the executive, including, without limitation, the change in control benefits specified in the agreement, would constitute an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code, those benefits shall be reduced to the largest amount that will result in no portion of the benefits being subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. While the executive may select which particular benefits will be reduced to comply with this provision, the determination of the amount of reduction in the benefits required is made by mutual agreement of us and the executive and, if no agreement is possible, by our independent registered public accountants.

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Non-Qualified Deferred Compensation and SERP Plan

Under our Non-Qualified Deferred Compensation and SERP Plan, discretionary benefits contributed to a participant’s account by us fully vest upon a change in control, as defined under Code Section 409A or Treasury Regulations issued thereunder, even if the NEO’s employment is not terminated. Vested discretionary benefits are paid to a participant in an annual installment method over ten years.

Quantitative Disclosure of Payments Upon Termination or Change in Control

The following table provides quantitative disclosure of estimated payouts to our continuing NEOs assuming a change in control and associated triggering events occurred under the Change in Control Agreements and provisions that existed on December 31, 2021, and the price per share of our common stock is the closing market price of $296.95 on that date. The amounts listed in the table below are in addition to benefits generally available to our employees upon termination of employment, such as distributions from the 401(k) plan and accrued vacation.

Name

Current

Annual

Salary

Severance

Payments⁽¹⁾

Severance

Benefits⁽²⁾

Value of Stock

Awards That

Would Vest⁽³⁾

Value of Long-Term Incentive

Benefits that

Would Vest⁽⁴⁾

Additional

Payment under

Cash Incentive Plan for

2021⁽⁵⁾

Total

Bryan B. DeBoer	$1,106,000	$2,212,000	$23,391	$36,419,136	$723,114	$5,992,000	$45,369,641
Tina H. Miller	$420,000	$840,000	$16,484	$2,857,253	$112,407	$1,200,000	$5,026,144
Christopher S. Holzshu	$720,000	$1,440,000	$25,309	$11,231,375	$335,217	$2,880,000	$15,911,901
Scott A. Hillier	$500,000	$1,000,000	$18,990	$5,753,901	$268,630	$1,600,000	$8,641,521
George Hines	$450,000	$900,000	$39,442	$2,224,518	$96,534	$1,000,000	$4,260,494

(1)	Payable in 24 monthly installments.

(2)	Based on current cost of providing 18 months (the full COBRA period) of COBRA benefits for our NEOs.

(3)	Payable by delivery of shares of Lithia stock immediately following a change in control.

(4)	Payable in equal annual installments over 10 years. The value of the long-term incentive is based on the unvested value of those benefits, calculated as of December 31, 2021 and would be payable even if the NEO’s employment was not terminated.

(5)	Payable in a lump sum immediately following a change in control. Amounts are in addition to amounts reported in the Summary Compensation Table under “Non-equity Incentive Plan.”

CEO Pay Ratio

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, Lithia provides information about the relationship of the annual total compensation of our employees and the annual total compensation of our Chief Executive Officer (the “CEO”):

We identified the median of the annual total compensation of all our employees using the annualized base salary and expected bonus, as of December 31, 2021, plus any equity awards and long-term incentives granted in 2021 for all individuals, excluding the CEO, who were employed by us during 2021 (total compensation was annualized for employees not employed for the full year). After identifying the median employee, we calculated annual total compensation for such employee using the same methodology we use for our CEO compensation.

For 2021, our last completed fiscal year:

the annual total compensation of the employee identified at median of our company (other than the CEO), was $56,825;

•	and the annual total compensation of the CEO was $10,532,259;

•	for this ratio, both employee compensation (other than our CEO) and CEO compensation were calculated using 2021 paid wages, annualized for full-time and part-time employees who did not work a full year.

Based on this information, for 2021, the ratio of the annual total compensation of Bryan DeBoer, our Chief Executive Officer, to the median of the annual total compensation of all employees was estimated to be 185 to 1.

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PROPOSAL NO. 1

Election of Directors

Our Board of Directors has nominated each of the following persons for election as a director:

Nominee Name	Age	Has Been a Director Since/(During)	Independent
Sidney B. DeBoer	78	1968
Susan O. Cain	67	2009	Yes
Bryan B. DeBoer	55	2008
Shauna F. McIntyre	50	2019	Yes
Louis P. Miramontes	67	2018	Yes
Kenneth E. Roberts	77	2012	Yes
David J. Robino	62	2016	Yes

Term

If elected, each nominee will hold office until the next annual meeting or until his or her successor is elected and qualified.

Election by Majority Vote

To be elected, the number of votes cast “for” a director’s election must exceed the number of votes cast “against” that director. We have no reason to believe that any of the nominees will be unable or unwilling to serve if elected. However, if any nominee should become unable or unwilling to serve, proxies may be voted for another person nominated by our Board of Directors.

Biographical Information on our Nominees

Our Board of Directors believes that the combination of the qualifications, skills and experiences of the nominees will contribute to an effective and well-functioning Board. Our Board of Directors and the Nominating and Governance Committee believe that individually, and as a group, the nominees possess the necessary qualifications to provide for future oversight of our business consistent with their fiduciary duties to shareholders. Included in each director nominee’s biography, above, is a description of the experience, skills and attributes of each nominee.

Our Board of Directors unanimously recommends a vote FOR each of the nominees named above.

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PROPOSAL NO. 2

Advisory vote to approve the compensation of our named executive officers

We are asking shareholders to approve the following advisory resolution to approve the compensation of our named executive officers reported in this proxy statement:

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and related tables, notes and narrative discussion in the Proxy Statement for the Company’s 2022 Annual Meeting of Shareholders, is approved.

The advisory vote, which is required by Section 14A of the Securities Exchange Act of 1934, is a vote to approve or disapprove the overall compensation package of our executive officers and not any one specific element of the compensation package or on the compensation received by any one person. The advisory vote is non-binding. However, the Compensation Committee and Board will review and consider the results of the advisory vote when making future decisions about executive compensation. Because we typically determine annual compensation before the advisory vote on the prior year’s compensation is cast, however, if we determine to make a change in our practices based on shareholder feedback, there may be a delay in implementing those changes.

We urge shareholders to read the detailed information about our compensation philosophy and objectives included in Compensation Discussion and Analysis (“CD&A”), above, which provides context for the Summary Compensation Table and related information. As discussed in the CD&A, we believe our compensation programs align the interests of our executives and our shareholders, help us attract and retain experienced executive talent, and focus our executives on performance and achievement of our short-, mid- and long-term strategic goals and objectives. We believe the overall compensation paid in 2021 was appropriate, particularly considering our financial results in 2021.

After the 2022 Annual Meeting, our next advisory vote on named executive officer compensation will occur at our 2023 Annual Meeting of Shareholders.

Vote Required

The votes that shareholders cast “for” must exceed the votes that shareholders cast “against” to approve, on an advisory basis, the compensation of our named executive officers.

Our Board of Directors unanimously recommends a vote FOR the advisory resolution to approve the compensation of our named executive officers.

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PROPOSAL NO. 3

Ratify the appointment of KPMG LLP as our Independent Registered

Public Accounting Firm for the Year Ending December 31, 2022

We Engaged KPMG After a Rigorous Review Process

The Audit Committee of our Board of Directors has appointed KPMG LLP, independent registered public accountants, as auditor for the year ending December 31, 2022. As the Company’s independent auditor, KPMG is responsible to audit, and express an opinion on, our financial statements and our internal control over financial reporting and to discuss with our Audit Committee certain required matters and other matters deemed appropriate.

KPMG has served as the Company’s independent registered public accounting firm continuously since 1993. Before reappointing KPMG as the Company’s independent auditor for 2022, the Audit Committee carefully considered KPMG’s qualifications as an independent registered public accounting firm. This included a review of KPMG’s performance in prior years, its knowledge of the Company and its operations as well as its reputation for integrity and competency in the fields of accounting and auditing.

The Audit Committee believes that retaining KPMG again in 2022 is in the best interests of the Company and its shareholders, and therefore the Audit Committee requests that shareholders ratify the appointment. If the appointment of the independent registered public accounting firm is not ratified by shareholder vote, the Audit Committee may appoint another independent registered public accounting firm or may decide to maintain its appointment of KPMG. A representative of KPMG is expected to be present at the Annual Meeting. The representative will be given the opportunity to make a statement on behalf of his or her firm if such representative desires, and will be available to respond to appropriate shareholder questions. KPMG served as the Company’s independent accountants for the year ended December 31, 2021, and reported on the Company’s consolidated financial statements for that fiscal year.

The Audit Committee believes that, if handled properly, there are numerous benefits of a long-term independent auditor relationship, including:

HIGHER AUDIT QUALITY: Through 29 years of experience with the Company KPMG has gained institutional knowledge of and deep expertise regarding our operations and primary business segments, accounting policies and practices and internal controls over financial reporting;

EFFICIENT FEE STRUCTURE: KPMG’s aggregate fees are competitive with peer companies because of KPMG’s familiarity with the Company and industry expertise; and

AVOIDANCE OF DISRUPTION: Onboarding a new independent auditor requires a significant time and cost commitment that could distract from management’s and the Audit Committee’s focus on financial reporting and internal controls.

The Company and the Audit Committee are also aware that a long-tenured auditor may be believed by some to pose an independence risk. To address these concerns, there are safeguards for auditor independence, including:

AUDIT COMMITTEE OVERSIGHT: The Audit Committee’s oversight includes regular private sessions with KPMG, discussions with KPMG regarding the scope of its audit, an annual evaluation when determining whether to engage KPMG, and direct involvement by the Audit Committee and its Chair in the periodic transition to a new lead engagement partner in connection with the mandatory five-year rotation of that position;

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LIMITS ON NON-AUDIT SERVICES: The Audit Committee pre-approves audit and permissible non-audit services to be performed by KPMG in accordance with its pre-approval policy; and

REGULATORY FRAMEWORK: Because KPMG is an independent registered public accounting firm, it is subject to PCAOB inspections, peer reviews and PCAOB and SEC oversight.

Fees Paid to KPMG LLP Related to Fiscal Years 2021 and 2020

	2021	2020
Audit Fees	$1,892,000	$1,787,000
Audit-Related Fees	$295,000	$240,000
Tax Fees	$65,446	$2,911
All Other Fees	$1,780	$1,780
	$2,254,226	$2,031,691

Audit fees for 2020 and 2021 consist of fees for professional services rendered for the annual audit of our consolidated financial statements and internal control over financial reporting, reviews of our interim consolidated financial statements included in quarterly reports, and services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings or engagements, including relating to the SEC. Audit-related fees for 2021 are due primarily to comfort letters associated with a bond issuance, an equity issuance, and an asset-backed securities offering during the year. Audit-related fees for 2020 were due primarily to comfort letters associated with an at-the market offering, a bond issuance and an equity issuance during the year.

Tax fees and all other fees were related to miscellaneous services during the years presented.

Pre-Approval Policies

Except as permitted under federal law and SEC rules, all audit and non-audit services performed by KPMG, and all audit services performed by other independent registered public accounting firms, must be pre-approved by the Audit Committee. All projects reflected in the foregoing table were pre-approved by the Audit Committee. KPMG may not perform for us any prohibited services as defined by the Sarbanes-Oxley Act of 2002 including any bookkeeping or related services, information systems consulting, internal audit outsourcing, legal services and management or human resources functions. Non-audit services and fees are evaluated by the Audit Committee in assessing the auditor’s independence.

Vote Required

The votes that shareholders cast “for” must exceed the votes that shareholders cast “against” on this matter to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2022.

Our Board of Directors unanimously recommends that the shareholders vote FOR the ratification of the

appointment KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2022.

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Audit Committee Report

The Audit Committee reports to the Board of Directors and is responsible for assisting the Board in fulfilling its oversight responsibilities relating to: (a) the preparation and integrity of the Company’s financial statements; (b) the engagement of the independent registered public accounting firm, the annual evaluation of their performance, qualifications and independence, and negotiation of fees; (c) the implementation and evaluation of the Company’s internal accounting and financial controls, procedures and policies; and (d) the compliance with certain legal and regulatory requirements, including programs and policies established by management or our Board of Directors. The Audit Committee is composed solely of independent directors. The Audit Committee regularly reviews financial information contained in the Company’s quarterly earnings releases, and reviews the appropriateness of non-GAAP financial measures disclosed by the Company. The current Audit Committee charter is available on our website at www.lithiamotors.com

In discharging our responsibilities, we have met with the Company’s management and its independent registered public accounting firm, KPMG LLP, to review the Company’s accounting functions and the audit process. We have also met regularly with the Company’s Director of Internal Audit to review the nature and extent of the Company’s internal controls, the review procedures performed by internal audit regarding such controls and the frequency and results of such reviews. In each case, we discussed the consideration of increased remote work environments and the potential impact of Covid-19 on internal controls.

Selection of KPMG as our Auditor

The Audit Committee selects, oversees and evaluates the performance of the independent auditor. In selecting KPMG as our independent auditor, the Audit Committee considered that KPMG has been our auditor for 29 years, KPMG’s global reach and auto retail industry expertise. The Audit Committee also utilized the Center for Audit Quality’s External Auditor Assessment Tool to assist in evaluating KPMG as our independent auditor. This tool is used annually by the Audit Committee.

Consistent with requirements, the audit partner and concurring review partner rotate at least every five years. A new lead partner rotated on in 2017. The Audit Committee selects the lead partner.

Audit Committee Actions

We hereby report that the Audit Committee has:

1. Reviewed and discussed with management and the Company’s independent registered public accounting firm, KPMG LLP, together and separately, the Company’s audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the 2021 fiscal year;

2. Discussed with KPMG the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the Securities and Exchange Commission.

3. Received from KPMG the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence, and discussed with KPMG its independence and any relationships that may impact their objectivity and independence.

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We also discussed and reviewed the results of the independent registered public accounting firm’s audit of the Company’s financial statements, the quality and adequacy of the Company’s internal control over financial reporting, and issues relating to auditor independence. In addition, we discussed and reviewed the identification of the critical audit matter with management and with KPMG throughout the year.

Based on our review and discussions with the Company’s management and independent registered public accountants, we recommended to our Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, for filing with the Securities and Exchange Commission.

Submitted by:

Louis P. Miramontes (Chair)

Susan O. Cain

Shauna F. McIntyre

David J. Robino

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ADDITIONAL OWNERSHIP INFORMATION

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of February 28, 2022 (unless otherwise noted in the footnotes to the table), certain information with respect to ownership of our common stock of (i) persons known by us to be beneficial owners of more than 5% of any class of our common stock, (ii) each director, (iii) each named executive officer, and (iv) all current executive officers, directors, and director nominees as a group. Except as noted below, the address of each shareholder in the table is Lithia Motors, Inc., 150 N. Bartlett Street, Medford, Oregon 97501. Unless otherwise indicated, all persons named as beneficial owners of the Company's common stock have sole voting power and sole dispositive power with respect to the shares indicated as beneficially owned.

Beneficial Owner	Class A Shares Beneficially Owned (#)	Percent Owned
Blackrock, Inc⁽¹⁾ 55 East 52nd Street; New York, NY 10055	2,673,130	9.1%
The Vanguard Group⁽²⁾ 100 Vanguard Blvd; Malvern, PA 19355	2,940,913	10.0%
Abrams Capital Management, LP⁽³⁾ 222 Berkeley St, 21st Floor; Boston, MA 02116	2,351,068	8.0%
Sidney B. DeBoer⁽⁴⁾⁽⁵⁾	156,312	*
Bryan B. DeBoer⁽⁶⁾	164,934	*
Tina H. Miller	3,254	*
Christopher S. Holzshu	20,517	*
Scott A. Hillier	37,683	*
George N. Hines	1,820	*
Susan O. Cain⁽⁵⁾	12,779	*
Shauna F. McIntyre⁽⁵⁾	1,613	*
Louis P. Miramontes⁽⁵⁾⁽⁷⁾	3,983	*
Kenneth E. Roberts⁽⁵⁾⁽⁸⁾	95,011	*
David J. Robino⁽⁵⁾	8,165	*
All current executive officers and directors as a group (13 persons)(9) persons)^(12)(13)	506,461	1.7%

*	Less than one percent

(1)	Beneficial ownership as of December 31, 2021 as reported by BlackRock Inc. in a Schedule 13G/A filed on February 1, 2022. The Schedule 13G/A reports sole voting power with respect to 2,527,834 shares and sole dispositive power with respect to 2,673,130 shares.

(2)

Beneficial ownership as of December 31, 2021 as reported by The Vanguard Group in a Schedule 13G/A filed on February 10, 2022. The Schedule 13G/A reports shared voting power with respect to 16,588 shares, sole dispositive power with respect to 2,898,176 shares and shared dispositive power with respect to 42,737 shares.

(3)

Beneficial ownership as of December 31, 2020 as reported by Abrams Capital Management, L.P., Abrams Capital Partners II, L.P., Abrams Capital, LLC, Abrams Capital Management, LLC, and David Abrams in a Schedule 13G/A filed on February 12, 2021. The Schedule 13G/A reports shared voting and dispositive power with respect to 2,351,068 shares by Abrams Capital Management, L.P., Abrams Capital Management, LLC, and David Abrams, with respect to 2,189,102 shares by Abrams Capital, LLC, and with respect to 1,941,198 shares by Abrams Capital Partners II, L.P.

(4)

Includes (a) 55,314 shares held directly, (b) 998 shares held by Sydney B. DeBoer’s spouse, and (c) 100,000 shares directly held by Lithia Holding Company L.L.C., which is managed by Sidney B. DeBoer and wholly-owned by DeBoer Family LLC. Sidney B. DeBoer is the manager of the DeBoer Family LLC, whose members include Sydney B. DeBoer and other family members. All 100,000 shares directly owned by Lithia Holding Company L.L.C. are pledged to secure a loan. In March 2013, we adopted changes to our insider trading policy and our stock ownership guidelines to prohibit future pledging and hedging transactions. Existing pledges, including the pledge by Lithia Holding, and pledges under replacement financial arrangements, were grandfathered. (See “Non-Employee Director Stock Ownership Policy; Hedging and Pledging Restrictions” above).

(5)	Includes 101 shares for each specified person underlying RSUs vesting within 60 days, for which the specified person does not have voting and dispositive power.

(6)	Includes 3,625 shares held by a household member, for which Bryan B. DeBoer disclaims voting and dispositive power.

(7)	Includes shares underlying 312 deferred stock units without voting rights under a Deferred Compensation Agreement with the Company.

(8)

Kenneth E. Roberts has a line of credit that is secured by the securities held in one of his brokerage accounts, including 48,000 shares of common stock of Lithia; no amounts were drawn on the line of credit as of February 28, 2022. This arrangement was subject to the grandfathering described in note 4.

(9)

Includes 606 shares underlying RSUs subject to time-based vesting for which current executive officers and directors as a group do not have voting and dispositive power and shares underlying 312 deferred stock units for which current executive officers and directors as a group do not have voting rights.

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GENERAL INFORMATION

About the Annual Meeting

Online Meeting

Out of an abundance of caution, and to support the health and safety of our employees, directors and shareholders, our Board of Directors has authorized us to conduct the 2022 Annual Meeting of Shareholders (the “Annual Meeting”) solely online via the Internet through online shareholder tools as described in the Notice. This format empowers shareholders to participate fully from any location around the world.

Mailing Date

On or about March 11, 2022, we mailed to our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access this proxy statement and our 2021 Annual Report on Form 10-K. The Notice provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail.

Matters for Consideration at the Annual Meeting

Proposal

Board Vote

Recommendation

Vote

Requirement

for Approval

Effect of

Abstention

Effect of Broker

Non-Vote

Proposal No. 1: The election of seven director nominees named in this proxy statement

FOR ALL

For each director, a majority of votes cast.

No effect.

No effect. Broker non-votes do not count as votes cast.

Proposal No. 2: An advisory vote to approve the compensation of our named executive officers.

FOR

Majority of votes cast.

No effect.

No effect. Broker non-votes do not count as votes cast.

Proposal No. 3: To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2022.

FOR

Majority of votes cast.

No effect.

Broker discretion to vote.

As of the date of this proxy statement, we are unaware of any matters that may properly be presented at the Annual Meeting. If any other matters are properly presented for consideration at the meeting, the persons named as proxies on the enclosed proxy card, or their duly constituted substitutes, will be deemed authorized to vote those shares for which proxies have been given or otherwise act on such matters in accordance with their judgment.

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Proxies

The Board of Directors has designated Tina Miller, Senior Vice President and Chief Financial Officer, and Kelly Porter, Corporate Controller as the proxy holders for the Annual Meeting. All properly executed proxies will be voted (except to the extent that authority to vote has been withheld) as specified by the shareholder. Proxies submitted without specification will be:

–	Voted FOR the seven director nominees listed in this proxy statement;

–	Voted FOR the approval of our compensation of the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K; and

–	Voted FOR the ratification of the appointment of KPMG as our independent registered public accounting firm for 2021;

Voting

Who Can Vote

Only holders of record of our common stock at the close of business on February 28, 2022, the record date, will be entitled to notice of and to vote at the meeting and any adjournment thereof. A list of shareholders entitled to vote at the Annual Meeting will be available during the entire time of the Annual Meeting at the 2022 Annual Meeting Website. You may vote or submit questions during the Annual Meeting by following the instructions available on the 2022 Annual Meeting Website during the Annual Meeting.

As of the record date, there were 29,487,567 shares of common stock outstanding and entitled to vote. Each share of common stock outstanding is entitled to one vote. Our executive officers and directors hold or control 1.7% (506,461 shares) of the common stock outstanding.

Quorum

For a quorum to exist at the Annual Meeting, there must be represented, in person or by proxy, shares representing a majority of the votes entitled to be cast at the meeting. Proxies that expressly abstain from voting on a particular proposal and broker non-votes will be counted for purposes of determining whether a quorum exists at the Annual Meeting.

“Shareholder of Record” and “Beneficial Ownership”

If your shares are owned directly in your name in an account with our stock transfer agent, Broadridge, you are considered the “shareholder of record” of those shares in your account. If your shares are held in an account with a broker, bank, or other nominee as custodian on your behalf, you are considered a “beneficial shareholder” of those shares, which are held in street name. The broker, bank, or other nominee is considered the shareholder of record for those shares. As the beneficial owner, you have the right to instruct the broker, bank, or other nominee on how to vote the shares in your account. In order for your shares to be voted in the way you would like, you must provide voting instructions to your broker, bank, or other nominee by the deadline provided in the proxy materials you receive from your broker, bank, or other nominee. If you do not provide voting instructions to your broker, bank, or other nominee, whether your shares can be voted on your behalf depends on the type of item being considered for vote. Under New York Stock Exchange rules, brokers are permitted to exercise discretionary voting authority only on “routine” matters. Therefore, your broker may vote on Item No. 3 (“Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2022”) even if you do not provide voting instructions because it is considered a routine matter. Your broker is not permitted to vote on the other agenda items if you do not provide voting instructions because those items involve matters that are not considered routine. For Item No. 1 (election of seven director nominees) and Item No. 2 (advisory vote to approve the compensation of our named executive officers), if you do not provide voting instructions your shares will not be counted as votes cast for or against.

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Shareholder of Record

Please promptly complete, sign, date, and return the enclosed proxy card. You may also grant a proxy by calling 1-800-690-6903 or via the Internet by visiting http://www.proxyvote.com.

If you are a Beneficial Shareholder

Please vote your shares by following the instructions set forth in the Notice provided by your broker, bank, trust, or other holder of record. In most cases, you may be permitted to submit your voting instructions by mail, by telephone or via the Internet.

How to Vote

Whether you are a shareholder of record or a beneficial shareholder, you may direct how your shares are voted without participating in the Annual Meeting. We encourage shareholders to vote well before the Annual Meeting, even if they plan to attend the virtual meeting, by completing proxies online or by telephone (at 1-800-690-6903), or, if they received printed copies of these materials, by mailing their proxy cards. Shareholders who attend the virtual Annual Meeting should follow the instructions at http://www.proxyvote.com to vote or submit questions during the meeting. Voting online during the meeting will also replace any previous votes.

How You Can Revoke Your Proxy or Change Your Vote

Shareholders of record may revoke their proxy at any time before the electronic polls close by submitting a later-dated vote online during the Annual Meeting, via the Internet, by telephone, by mail, or by delivering instructions to our Corporate Secretary before the Annual Meeting. Beneficial shareholders may revoke any prior voting instructions by contacting the broker, bank, or other nominee that holds their shares or by voting online during the Annual Meeting. Any written notice revoking a proxy should be sent to Lithia Motors, Inc., Attention: Corporate Secretary, 150 N. Bartlett Street, Medford, Oregon 97501.

Attending the Annual Meeting

Admission

If you plan to attend the Annual Meeting, please be aware of what you will need to gain admission, as described below. If you do not comply with the procedures described here for attending the Annual Meeting, you will not be able to participate in the Annual Meeting.

To attend, vote at, and submit questions during, the Annual Meeting, visit www.virtualshareholdermeeting.com/LAD2022 and enter the 16-digit control number included in your Notice of Internet Availability of Proxy Materials, voting instructions form, or proxy card. Questions may be submitted in advance of the Annual Meeting by visiting www.virtualshareholdermeeting.com/LAD2022 and entering your 16-digit control number. Further information regarding voting rights and the matters to be voted upon is presented in our proxy statement.

Registered shareholders who have misplaced their original proxy materials listing their unique control number can find that information by visiting www.shareholder.broadridge.com/bcis/ and selecting the option to create a profile in the top right-hand corner.

Additionally, if you have difficulty accessing the Annual Meeting through the 2022 Annual Meeting Website, a phone number will be posted on the website to connect you to technical support.

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Asking Questions

Once online access to the Annual Meeting is open, shareholders may submit questions, if any, on www.virtualshareholdermeeting.com/LAD2022. You will need your unique control number included on your proxy card (printed in the box and marked by the arrow) or on the instructions that accompanied your proxy materials. Questions pertinent to meeting matters will be answered during the meeting, subject to time constraints.

Discretionary Authority

We do not know of any matters to be voted on by shareholders at the Annual Meeting other than those included in this Proxy Statement. If any matter, other than those presented in this Proxy Statement, is properly presented at the meeting, your executed proxy gives the Proxies discretionary authority to vote your shares in accordance with their best judgment with respect to the matter.

Annual Meeting Voting Results

Our inspector of elections will tabulate the vote at the Annual Meeting. We will provide voting results on our website and in a Current Report on Form 8-K filed with the SEC.

Additional Information

Solicitation Expenses

The Company is soliciting proxies for the Annual Meeting. All expenses associated with this solicitation, including the cost of preparing, assembling and mailing the Notice, proxy statement, 2022 Annual Report to Shareholders, and form of proxy will be borne by us. Our directors, officers and employees may communicate with shareholders by telephone, facsimile, email or personal contact to solicit proxies. These individuals will not be specifically compensated for doing so. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation materials to the beneficial owners of our common stock.

Electronic Delivery of Proxy Materials

Making the proxy materials available to shareholders via the Internet saves us the cost of printing and mailing documents and will reduce the impact of the Annual Meeting on the environment. If you received only a Notice, you will not receive a printed copy of the proxy materials unless you request it. All shareholders will have the ability to access the proxy materials on a website referred to in the Notice or request to receive a printed set of the proxy materials at no charge. Instructions on how to access the proxy materials on the internet or to request a printed copy may be found in the Notice. In addition, shareholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis by following the instructions on the website referred to in the Notice.

Householding of Proxy Materials

Shareholders of record who have the same address receive only one copy of the Notice Regarding the Availability of Proxy Materials or the Proxy Statement and Annual Report on Form 10-K, as applicable, unless we receive contrary instructions from one or more of the shareholders. This procedure reduces the Company’s printing and mailing costs and the environmental impact of its annual meetings. Shareholders who participate in householding continue to receive separate proxy forms. Householding does not affect dividend check mailings.

Any shareholder who would prefer to have a separate copy of the Notice Regarding the Availability of Proxy Materials, Proxy Statement or Annual Report on Form 10-K delivered to him or her at the shared address for this and future years may elect to do so by calling

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(877) 331-3084 or by writing to Christopher S. Holzshu, our Secretary, at 150 N. Bartlett Street, Medford, Oregon 97501. A copy of the materials will be sent promptly to the shareholder following receipt of a written or oral request by a shareholder to receive a copy of the Notice Regarding the Availability of Proxy Materials, the Proxy Statement or Annual Report on Form 10-K. The foregoing contact information can also be used by shareholders sharing an address to request delivery of a single copy of the Notice Regarding the Availability of Proxy Materials, the Proxy Statement or Annual Report on Form 10-K if they are receiving multiple copies of any of those documents.

Annual Report on Form 10-K

We will provide, without charge, a copy of our Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Written requests should be mailed to the attention of Investor Relations, Lithia Motors, Inc., 150 N. Bartlett Street, Medford, Oregon 97501. You may also find our Form 10-K on our website at www.lithiamotors.com.

Other Materials

All materials filed by us with the SEC may be obtained through the SEC’s website at www.sec.gov.

Communications with the Board

Our Board of Directors has adopted a Shareholder Communication Policy to promote efficient shareholder and interested party communications with our Board of Directors and management. Our Investor Relations Department is responsible for receiving and routing all shareholder and interested party communications. Corporate governance issues are the responsibility of the Nominating and Governance Committee. Our Audit Committee handles concerns or allegations regarding possible violations of accounting or financial reporting matters. Management is the more appropriate group for handling all other matters and we encourage you to contact them accordingly.

All correspondence with our Board of Directors or its members must be in writing, directed to the attention of either our Board of Directors or an individual director and delivered to: Investor Relations Department, Lithia Motors, Inc., 150 N. Bartlett Street, Medford, Oregon 97501. The Investor Relations Department will review communications to our Board or individual directors and direct the communication to the named Board member if the communication relates to important Company policies, or to management, if the matter is better addressed by management. The Investor Relations Department copies the Lead Independent Director and our General Counsel on all communications. A complete copy of our Shareholder Communication Policy is available on our website at investors.lithiadriveway.com and interested persons may obtain a written copy from the Investor Relations Department.

2023 Shareholder Proposals or Nominations

Shareholder Proposals

SEC rules require that any shareholder proposal to be included in our proxy materials for consideration at next year’s annual meeting be received by us at our principal executive office no later than November 15, 2022 (120 days prior to the anniversary of the mailing of the prior year’s Notice of Internet Availability). Shareholders who wish to nominate one or more director candidates for election to the Board to be included in our proxy materials for consideration at next year’s annual meeting must do so in accordance with our Bylaws, which require that notice of such a nomination be delivered to our Secretary at our principal executive offices no earlier than October 15, 2022 and no later than November 15, 2022 (at least 150 days and no later than 120 days prior to the anniversary of the mailing of the prior year’s proxy materials), and must include the information required by our Bylaws. Shareholders who otherwise wish to present proposals for action at next year’s annual meeting must do so in accordance with our Bylaws, which require shareholders to

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give us advance written notice of a director nomination or other business to be conducted at any meeting of shareholders. To be timely, the written notice for next year’s annual meeting must be received by our Secretary between December 28, 2022, and January 27, 2023 (at least 90 days, and no earlier than 120 days, before the first anniversary of our preceding year’s annual meeting) and must include the information required by our Bylaws. Our mailing address is 150 N. Bartlett Street, Medford, Oregon 97501.

In addition to the requirements under our Bylaws with respect to advance notice of any nomination, if a shareholder intends to solicit proxies for a director nominee in accordance with SEC Rule 14a-19, our Corporate Secretary must receive notice of such intention at our executive offices no later than the close of business February 26, 2023. Any such notice of intent to solicit proxies must comply with all the requirements of Rule 14a-19.

Shareholder Director Recommendations

The Nominating and Governance Committee will consider potential director nominees recommended by any record or beneficial shareholder. Shareholders may recommend individuals to the Nominating and Governance Committee for consideration as potential director nominees by submitting a written recommendation to the Chairman of the Nominating and Governance Committee in accordance with our Shareholder Communication Policy. To be considered for nomination to the following year’s Board of Directors, the written recommendation must be received at our principal executive office at 150 N. Bartlett Street, Medford, Oregon 97501.

The written recommendation must include the candidate’s name, appropriate biographical information, including information about the candidate’s qualifications and background materials, a statement that the person submitting the recommendation is a shareholder entitled to vote in the election of directors and a consent to serve as director signed by the recommended individual. If the necessary information is received in a timely manner, the Nominating and Governance Committee will evaluate the shareholder-recommended candidate using substantially the same process, and applying substantially the same criteria, as it uses to evaluate all other candidates. For information regarding minimum qualifications for directors and specific qualities and skills that the Nominating and Governance Committee believes are necessary for our directors to possess, see “Director Qualifications and Nominations” above. Recommended candidates are submitted to our Board to be considered as director nominees. If our Board determines to nominate a shareholder-recommended candidate, the candidate’s name will be included in our proxy and on the ballot at our annual meeting of shareholders.

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CERTAIN RELATIONSHIPS AND TRANSACTIONS

WITH RELATED PERSONS

The Audit Committee, or another appropriate independent committee, and, where appropriate, our Board of Directors review all transactions between us and any related person, which includes, all of our nominees for director, directors and executive officers and their immediate family members and all persons known to us to be the beneficial owner of more than five percent of any class of our voting securities and their immediate family members, that exceed $120,000 and in which the related person has a direct or indirect material interest. Although we do not maintain a written policy or have written procedures for such review, our Code of Business Conduct and Ethics imposes an obligation on each of our directors and senior executive officers to disclose any actual or apparent conflict of interest involving such person and Lithia. Further, each of our directors and NEOs signs a detailed questionnaire used in the preparation of this proxy statement that requires the disclosure of, among other things, any related-person transaction. The Audit Committee or other independent committee and our Board of Directors review and determine whether to approve or disapprove such transactions in accordance with the Code of Business Conduct and Ethics, based on (i) whether the proposed transaction is on terms that are no less favorable to us than the terms generally made available by us to an unaffiliated third party under similar circumstances and (ii) the extent of the related party’s interest in the proposed transaction.

Our Chairman Sidney B. DeBoer is the father of Bryan B. DeBoer, who is a Director and our Chief Executive Officer. There are no other family relationships between our executive officers and directors. Sidney B. DeBoer is also the father of Mark DeBoer, who is an employee of the company.

On September 14, 2015, the Company entered into a Transition Agreement with Sidney B. DeBoer to reflect Mr. DeBoer’s changing role at the Company. Under the agreement, effective December 31, 2015, Mr. DeBoer ceased to be an executive officer of the Company, and the Company ceased paying Mr. DeBoer a base salary and contributing to his account under the Company’s Executive Management Non-Qualified Deferred Compensation and SERP. Mr. DeBoer also ceased to be eligible to participate in performance-based compensation arrangements, including under the Company’s Short-Term Incentive Plan and under its Stock Incentive Plan. Under the Transition Agreement the Company pays Mr. DeBoer annual amounts for his prior services rendered as an employee of the Company equal to $1,050,000 and a $42,000 vehicle allowance, and the Company reimburses Mr. DeBoer for amounts payable under the four split-dollar insurance policies described below in this section. A Special Meeting of Shareholders was held on January 21, 2019, where 99.95% of voting shareholders agreed that adding a sunset to the Transition Agreement was in the best interests of the shareholders. Under the amendment to the Transition Agreement that adds the sunset, the Transition Agreement ends on the earlier of Mr. DeBoer’s death or December 31, 2035.

The Company entered into a Director Service Agreement, effective January 1, 2016, with Sidney B. DeBoer. Under the agreement, the Company agreed to pay Mr. DeBoer in cash a prorated portion of $210,000 (the cash equivalent of the annual amount paid to non-employee directors for the 2015-2016 service year) until the Board of Directors changes the compensation payable to non-employee members of the Board of Directors. Thereafter, for so long as Mr. DeBoer serves as a member of the Board of Directors, the Company will pay him the same compensation, in the same form (cash or equity), as the Company pays to its non-employee directors (as that amount is established by the Board of Directors from time to time).

We maintain four split-dollar “whole-life” insurance policies covering Sidney B. DeBoer, each worth $3,727,600 on maturity and Mr. DeBoer has the right to designate the beneficiary or beneficiaries of the death benefit of each policy. Lithia owns and pays the

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premium for each of the four policies, and pursuant to the amended Transition Agreement described above, Lithia will continue to pay the premiums for each of the four policies until the earlier of Mr. DeBoer’s death or December 31, 2035. Lithia will receive the greater of the cash surrender value or cumulative premiums paid at the maturity of each policy.

In 2021, Mark DeBoer received a salary of $360,000, incentive compensation of $320,000 and other compensatory arrangements totaling $14,799.

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