DEF 14A 1 proxystatement-2020.htm DIAMOND HILL INVESTMENT GROUP - PROXY STATEMENT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Diamond Hill Investment Group, Inc.
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1

DIAMOND HILL INVESTMENT GROUP, INC.
ANNUAL LETTER TO SHAREHOLDERS
March 13, 2020
Dear Fellow Shareholders:
Our mission at Diamond Hill is to be trusted stewards of client capital. We invest on behalf of institutions and individuals to help them achieve their investment objectives. Our business is straightforward: the firm’s primary relationships are with financial intermediaries, investment consultants, and institutions, and we derive revenue from investment advisory services and mutual fund administration. Over the last 20 years, we have helped our clients reach their investment objectives by delivering returns that compare favorably with passive alternatives and our peers in many of our strategies. Superior investment results are the lifeblood of our business, but may no longer be enough to maintain our trusted status with clients. Changes in client expectations and technological innovation continue to alter competition within the investment management industry and we must adapt to evolving client needs to stay relevant. I believe the challenges presented by a shifting competitive environment bring tremendous opportunities to differentiate Diamond Hill from others in the industry.
The Rise of Passive and Capacity Management
The rise of passive investment options puts pressure on our industry in two important ways. First, it has created investment alternatives that allow clients to gain market, or beta, exposure via highly efficient and transparent vehicles. Second, because passive alternatives are much cheaper to deliver and more easily scalable, active managers must adapt. I remain outspoken in my belief that the availability of passive products has been a positive for investors, providing price discovery for market exposure and exposing those firms that have attempted to earn active fees while delivering beta to clients.
Diamond Hill’s approach to fees, performance, and capacity helps insulate us from these pressures over the long term. We focus on delivering alpha to our clients at a thoughtful price that allows us to cultivate a team of great investors. We believe we can best serve clients by earning a fee that is low enough to ensure the returns we achieve benefit our clients with meaningful outperformance relative to a passive alternative, yet is high enough to build and maintain an investment team capable of achieving such results. The fee should reflect a fair split of economics between the client and the investment manager, and this remains a central tenet of our fee philosophy.
While our equity strategies have generally performed well relative to peers over the last 10 years, it has been more difficult for us to outperform core passive benchmarks (e.g. Russell 1000 Index). Over the last decade, equity market returns have exceeded historical norms, driven by the performance of rapidly growing and statistically expensive companies, making it more challenging for value-oriented managers like us to demonstrate the alpha we can add over the course of a full market cycle. We continue to believe our strategies will outperform their respective passive benchmarks, net of fees, over a complete market cycle, supported by a shared commitment to our intrinsic value-based investment philosophy, long-term perspective, disciplined approach, and alignment with our clients’ interests.
Because of easy access to low-cost market exposure, asset flows have increasingly shifted toward passive options. This has benefitted the handful of larger firms offering these commoditized products. Fortunately, boutique active managers such as Diamond Hill have maintained market share in this environment, as there is demand for truly differentiated investment offerings from firms with a clear, consistent, and repeatable investment philosophy and process.

While size is an advantage when producing a commodity product like an index fund, it has a real cost for investors in active strategies that must be carefully managed. The business of active investment management favors scale, many times at the expense of long-term client outcomes. There is an inherent conflict of interest between active asset managers and clients: more assets under management lead to higher revenue for the manager but can negatively affect performance generated for existing clients. If portfolio managers are incentivized to grow assets under management, their time may be spent attracting new investors rather than delivering outstanding investment results for existing clients. In addition, this approach may allow the strategy to grow to a point where size begins to inhibit the ability to generate excess returns.
Capacity management is a critical component of our ability to act in the best interests of clients. Adding value for our clients is predicated on our willingness to differ meaningfully from the benchmark (and ability to be right). In order to deliver a high-conviction, truly active portfolio, we must first ensure a foundation of capacity discipline. At Diamond Hill, we seek to grow our strategies to the point where our revenue allows us to attract and retain the investment talent necessary to generate excess returns for our clients while simultaneously protecting the portfolio manager’s ability to add value. We address this by giving all portfolio managers sole discretion in determining the capacity for the strategies they manage, as well as decision rights on when to soft close a strategy. Because we base incentive compensation on investment results, we motivate portfolio managers to close a strategy before it reaches a size where their ability to generate excess return is hindered. Through meaningful investment in their strategies, portfolio managers are incentivized to optimize investment results (rather than grow assets under management) because their personal investments, along with our clients’ investments, also benefit from excess return generation. At Diamond Hill, we are committed to prudent capacity management that puts our clients’ interests first.
Culture and Alignment of Interests
Our culture is an intangible asset that instills a sense of common purpose and direction for all associates. Our culture revolves around the fact that Diamond Hill is a fiduciary first and foremost. Clients are at the center of everything we do, and this mindset permeates the entire organization. We define success as exceeding client expectations, which includes investment results and the entire client experience. We intentionally staff our team to ensure a high level of service to our clients, from relationship management through implementation, and believe our client-centric approach is difficult for competitors to replicate. Our long-term, intrinsic value-based investment philosophy and process are foundational and have been consistently implemented since the firm’s inception. All members of the investment team believe in and adhere to the same philosophy. As a result, our investment professionals are able to focus their efforts solely on finding attractive investment opportunities for clients.
Culture is a particularly powerful advantage for Diamond Hill because of the way it is structurally embedded within the firm. First, every employee is an owner. Upon hire, we give all employees shares of Diamond Hill stock that cliff-vest after five years. In addition, the firm pays a meaningful portion of annual incentive compensation in shares of Diamond Hill stock. We believe ensuring all employees are owners in the company creates a culture of common purpose, accountability, and an environment in which employees maintain an ownership mindset.
Second, our employees invest in our funds alongside our clients. Our code of ethics states all Diamond Hill employees are prohibited from investing in individual securities or competing firms’ funds in segments of the market in which Diamond Hill has an investment strategy. This ensures we continue to focus on finding the best ideas for client portfolios, avoiding the conflicts of interest inherent in managing personal accounts. Our portfolio managers have significant personal investments in the strategies they manage. By investing heavily alongside our clients, we ensure portfolio managers will treat their strategies as though they are managing their own money-because they are.
To further ensure our portfolio managers constantly think about the best long-term outcomes for our clients, we link the majority of portfolio managers’ annual incentive compensation to trailing five-year investment results of the strategies they manage. We believe we are one of few firms to focus only on long-term performance, with no separate consideration for one- or three-year returns in evaluating portfolio managers. This frees our team to think about making the best long-term investment decisions, rather than trying to hit a particular short-term return number.

We further differentiate our firm and strategies through explicit consideration of investment capacity across our investment capabilities. Our focus on capacity management ensures we put client outcomes first, attract and retain portfolio managers who are confident in their long-term ability to perform well, and empower them to make the decisions necessary for continued outperformance.
Our location also positively influences our culture and ability to compete. We have one office in Columbus, Ohio, which makes communication and decision making much easier relative to large firms with well-entrenched bureaucracies. Additionally, Columbus is a fast-growing city and one of the most attractive markets from a cost-of-living standpoint, which helps us build and maintain a low-fixed-cost structure, a stable team, and can be an attractive asset when recruiting new team members. Simply put, being a boutique asset manager in an attractive location allows us to focus on the things that truly matter-delivering investment performance and a great client experience.
Client Experience
Capacity discipline guides our product development efforts. By managing capacity, we protect our ability to take advantage of market inefficiencies that generate excess returns for clients. By focusing on market segments with this characteristic, we can fill unmet needs and offer differentiated investment strategies that benefit our clients’ portfolios. In turn, these strategies can generate meaningful contributions to overall firm revenue, benefiting both clients and shareholders. While this approach may not move the needle for the largest firms, it is an advantage for us.
The development of our fixed-income capabilities over the last several years is a good example. We launched our High Yield strategy in 2014 because we wanted to offer a differentiated strategy with the potential to add value for clients in a segment of the market that lacks viable passive investment options. Investors cannot replicate the broad high yield fixed income market. As a result, the investable passive alternatives that are available attempt to replicate highly liquid subsets of the high yield market, which we believe are chronically overvalued because they are dominated by the companies with the most debt. By focusing our efforts on the smaller and more attractively valued portions of the market, our High Yield strategy has achieved top percentile results relative to peers over the past five years.
Changes in product distribution have also made it harder to get new investment strategies on investment platforms. Given the supply of commoditized investment offerings, these platforms are going through product rationalization initiatives and culling the number of available funds. Further, financial advisors are increasingly relying on models created by centralized decision makers, meaning that building and maintaining good relationships with those decision makers is more vital than ever. While performance used to be the primary determinant of fund flows, we have moved into an environment where great performance is necessary, but not sufficient, to generate positive flows from clients. Although most of our assets are in strategies that have strong, long-term, risk-adjusted returns and below-average fees, I believe the evolution away from performance as an investor’s primary consideration is just the beginning of a shift within the industry toward a focus on the overall client experience. Many asset managers will need to step up their ability to deliver in this area, including Diamond Hill. For us, this includes finding the right clients who share our long-term investment outlook, having a fee discipline that strikes a balance between returns for clients, shareholders, and the investment manager, and improving our overall communications and interactions with clients. We have added key resources to our client team over the last few years, and we are initiating a program to upgrade our distribution technology, including new tools driven by data and analytics that will enhance our ability to deliver an exceptional client experience.
Financial Results
Diamond Hill's assets under management finished the year at $23.4 billion, an increase of 22% from 2018, primarily reflecting strong performance in U.S. equity markets, which helped to offset some of the net outflows from our equity strategies. Assets under management rose 49% from 2014 (our typical five-year time horizon). Revenue was $136.6 million in 2019, compared with $145.6 million in 2018 and $104.6 million in 2014. Lower beginning-of-year assets under management and a mix shift toward lower fee products pressured our revenue in 2019. We generated net operating income of $47.9 million in 2019, a decrease of 33% from 2018, and our operating margin decreased in 2019 to 35% compared with 49% in 2018. Net income was $55.0 million, up 16% from $47.4 million in 2018,

primarily because of an increase in investment income in 2019. Earnings per share was $15.99 in 2019, compared with $13.48 in 2018, helped by investment income and a lower share count because of share repurchases.
Investment income can be volatile over shorter time periods, so we focus on net operating income as adjusted, after tax. This excludes the gains and losses on deferred compensation plan investments that flow through operating income as well as the impact of gains and losses on company investments in our own strategies that are included in net income. Net operating income, as adjusted, after tax, was $40.2 million in 2019 compared with $49.6 million in 2018[1]. Over the past five years, net operating income, as adjusted, after tax increased 34%. Operating profit margin, as adjusted, was 39% in 2019, down from 47% in 2018 and 46% in 2014[1]. By far our largest expense is associate compensation, including a significant amount of variable incentive compensation. A variety of factors influence incentive compensation including the long-term investment results generated for our clients, individual employee contributions, and overall company performance. We take a long-term perspective in managing our business and in determining compensation. As a result, our operating margin can fluctuate materially from year to year.
Over the last five years, important fundamental indicators of Diamond Hill's intrinsic value per share have increased. Net operating profit per share, as adjusted, increased by 27% from 2014, assets under management increased nearly 50%, and tangible book value per share more than doubled. Shareholders have derived significant value from the company's cash flows and tangible net assets, receiving special dividends in each of the past five years cumulatively totaling $35.00 per share. However, Diamond Hill's share price has not tracked rising levels of per share operating earnings and tangible book value over the past five years, ending the period at roughly the same level as it started. It is important to note that Diamond Hill's tangible book value consists largely of cash and investments with easily identifiable market values and no debt. Over the long-term, we believe a strong balance sheet provides financial flexibility to seed new products, weather periods of market turbulence, and, ultimately, enables us to increase the future stream of operating profits available to shareholders at attractive risk-adjusted rates of return. Our tangible net assets represent a meaningful component of intrinsic value - value that has risen substantially over the past five years alongside increases in net operating earnings. Markets can be fickle over short periods of time (even five years), sharply penalizing those firms that seem out of step with the latest industry trends, regardless of the underlying business results. Over the long term, the weight of business fundamentals-operating earnings per share and tangible book value per share-will determine the appropriate level for Diamond Hill shares, so we remain focused on managing the risks and opportunities our business faces and building lasting value for shareholders.
Capital Allocation
As active investment managers focused on making long-term investments in businesses, we evaluate managements’ capital allocation decisions as a central part of our investment discipline. We prefer to invest in companies that are proven to be good stewards of capital for shareholders, and we hold ourselves to the same standards. We review future capital needs and the appropriate use of any excess capital, and we focus on the optimal long-term use of capital. Historically, we have used excess capital to seed new strategies or invest in existing strategies to help them achieve critical mass. We have also paid special dividends to our shareholders, with 2019’s $9.00 per share dividend marking the 12th consecutive year with a special dividend. In September 2018, we implemented a share repurchase program authorizing the purchase of up to $50 million of Diamond Hill stock. As of February 28, 2020, we repurchased all of the $50 million authorized, totaling approximately 350,000 shares. Importantly, we will only engage in share repurchases when we believe the current market price is below our estimate of Diamond Hill’s intrinsic value. On February 27, 2020, our Board of Directors approved a new $50 million share repurchase plan, and we intend to continue to repurchase our shares when they trade at a meaningful discount to our estimate of the firm’s intrinsic value.
A Note on the Current Market Environment
As this letter goes to shareholders, we are experiencing historic broad market volatility as a result of uncertainty surrounding the potential effect of COVID-19 on the global economy. We are attempting to minimize the risks posed by the virus to our firm, our associates, and our clients’ assets. We have also performed due diligence on our critical third-party software and service providers, and are confident we can seamlessly provide an uninterrupted, high-quality client experience while helping to safeguard our associates’ safety.

With respect to our clients’ assets, we view risk as the permanent loss of capital, rather than short-term volatility of returns as measured by standard deviation. Our investment team remains focused on maintaining a long-term mindset and protecting our clients from a permanent loss of capital, and we are using this historic volatility to optimize our portfolios. We regularly communicate with clients, emphasizing that our long-term, value-focused approach to investing leads us to companies that have business models and balance sheets capable of weathering near-term shocks-even potentially leveraging such opportunities to position our portfolios more competitively for the future. While it is difficult to forecast how this issue ultimately will affect the economy and our business, we will continue to monitor the situation closely.
Summary
When I first learned about the opportunity to join Diamond Hill, I had never been to Columbus, Ohio, and knew little about the firm. After becoming familiar with the company and its history, meeting with the Board and various team members during the interview process, and visiting this wonderful and fast-growing city, I knew it was an incredible opportunity: an active asset manager with true capacity discipline that made alignment of interests with its clients a top priority, nestled in a city that encourages an independent and long-term mindset. During the interview process, I was struck by the remarkable consistency with which associates talked about their desire to put clients first. After joining the firm and observing what goes on behind the scenes, it’s clear that the desire to help clients achieve their investment objectives is a fundamental part of the firm’s DNA and it truly is what motivates us on a daily basis. Diamond Hill has several advantages that will be instrumental in positioning us to overcome the challenges our industry faces, ensure the long-term success of the firm, and continue to grow the company’s intrinsic value over time.
Sincerely,
Heather Brilliant
Chief Executive Officer
[1] Net operating income, as adjusted, after tax, operating profit margin, as adjusted, and net operating income, as adjusted after tax per diluted share, are non-GAAP performance measures. Reconciliations to GAAP measures are provided in the following Annex.

ANNEX - RECONCILIATION OF NON-GAAP MEASURES
As supplemental information, we are providing performance measures that are based on methodologies other than U.S. generally accepted accounting principles (“non-GAAP”). We believe the non-GAAP measures below are useful measures of our core business activities, are important metrics in estimating the value of an asset management business and may enable more appropriate comparison to our peers. These non-GAAP measures should not be a substitute for financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) and may be calculated differently by other companies. The following schedule reconciles GAAP measures to non-GAAP measures for the years ended December 31, 2019, 2018, 2017, 2016, 2015 and 2014 respectively.

| Year Ended December 31,
(in thousands, except percentages and per share data) | 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015 |  | 2014
Total revenue | $ | 136,624 |  |  | $ | 145,628 |  |  | $ | 145,202 |  |  | $ | 136,103 |  |  | $ | 124,426 |  |  | $ | 104,559 |
Net operating income, GAAP basis | $ | 47,935 |  |  | $ | 71,256 |  |  | $ | 67,001 |  |  | $ | 63,069 |  |  | $ | 58,720 |  |  | $ | 47,460 |
Non-GAAP adjustments: |  |  |  |  |  |  |  |  |  |  |
Gains (losses) on deferred compensation plan investments, net (1) | 5,977 |  |  | (2,122 | ) |  | 2,382 |  |  | 1,837 |  |  | (234 | ) |  | 533 |
Net operating income, as adjusted, non-GAAP basis(2) | 53,912 |  |  | 69,134 |  |  | 69,383 |  |  | 64,906 |  |  | 58,486 |  |  | 47,993 |
Non-GAAP adjustments: |  |  |  |  |  |  |  |  |  |  |
Tax provision on net operating income, as adjusted, non-GAAP basis(3) | (13,680 | ) |  | (19,542 | ) |  | (25,704 | ) |  | (23,626 | ) |  | (21,090 | ) |  | (17,900 | )
Net operating income, as adjusted, after tax, non-GAAP basis(4) | $ | 40,232 |  |  | $ | 49,592 |  |  | $ | 43,679 |  |  | $ | 41,280 |  |  | $ | 37,396 |  |  | $ | 30,093 |
Net operating income, as adjusted after tax per diluted share, non-GAAP basis(5) | $ | 11.71 |  |  | $ | 14.11 |  |  | $ | 12.65 |  |  | $ | 12.09 |  |  | $ | 11.13 |  |  | $ | 9.21 |
Diluted weighted average shares outstanding, GAAP basis | 3,437 |  |  | 3,515 |  |  | 3,452 |  |  | 3,413 |  |  | 3,360 |  |  | 3,266 |
Operating profit margin, GAAP basis | 35% |  |  | 49% |  |  | 46% |  |  | 46% |  |  | 47% |  |  | 45% |
Operating profit margin, as adjusted, non-GAAP basis(6) | 39% |  |  | 47% |  |  | 48% |  |  | 48% |  |  | 47% |  |  | 46% |

(1) | Gains (losses) on deferred compensation plan investments, net: The gain (loss) on deferred compensation plan investments, which increases (decreases) deferred compensation expense included in operating income, is removed from operating income in the calculation because it is offset by an equal amount in investment income (loss) below net operating income on the income statement, and thus has no impact on net income attributable to the Company.

(2) | Net operating income, as adjusted: This non-GAAP measure represents the Company’s net operating income adjusted to exclude the impact on compensation expense of gains and losses on investments in the deferred compensation plan.

(3) | Tax provision on net operating income, as adjusted: This non-GAAP measure represents the tax provision excluding the impact of investment related activity and the sale of subsidiary and is calculated by applying the unconsolidated effective tax rate to net operating income, as adjusted.

(4) | Net operating income, as adjusted, after tax: This non-GAAP measure deducts from the net operating income, as adjusted, the tax provision on net operating income, as adjusted.

(5) | Net operating income, as adjusted after tax per diluted share: This non-GAAP measure was calculated by dividing the net operating income, as adjusted after tax, by diluted weighted average shares outstanding.

(6) | Operating profit margin, as adjusted: This non-GAAP measure was calculated by dividing the net operating income, as adjusted, by total revenue.

Diamond Hill Investment Group, Inc.
325 John H. McConnell Boulevard, Suite 200
Columbus, Ohio 43215
March 13, 2020
Dear Shareholders:
We cordially invite you to attend the 2020 Annual Meeting of Shareholders of Diamond Hill Investment Group, Inc., to be held at The Eye Center of Columbus, 262 Neil Ave., Columbus, Ohio 43215, on Tuesday, April 28, 2020, at 10:00 a.m. Eastern Daylight Saving Time.
The attached Notice of Annual Meeting and Proxy Statement describe the formal business to be transacted at the meeting. During the meeting, we will also report on our operations and our directors and officers will be present to respond to any appropriate questions you may have. On behalf of the Board of Directors, we urge you to sign, date and return the enclosed proxy card as soon as possible, even if you currently plan to attend the Annual Meeting. This will not prevent you from voting in person, but will ensure that your vote is counted if you are unable to attend the Annual Meeting. Your vote is important, regardless of the number of shares you own.
Sincerely,
Heather E. Brilliant
Chief Executive Officer

Diamond Hill Investment Group, Inc.
325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 28, 2020
Notice is hereby given that the 2020 Annual Meeting of Shareholders (the “Annual Meeting”) of Diamond Hill Investment Group, Inc. (the “Company”), will be held at The Eye Center of Columbus, 262 Neil Ave., Columbus, Ohio 43215, on Tuesday, April 28, 2020, at 10:00 a.m. Eastern Daylight Saving Time, to consider and act upon the following matters:

1) | the election of six directors to serve on the Company’s Board of Directors until the Company’s 2021 Annual Meeting of Shareholders and until their successors have been duly elected and qualified;

2) | the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020;

3) | a non-binding, advisory resolution to approve the compensation of the Company’s named executive officers; and

4) | such other business as may properly come before the Annual Meeting or any adjournment thereof.

Action may be taken on the foregoing proposals at the Annual Meeting or at any adjournment of the Annual Meeting. The Board of Directors has fixed the close of business on March 2, 2020, as the record date for determining the shareholders entitled to vote at the Annual Meeting and any adjournments thereof. Please complete, sign and date the enclosed proxy card, which is solicited by the Company’s Board of Directors, and mail it promptly in the enclosed envelope. Alternatively, you may vote by phone or electronically over the Internet in accordance with the instructions on the enclosed proxy card. Returning the enclosed proxy card, or voting electronically through the Internet or by telephone, does not affect your right to vote in person at the Annual Meeting. If you attend the Annual Meeting you may revoke your proxy and vote in person if your shares are registered in your name.
PROMPTLY RETURNING YOUR PROXY CARD WILL SAVE THE COMPANY THE EXPENSE OF MAKING FURTHER REQUESTS FOR PROXIES IN ORDER TO OBTAIN A QUORUM. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ALTERNATIVELY, REFER TO THE INSTRUCTIONS ON THE PROXY CARD TO TRANSMIT YOUR VOTING INSTRUCTIONS VIA THE INTERNET OR BY TELEPHONE.
By order of the Board of Directors,
Gary R. Young, Secretary
Columbus, Ohio
March 13, 2020

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 28, 2020: The Proxy Statement and the Company’s 2019 Annual Report on Form 10-K are available without charge at the following location: https://www.diamond-hill.com/proxy

Table of Contents
Diamond Hill Investment Group, Inc.
325 John H. McConnell Boulevard, Suite 200
Columbus, Ohio 43215
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
DIAMOND HILL INVESTMENT GROUP, INC.
TO BE HELD ON APRIL 28, 2020
This Proxy Statement is being furnished to the shareholders of Diamond Hill Investment Group, Inc., an Ohio corporation (the “Company”, “we”, “us” or “our”), in connection with the solicitation of proxies by our Board of Directors (the “Board”) for use at our 2020 Annual Meeting of Shareholders (the “Annual Meeting”) to be held at The Eye Center of Columbus, 262 Neil Ave., Columbus, Ohio 43215, at 10:00 a.m., Eastern Daylight Saving Time, on April 28, 2020, and any adjournment thereof. A copy of the Notice of Annual Meeting accompanies this Proxy Statement. This Proxy Statement and the enclosed proxy are first being mailed to shareholders on or about March 13, 2020. Only our shareholders of record at the close of business on March 2, 2020, the record date for the Annual Meeting, are entitled to notice of, and to vote at, the Annual Meeting.
The purposes of this Annual Meeting are:

1) | to elect six directors to serve on our Board until our 2021 Annual Meeting of Shareholders and until their successors have been duly elected and qualified;

2) | to consider and vote upon a proposal to ratify the appointment of KPMG LLP (“KPMG”) as our independent registered public accounting firm for the fiscal year ending December 31, 2020;

3) | to consider and vote upon a non-binding, advisory resolution to approve the compensation of our named executive officers; and

4) | to transact such other business that may properly come before the Annual Meeting or any adjournment thereof.

Those common shares represented by (i) properly signed proxy cards received by us prior to the Annual Meeting or (ii) properly authenticated voting instructions recorded electronically over the Internet or by telephone prior to 7:00 p.m., Eastern Daylight Saving Time on April 27, 2020 and, in each case, that are not revoked, will be voted at the Annual Meeting as directed by the shareholders. If a shareholder submits a valid proxy and does not specify how the common shares should be voted, they will be voted as recommended by the Board. The proxy holders will use their best judgment regarding any other matters that may properly come before the Annual Meeting.

Table of Contents
TABLE OF CONTENTS

Section |  | Page
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING |  | 1
PROCEDURAL MATTERS |  | 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |  | 4
DELINQUENT SECTION 16(A) REPORTS |  | 4
PROPOSAL 1 — ELECTION OF DIRECTORS |  | 4
DIRECTOR INDEPENDENCE |  | 4
THE NOMINEES |  | 4
THE BOARD OF DIRECTORS AND COMMITTEES |  | 7
COMPENSATION OF DIRECTORS |  | 8
CORPORATE GOVERNANCE |  | 10
EXECUTIVE OFFICERS AND COMPENSATION INFORMATION |  | 12
COMPENSATION DISCUSSION AND ANALYSIS |  | 12
STOCK OWNERSHIP GUIDELINES |  | 18
SUMMARY COMPENSATION TABLE |  | 18
PAY RATIO DISCLOSURE |  | 19
GRANT OF PLAN BASED AWARDS FOR 2019 |  | 20
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2019 |  | 20
OPTION EXERCISES AND STOCK VESTED FOR 2019 |  | 21
PENSION PLANS AND NON-QUALIFIED DEFERRED COMPENSATION |  | 21
EMPLOYMENT AGREEMENTS |  | 21
COMPENSATION COMMITTEE REPORT |  | 22
PROPOSAL 2 — RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |  | 23
AUDIT COMMITTEE REPORT |  | 24
PROPOSAL 3 - ADVISORY VOTE ON THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS |  | 25
ADDITIONAL INFORMATION |  | 26
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS |  | 26
SHAREHOLDER PROPOSALS FOR 2020 ANNUAL MEETING |  | 26
SHAREHOLDERS SHARING THE SAME ADDRESS |  | 26
OTHER BUSINESS |  | 27

Table of Contents
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

Q: | When and where will the Annual Meeting take place?

A: | The Annual Meeting will be held at The Eye Center of Columbus, 262 Neil Ave., Columbus, Ohio 43215, on Tuesday, April 28, 2020, at 10:00 a.m., Eastern Daylight Saving Time.

Q: | What may I vote on?

A: | At the Annual Meeting, you will be asked to consider and vote upon:

• | the election of six directors to serve on the Board until our 2021 Annual Meeting of Shareholders;

• | the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020; and

• | a non-binding, advisory resolution to approve the compensation of our named executive officers.

Q: | What do I need to do now?

A: | After carefully reading this Proxy Statement, indicate on the enclosed proxy card how you want your shares to be voted and sign and mail the proxy card promptly in the enclosed envelope. Alternatively, you may vote by phone or over the Internet in accordance with the instructions on your proxy card. The deadline for transmitting voting instructions over the Internet or telephonically is 7:00 p.m. Eastern Daylight Saving Time on Monday, April 27, 2020. If you vote by phone or over the Internet you do not need to return a proxy card. You should be aware that if you vote over the Internet or by phone, you may incur costs associated with electronic access, such as usage charges from Internet service providers and telephone companies.

Q: | What does it mean if I get more than one proxy card?

A: | If your shares are registered in more than one account, you will receive more than one proxy card. If you intend to vote by mail, please sign, date and return all proxy cards to ensure that all your shares are voted. If you are a record holder and intend to vote by telephone or over the Internet, you must do so for each individual proxy card you receive.

Q: | What is the difference between holding shares as a shareholder of record and as a beneficial owner?

A: | Many shareholders are beneficial owners of our shares, meaning they hold their shares in “street name” through a broker, bank or other nominee. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

Shareholder of Record. For shares registered directly in your name with our transfer agent, you are considered the shareholder of record and we are sending this Proxy Statement and related materials directly to you. As a shareholder of record, you have the right to vote in person at the Annual Meeting or you may grant your proxy directly to the Board’s designees by completing, signing and returning the enclosed proxy card, or voting over the Internet or by phone.
Beneficial Owner. For shares held in “street name,” you are considered the beneficial owner and this Proxy Statement and related materials are being forwarded to you by your broker, bank or other nominee, who is the shareholder of record. As the beneficial owner, you have the right to direct your broker or other nominee on how to vote your shares. Your broker or nominee will provide you with information on the procedures you must follow to instruct them how to vote your shares or how to revoke previously given voting instructions.

Q: | If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A: | Your broker will vote your shares in the manner you instruct, and you should follow the voting instructions your broker has provided to you. However, if you do not provide voting instructions to your broker, it may vote your shares in its discretion on certain “routine” matters. The ratification of the appointment of KPMG as our independent registered public accounting firm for the 2020 fiscal year is considered routine, and if you do not submit voting instructions, your broker may choose, in its discretion, to vote or not vote your shares on the ratification. None of the other matters to be voted on at the Annual Meeting are routine, and your broker may not vote your shares on those matters without your instructions.

Q: | May I revoke my proxy or change my vote after I have mailed a proxy card or voted electronically over the Internet or by telephone?

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A: | Yes. You can change your vote at any time before your proxy is voted at the Annual Meeting. If you are the record holder of the shares, you can do this in three ways:

• | send a written statement to Gary R. Young, our Secretary, stating that you would like to revoke your proxy, which must be received prior to the Annual Meeting;

• | send a newly signed and later-dated proxy card, which must be received prior to the Annual Meeting, or submit later-dated electronic voting instructions over the Internet or by telephone no later than 7:00 p.m., Eastern Daylight Saving Time on April 27, 2020; or

• | attend the Annual Meeting and either revoke your proxy in person prior to the start of voting at the Annual Meeting or vote in person at the Annual Meeting (attending the Annual Meeting will not, by itself, revoke your proxy or a prior Internet or telephone vote).

If you are a beneficial owner, you may change your vote by submitting new voting instructions to your broker or nominee. You should review the instructions provided by your broker or nominee to determine the procedures you must follow.

Q: | Can I vote my shares in person at the Annual Meeting?

A: | You may vote shares held of record in person at the Annual Meeting. If you choose to attend, please bring the enclosed proxy card and a form of identification. If you are a beneficial owner and you wish to attend the Annual Meeting and vote in person, you will need a signed proxy from your broker or other nominee giving you the right to vote your shares at the Annual Meeting and a form of identification. To obtain directions to attend the Annual Meeting and vote in person, please call Gary R. Young, Secretary, at (614) 255-3333 or visit the Company’s website, https://www.diamond-hill.com/contact/.

Q: | How will my shares be voted if I submit a proxy without voting instructions?

A: | If you submit a proxy and do not indicate how you want your shares voted, your proxy will be voted on the proposals as recommended by the Board. The Board’s recommendations are set forth in this Proxy Statement.

Q: | Who can answer my questions about how I can submit or revoke my proxy or vote by phone or via the Internet?

A: | If you are a record holder and have more questions about how to submit your proxy, please call Gary R. Young, the Company's Secretary, at (614) 255-3333. If you are a beneficial owner, you should contact your broker or other nominee to determine the procedures you must follow.

PROCEDURAL MATTERS
Record Date
Only our shareholders of record at the close of business on March 2, 2020, the record date, will be entitled to vote at the Annual Meeting. As of the record date, there were 3,289,865 of our common shares outstanding and entitled to be voted at the Annual Meeting.
Proxy
Your shares will be voted at the Annual Meeting as you direct on your signed proxy card or in your telephonic or Internet voting instructions. If you submit a proxy card without voting instructions, it will be voted as recommended by the Board. The Board's recommendations are set forth in this Proxy Statement. The duly appointed proxy holders will vote in their discretion on any other matters that may properly come before the Annual Meeting.
Voting
A shareholder may cast one vote for each outstanding share held by the shareholder on each separate matter of business properly brought before the Annual Meeting. If you hold shares in street name, we encourage you to instruct your broker or other nominee as to how to vote your shares.
Director elections. Votes that shareholders cast "FOR" a director-nominee must exceed the votes that shareholders cast "AGAINST" a director-nominee for the individual to be elected. Please also see the discussion of our "Majority Voting" provisions within Proposal 1.
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Ratification of selection of KPMG. The affirmative vote of the holders of a majority of the shares cast on the proposal is required to ratify the selection of KPMG as the Company’s independent registered public accounting firm for fiscal year 2020.
Advisory approval of named executive officer compensation. The affirmative vote of the holders of a majority of the shares cast on the proposal is required for non-binding shareholder advisory approval of the compensation of the Company’s named executive officers.
Effect of broker non-votes and abstentions. Under the applicable regulations of the Securities and Exchange Commission (the “SEC”) and the rules of the exchanges and other self-regulatory organizations of which the brokers are members, brokers who hold common shares in street name for beneficial owners may sign and submit proxies and may vote our common shares on certain “routine” matters. The ratification of KPMG is considered routine. Under applicable stock exchange rules, brokers are not permitted to vote without instruction in the election of directors. In addition, SEC regulations prohibit brokers from voting without customer instruction on the approval of named executive officer compensation. Proxies that are signed and submitted by brokers that have not been voted on certain matters are referred to as “broker non-votes.”
Neither broker non-votes nor abstentions will have any effect on the election of directors, the ratification of the appointment of KPMG or the advisory approval of named executive officer compensation.
Quorum
Business can be conducted at the Annual Meeting only if a quorum, consisting of the holders of at least a majority of our outstanding shares entitled to vote, is present, either in person or by proxy. Abstentions and broker non-votes will be counted toward establishing a quorum. If a quorum is not present at the time the Annual Meeting is convened, a majority of the shares represented in person or by proxy may adjourn the Annual Meeting to a later date and time, without notice other than announcement at the Annual Meeting. At any such adjournment of the Annual Meeting at which a quorum is present, any business may be transacted which might have been transacted at the Annual Meeting as originally called.
Solicitation; Expenses
We will pay all expenses of the Board’s solicitation of the proxies for the Annual Meeting, including the cost of preparing, assembling and mailing the Notice, proxy card and Proxy Statement, postage for return envelopes, the handling and expenses for tabulation of proxies received, and charges of brokerage houses and other institutions, nominees or fiduciaries for forwarding such documents to beneficial owners. We will not pay any electronic access charges associated with Internet or telephonic voting incurred by a shareholder. We may solicit proxies in person or by telephone, facsimile or e-mail. Our officers, directors and employees may also assist with solicitation, but will receive no additional compensation for doing so.
No person is authorized to give any information or to make any representation not contained in this Proxy Statement, and you should not rely on any such information or representation. This Proxy Statement does not constitute the solicitation of a proxy in any jurisdiction from any person to whom it is unlawful to make such proxy solicitation in such jurisdiction. The delivery of this Proxy Statement does not, under any circumstances, imply that there has not been any change in the information set forth herein since the date of this Proxy Statement.
Requests for Proxy Statement and Annual Report on Form 10-K; Internet Availability
Our Annual Report on Form 10-K for the year ended December 31, 2019 (the "Form 10-K"), including audited consolidated financial statements, accompanies this Proxy Statement but is not a part of the proxy solicitation material. We are delivering a single copy of this Proxy Statement and the Form 10-K to multiple shareholders sharing an address unless we have received instructions from one or more of these shareholders to the contrary. However, each shareholder will continue to receive a separate proxy card. We will promptly deliver a separate copy of the Proxy Statement and/or Form 10-K, at no charge, upon receipt of a written or oral request by a record shareholder at a shared address to which a single copy of the documents was delivered. Written or oral requests for a separate copy of the documents, or to provide instructions for delivery of documents in the future, may be directed to Gary R. Young, Secretary, at 325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215 or by phone at (614) 255-3333. Additionally, this Proxy Statement and our Form 10-K are available on the internet free of charge at: https://www.diamond-hill.com/proxy.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth beneficial ownership of our common shares as of the record date, March 2, 2020, by (a) all persons known by us to beneficially own 5% or more of the Company’s outstanding shares, (b) each director of the Company, (c) our named executive officers, and (d) all of our executive officers, directors, and director nominees as a group. Although not required, we have also voluntarily disclosed all common shares beneficially owned by all other employees of the Company, excluding our executive officers. Unless otherwise indicated, the named persons exercise sole voting and dispositive power over the shares listed. None of the named persons hold any outstanding options to acquire our common shares, and none of the named persons have pledged any common shares of the Company as security.

Name of Beneficial Owner | Amount and Nature of Beneficial Ownership |  | Percent of Class(1)
Christopher M. Bingaman | 42,480 |  | (2) (3) | 1.3 | %
Heather E. Brilliant | 24,390 |  | (2) | * |
Randolph J. Fortener | 9,600 |  |  | * |
James F. Laird | 27,500 |  |  | * |
Thomas E. Line | 19,428 |  | (2) | * |
Paula R. Meyer | 8,000 |  |  | * |
Paul A. Reeder III | 8,000 |  |  | * |
Bradley C. Shoup | 7,200 |  |  | * |
Nicole R. St. Pierre | 8,000 |  |  | * |
Directors, nominees, and executive officers as a group (8 persons) | 112,118 |  |  | 3.4 | %
All other employees of the Company (122 persons) | 458,291 |  | (4) | 13.9 | %
5% Beneficial Owners |  |  |
BlackRock, Inc.(5) | 258,076 |  |  | 7.8 | %
Wells Fargo & Company (6) | 182,351 |  |  | 5.5 | %

_______________

(1) | Beneficial ownership of less than 1% is represented by an asterisk (*). The percent of class is based upon the number of common shares beneficially owned by the named person divided by 3,289,865, which was the total number of shares that were issued and outstanding as of March 2, 2020.

(2) | Includes 2,706, 183, and 1,027 shares for Mr. Bingaman, Ms. Brilliant, and Mr. Line, respectively, that are held in the Diamond Hill Investment Group 401(k) Plan and Trust (the "401(k) Plan"), over which the Trustee of the 401(k) Plan possesses the voting power.

(3) | Mr. Bingaman stepped down from his position as Chief Executive Officer of the Company effective September 3, 2019. He remains employed with the Company as a portfolio manager.

(4) | Includes all other employees of the Company not listed above as of March 2, 2020. Each employee has sole voting power over the shares of such employee reflected in the table, except for the 52,165 shares that are held in the 401(k) Plan, over which the Trustee of the 401(k) Plan possess voting power. Certain shares are subject to restrictions on the power to dispose of the shares. The employees do not constitute a Group as defined by Rule 13d-1 of the Exchange Act.

(5) | Based on information contained in Schedule 13G/A filed with the SEC on February 5, 2020, by BlackRock, Inc. to report beneficial ownership by its subsidiaries (BlackRock Advisors, LLC, BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock (Netherlands) B.V., BlackRock Fund Advisors, BlackRock Asset Management Ireland Limited, BlackRock Institutional Trust Company, N.A., BlackRock Financial Management, Inc., BlackRock Japan Co., Ltd., BlackRock Asset Management Schweiz AG, and BlackRock Investment Management, LLC) of shares as of December 31, 2019. This Schedule 13G/A reported that BlackRock, Inc., through its subsidiaries, had sole voting power over 252,268 shares and sole dispositive power over 258,076 shares. The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.

(6) | Based on information contained in Schedule 13G/A filed with the SEC on February 4, 2020, by Wells Fargo & Company ("Wells") to report beneficial ownership by its subsidiaries (Wells Fargo Clearing Services, LLC, Wells Fargo Advisors Financial Network, LLC, Wells Fargo Funds Management, LLC, Wells Capital Management Inc., and Wells Fargo Bank, N.A.) of shares as of December 31, 2019. This Schedule 13G/A reported that Wells, through its subsidiaries, had sole voting power and dispositive power over 3,869 shares, shared voting power over 101,752 shares, and shared dispositive power over 178,482 shares. The address for Wells is 420 Montgomery Street, San Francisco, CA 94163.

DELINQUENT SECTION 16(A) REPORTS
We believe that all filing requirements to comply with Section 16(a) of the Securities Exchange Act of 1934 were met during the fiscal year ended December 31, 2019 and through the date of this Proxy Statement.
PROPOSAL 1 — ELECTION OF DIRECTORS
The Board guides the strategic direction of the Company and oversees its management. All of our directors are elected annually.
On February 27, 2020, Paul A. Reeder, a director, notified the Company that he will be retiring from the Board at the conclusion of his current term which ends in conjunction with the Annual Meeting. In connection with his retirement, he requested that the Board not nominate him for re-election at the Annual Meeting.
Pursuant to the recommendation of the Nominating and Governance Committee, the Board has nominated the six nominees listed below for election, all of whom are incumbents, to hold office until the next annual meeting of shareholders and until their respective successors are elected and qualified. If any nominee becomes unable or unwilling to serve between the date of this Proxy Statement and the Annual Meeting, proxies will be voted FOR the election of a replacement recommended by the Nominating and Governance Committee and approved by the Board.
Majority Voting
In an uncontested election, a nominee will not be elected unless he or she receives more “FOR” votes than “AGAINST” votes. In addition, pursuant to the Board's Corporate Governance Guidelines, any director who fails to obtain the required vote in an uncontested election will be expected to promptly submit his or her resignation to the Board. The Board will then decide, after considering the Nominating and Governance Committee's recommendation, whether to accept or decline the resignation, or decline the resignation with conditions. The Board will make any such decision within 90 days following the date of the Annual Meeting of Shareholders at which such uncontested election occurred. Plurality voting will apply to any contested elections.
Director Independence
The Board has determined that each of Randy J. Fortener, James F. Laird, Paula R. Meyer, Bradley C Shoup and Nicole R. St. Pierre qualifies as independent under the rules and independence standards of The NASDAQ Stock Market (“NASDAQ”), as well as applicable SEC requirements. The Board has determined that Ms. Brilliant is not independent. There are no family relationships among our directors and executive officers.
The Nominees
The Board has determined that all of our director nominees are qualified to serve as directors of the Company. In addition to the specific business experience listed below, each of our director nominees has the tangible and intangible skills and attributes that we believe are required to be an effective director of the Company, including experience at senior levels in areas of expertise helpful to the Company, a willingness and commitment to assume the responsibilities required of a director, and the character and integrity we expect of our directors. The specific qualifications of each individual nominee are set forth under such nominee's name below.
Heather E. Brilliant, CFA, age 43, was appointed as a director, President and Chief Executive Officer ("CEO") of the Company effective September 3, 2019. Ms. Brilliant previously served as Chief Executive Officer, Americas with First State Investments from 2017 until joining the Company. Prior to that role, she spent almost 14 years with Morningstar where she served as Global Head of Equity & Credit Research before advancing to Chief Executive Officer, Morningstar Australasia. Earlier in her career, she held several roles analyzing both credit and equity at firms including Driehaus Capital Management, Coghill Capital Management, and Bank of America.
Ms. Brilliant received her Bachelor's degree from Northwestern University and a MBA from the University of Chicago. Ms. Brilliant also holds the Chartered Financial Analyst designation and is past chair and current member of the CFA Institute Board of Governors.
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Ms. Brilliant's qualifications to serve on the Board include her prior experience as CEO of a division of an investment firm as well as her in depth knowledge of the investment management industry through her more than 20 years of experience as an investment professional.
Randolph J. Fortener, age 66, has been a director of the Company since 2013, is the Chair of the Audit Committee, currently serves on the Nominating and Governance Committee and the Compensation Committee, and has been determined by the Board to be an audit committee financial expert as defined by the SEC. Since 2014, Mr. Fortener has been the CEO of Cozzins Road Capital, a private investment firm. As its CEO, Mr. Fortener directs all investment and acquisition activity for Cozzins Road Capital. Previously, Mr. Fortener worked at the Crane Group, a private holding and management company, based in Columbus, Ohio, from 1990 to 2014 and served as the president of Crane Investment Company from 2007 to 2014. Prior to joining the Crane Group, Mr. Fortener was a partner at Deloitte & Touche LLP, a big four accounting firm, providing services to investment banking firms. Mr. Fortener also specialized in estate and tax planning for privately held businesses while with Deloitte. Mr. Fortener has over 40 years of business experience, with an emphasis on corporate acquisitions and investments.
Mr. Fortener received a Bachelor of Science in accounting from The University of Findlay and his MBA in finance from the University of Dayton and is a Certified Public Accountant (inactive).
Mr. Fortener’s qualifications to serve on the Board include his substantial experience in accounting and financial matters, including his significant experience as a certified public accountant and his experience on other corporate boards.
James F. Laird, CPA, age 63, has been a director of the Company since 2011 and Chair of the Board since 2019. Mr. Laird also serves on the Compensation Committee, Audit Committee and Nominating and Governance Committee, and has been determined by the Board to be an audit committee financial expert, as defined by the SEC. Mr. Laird is currently retired, and served as CFO and Treasurer of the Company from 2001 until his retirement from the Company on December 31, 2014 and served as Secretary of the Company from 2001 to 2017. He also served as President of Diamond Hill Funds from 2001 to 2014. Mr. Laird has over 30 years of experience in the investment management industry.
Mr. Laird received his Bachelor of Science in Accounting from The Ohio State University, is a Certified Public Accountant, and previously held the Series 7, 24, 26, 27 and 63 securities licenses with the Financial Industry Regulatory Authority.
Mr. Laird’s qualifications to serve on the Board include his 13 years of experience as CFO of the Company, his in-depth knowledge and involvement in our operations and his more than 30 years of experience in the financial, operational, administrative, and distribution aspects of the investment management industry.
Paula R. Meyer, age 65, was appointed as a director of the Company on February 20, 2019 and currently serves on the Audit Committee, Nominating and Governance Committee, and the Compensation Committee. Ms. Meyer is currently a non-executive director. She has worked in variety of roles within the investment management industry most recently serving as President of RiverSource Funds, the proprietary fund complex of Ameriprise Financial, Inc. from 1998 to 2006. She currently serves as a director for Mutual of Omaha and First Command Financial Services. She also served as a director of the Federal Home Loan Bank of Des Moines from 2007 to 2016 and on the Investment Company Institute's Board of Governors from 2000 to 2006.
Ms. Meyer received her Bachelor of Arts from Luther College, an MBA from the University of Pennsylvania, Wharton School of Business, and is a National Association of Corporate Directors Board Leadership Fellow. She has also been awarded the Certificate in Cybersecurity Oversight from the Software Engineering Institute in association with Carnegie Mellon University (2020).
Ms. Meyer's qualifications to serve on the Board include her over 25 years of leadership experience in the financial services and mutual fund industries as well as her significant governance experience as a board member on numerous for-profit and non-profit companies.
Bradley C. Shoup, age 61, has been a director of the Company since 2012, is the chair of the Nominating and Governance Committee, currently serves on the Audit Committee and Compensation Committee, and has been determined by the Board to be an audit committee financial expert as defined by the SEC. Mr. Shoup has been Chief Financial Officer of NueVida Resources LLC, a company focused on resource development in major shale basins, since 2017. He was a Partner at Falcon Fund Management Ltd. from 2013 to 2016. From 2011 to 2013, Mr. Shoup was Managing Director of Cox Partners, Inc. From 2007 to 2011, Mr. Shoup was Chief Investment Officer of Armstrong Equity Partners LP.
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Mr. Shoup received his Bachelor of Science in Civil Engineering with Distinction from the University of Kansas and his Master’s degree from the Sloan School of Management at MIT.
Mr. Shoup’s qualifications to serve on the Board include his over 30 years of experience in corporate finance and the investment management industry.
Nicole R. St. Pierre, age 47, was appointed as a director of the Company on February 20, 2019, is the Chair of the Compensation Committee, and currently serves on the Audit Committee and Nominating and Governance Committee. Ms. St. Pierre is currently a non-executive director. She has served in a variety of roles within the Asset Management group at J.P. Morgan from 1994 to 2018, most recently as Managing Director; Head of Client Services and Business Platform & Americas Regional Lead.
Ms. St. Pierre received her Bachelor of Science in Marketing from Rutgers University and an MBA from Fordham University. She has also been awarded the Certificate in Cybersecurity Oversight from the Software Engineering Institute in association with Carnegie Mellon University (2020).
Ms. St. Pierre's qualifications to serve on the Board include her over 20 years of experience in the investment management industry.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF HEATHER E. BRILLIANT, RANDY J. FORTENER, JAMES F. LAIRD, PAULA R. MEYER, BRADLEY C. SHOUP, AND NICOLE R. ST. PIERRE AS DIRECTORS OF THE COMPANY.
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THE BOARD OF DIRECTORS AND COMMITTEES
The Board held a total of four meetings during the year ended December 31, 2019, and each director attended at least 75% of all regular Board and applicable committee meetings. Consistent with our Corporate Governance Guidelines, the directors met in executive session at each regularly scheduled Board meeting in 2019. Our Corporate Governance Guidelines provide that all directors are expected to attend each annual meeting of shareholders. All of our directors who were standing for re-election attended our 2019 Annual Meeting.
Corporate Governance
The Board has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee. The Board has adopted a written charter for each Committee. Current copies of each committee charter and our Corporate Governance Guidelines are available on our website, ir.diamond-hill.com, under the heading “Corporate Governance” on the right hand side of the site.
The Board has adopted a Code of Business Conduct and Ethics for Principal Executive and Senior Financial Officers. This code is intended to deter wrongdoing and promote honest and ethical conduct, full, timely and accurate reporting, compliance with laws, and accountability for adherence to the code, including internal reporting of code violations.
We also have a Code of Business Conduct and Ethics that is applicable to all of our employees and directors. It is our policy to require all employees to participate annually in continuing education and training relating to the Code of Business Conduct and Code of Ethics.
Personal Trading and Hedging Policy
We have established a policy prohibiting our employees and directors from purchasing or selling shares of the Company while in possession of material nonpublic information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws and regulations. The policy also prohibits all employees and directors from purchasing or selling any derivative arrangement related to securities of the Company or engaging in any speculative, short selling, or hedging activities related to securities of the Company that may have a similar economic effect.
Audit Committee
Mr. Fortener (Chair), Mr. Laird, Ms. Meyer, Mr. Reeder, Mr. Shoup, and Ms. St. Pierre serve on the Audit Committee, which met four times during 2019. The Board has determined that each of these committee members meets the independence and financial literacy rules and standards of the SEC and NASDAQ. The Board also has concluded that each of Mr. Fortener, Mr. Laird, Mr. Reeder, and Mr. Shoup also meets the criteria to be an audit committee financial expert as defined by the SEC.
The primary purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities with respect to the retention of our independent registered public accounting firm, including appointing and overseeing the terms of its engagement and its performance, qualifications and independence, and the integrity of our financial statements, other financial information provided to shareholders, and our internal control structure. The Audit Committee also reviews all related person transactions for potential conflicts of interest on an ongoing basis, and all such transactions must be approved by the Audit Committee. Additional information on the approval of related person transactions is available under the heading “Certain Relationships and Related Person Transactions” below. The report of the Audit Committee appears below the heading “AUDIT COMMITTEE REPORT.”
Compensation Committee
Mr. Fortener, Mr. Laird, Ms. Meyer, Mr. Reeder, Mr. Shoup, and Ms. St. Pierre (Chair) serve on the Compensation Committee, which met three times during 2019. The Board has determined that each of these committee members meets the independence criteria of the SEC and NASDAQ.
The primary purpose of the Compensation Committee is to review and approve the Company’s executive compensation policies, evaluate the performance of our executive officers in light of corporate goals and objectives approved by the Compensation Committee, approve the annual salaries, bonuses, stock grants and other benefits, direct and indirect, of our executive officers, make recommendations to the full Board with respect to incentive compensation plans and equity-based plans and determine director and committee member/chair compensation for non-employee directors. The Compensation Committee has delegated to management the ability to make stock grants to our non-executive employees within
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specific parameters to align the interests of our shareholders and our employees and to promote employee retention and long-term employee ownership. A description of the Company’s processes and procedures for the consideration and determination of executive officer compensation are discussed under the heading “Compensation Discussion and Analysis” below.
Nominating and Governance Committee
Mr. Fortener, Mr. Laird, Ms. Meyer, Mr. Reeder, Mr. Shoup (Chair), and Ms. St. Pierre serve on the Nominating and Governance Committee, which met twice during 2019. The Board has determined that each of these committee members meets the independence criteria of NASDAQ. Following the Annual Meeting of Shareholders, Ms. Meyer will succeed Mr. Shoup as Chair of the Nominating and Governance Committee.
The primary purpose of the Nominating and Governance Committee is to maintain and cultivate the effectiveness of the Board and oversee the Company’s governance policies. Among the Nominating and Governance Committee's responsibilities are Board and committee composition, director qualifications, director orientation and education, and Board evaluations. The Nominating and Governance Committee identifies, evaluates, and nominates Board candidates; reviews compliance with director stock ownership guidelines; and oversees procedures regarding shareholder nominations and other shareholder communications to the Board. The Nominating and Governance Committee is also responsible for monitoring compliance with and recommending any changes to the Company’s Corporate Governance Guidelines. Additional information regarding the committee’s activities can be found under the heading “Corporate Governance.”
Board Committee Membership
The following table summarizes the membership of the Board and each of its committees, and the number of times each met during 2019.

Director (1) | Audit |  | Compensation |  | Nominating and Governance
Heather E. Brilliant | — |  | — |  | —
Randolph J. Fortener | Chair |  | Member |  | Member
James F. Laird | Member |  | Member |  | Member
Paula R. Meyer | Member |  | Member |  | Member
Paul A. Reeder, III | Member |  | Member |  | Member
Bradley C. Shoup | Member |  | Member |  | Chair
Nicole R. St. Pierre | Member |  | Chair |  | Member
Number of Meetings in 2019 | 4 |  | 3 |  | 2

_______________

(1) | From January 1, 2019 through the conclusion of his service as a director on September 3, 2019, Christopher M. Bingaman did not serve on any committees of the Board.

Compensation of Directors
The Compensation Committee is responsible for periodically reviewing and recommending to the Board the compensation of our non-employee directors. At the discretion of the Board, directors are eligible to receive stock-based awards under the Diamond Hill Investment Group, Inc. 2014 Equity and Cash Incentive Plan (the “2014 Plan”). The Compensation Committee has determined that the use of long-term cliff vesting restricted stock awards as the sole form of compensation for our non-employee directors is the most appropriate way to further align the interests of our directors with the long-term interests of our shareholders. These one-time restricted stock awards are intended to compensate the directors for a long period of time and are intended to fully compensate directors for the entirety of their service as directors and as members of committees of the Board. Restricted stock awards are granted upon appointment to the Board and at the discretion of the Board upon recommendation by the Compensation Committee and are subject to such terms and conditions as may be established by the Compensation Committee Consistent with terms of the 2014 Plan. The Board may, on occasion, pay our directors additional cash fees in extraordinary circumstances. In 2019, we paid certain of our directors additional cash compensation for their significant involvement in our CEO search process. The following table sets forth information regarding the compensation earned by, or paid to, directors who served on our Board in 2019.
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2019 Director Compensation(1)

Name | Fees Earned or Paid in Cash (2) |  | Stock Awards (3) |  | All Other Compensation |  | Total
Heather E. Brilliant (4) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Randolph J. Fortener | $ | 30,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,000 |
James F. Laird | $ | 30,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 30,000 |
Paula R. Meyer | $ | 60,000 |  |  | $ | 1,245,600 |  |  | $ | — |  |  | $ | 1,305,600 |
Paul A. Reeder, III | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Bradley C. Shoup | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Nicole R. St. Pierre | $ | 60,000 |  |  | $ | 1,245,600 |  |  | $ | — |  |  | $ | 1,305,600 |
Christopher M. Bingaman (4) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
R. H. Dillon (5) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

_______________

(1) | Omits those columns where no compensation was awarded or earned.

(2) | Represents compensation related to the director's participation in the CEO search, evaluation, and selection process.

(3) | Represents the full grant date fair value of the stock awards granted by the Board under the 2014 Plan on February 20, 2019 to Ms. Meyer and Ms. St. Pierre. Amounts were computed by multiplying the total shares granted by the closing price of the shares on the grant date. Awards are intended to represent their compensation as a director of the Company for the period from February 20, 2019 through their scheduled retirement on April 30, 2029.

(4) | Mr. Bingaman resigned from the Board in conjunction with Ms. Brilliant's appointment to the Board effective September 3, 2019.

(5) | Mr. Dillon did not stand for re-election and retired from the Board on May 1, 2019 in conjunction with the Company's 2019 Annual Shareholder Meeting.

Outstanding Stock Grants to Directors
The below table shows the amount of unvested restricted stock awards outstanding to directors as of December 31, 2019 and the service period covered by the grant. All of these awards vest in full at the conclusion of the applicable service period.

Name | Shares Granted | Approximate Service Period | Service Period Covered | Grant-Date Fair Value | Grant Date | Vesting Date
Randolph J. Fortener | 3,600 | Five Years | 5/2/18 – 4/30/23 |  | $694,800 |  | 5/2/18 | 4/30/23
James F. Laird | 8,000 | Ten Years | 4/30/15 – 4/30/25 |  | $1,125,760 |  | 2/27/15 | 4/30/25
Paula R. Meyer | 8,000 | Ten Years | 2/20/19 – 4/30/29 |  | $1,245,600 |  | 2/20/19 | 4/30/29
Paul A. Reeder, III | 8,000 | Ten Years | 4/30/15 – 4/30/25 |  | $1,457,600 |  | 4/30/15 | 4/30/25
Bradley C. Shoup | 3,600 | Five Years | 5/1/17 – 4/30/22 |  | $725,760 |  | 5/1/17 | 4/30/22
Nicole R. St. Pierre | 8,000 | Ten Years | 2/20/19 – 4/30/29 |  | $1,245,600 |  | 2/20/19 | 4/30/29

Ownership and Retention Guidelines
Our Corporate Governance Guidelines prohibit shares granted to our directors as compensation from being sold while the director remains on the Board, except for sales of shares in an amount necessary to pay taxes due upon vesting. Therefore, we expect each non-employee director to hold for his or her entire term of service on the Board all of the shares granted to the director as compensation.
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CORPORATE GOVERNANCE
The Nominating and Governance Committee has general oversight responsibility for assessment and recruitment of new director candidates, as well as evaluation of director and board performance and oversight of our governance matters. The Nominating and Governance Committee has adopted Corporate Governance Guidelines and reviews them annually. The most current version of the Guidelines is available on our website, ir.diamond-hill.com, under “Corporate Governance” on the right hand side of the site.
Board Leadership and Composition
The Chair of the Board approves Board agendas and schedules, chairs all executive sessions of the directors, acts as the liaison between the directors and management, is available to the Secretary to discuss and, as necessary, respond to shareholder communications to the Board, and calls meetings of the directors.
We believe that separating the roles of Chair of the Board and CEO provides for a strong governance and oversight structure. These roles generally have been separate since 2000, except for the period from April 2015 through December 2015 when Mr. Dillon assumed the role of Chair of the Board on a temporary basis related specifically to succession transition and in conjunction with his stepping down as CEO at the end of 2015.
Currently, five of our six director nominees qualify as independent under NASDAQ standards, with the exception of Ms. Brilliant, our CEO. In addition, the Nominating and Governance Committee, the Audit Committee, and the Compensation Committee are all comprised entirely of independent directors. Overall, we believe that our Board structure is designed to foster critical oversight, good governance practices, and the interests of the Company and its shareholders.
Among other things, the Corporate Governance Guidelines address term limits of each non-executive director. Although we have a 10 year service limit for non-employee directors, the Guidelines authorize the Board to make exceptions to this limitation and permit directors to serve for an additional year. The Corporate Governance Guidelines also permit the Chair to serve longer than 10 years if he or she has not served in that role for five consecutive years. The Board has not made any exceptions to the term limits for non-executive directors during the last five years.
Board’s Role in Risk Oversight
The Board’s role in our risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the Company, including client investment results, operational, financial, legal, regulatory information security, and strategic risks. The Audit Committee is responsible for overseeing risks relating to our accounting matters, financial reporting and legal and regulatory compliance. To satisfy these oversight responsibilities, the Audit Committee meets regularly with management and the Company’s independent registered public accounting firm. The Compensation Committee is responsible for overseeing risks relating to employment policies and our compensation and benefits programs. To satisfy these oversight responsibilities, the Compensation Committee meets regularly with management to understand the implications of compensation decisions, particularly the risks that our compensation policies pose to our finances and our relationship with our employees.
Director Orientation and Continuing Education and Development
When a new non-executive director joins the Board, the Company provides a formal orientation program to provide the new director with an understanding of our operations and financial condition. In addition, each director is expected to maintain the necessary level of expertise to perform his or her responsibilities as a director. To assist the directors in maintaining such level of expertise, we may, from time to time, offer continuing education programs in addition to briefings during Board meetings relating to the competitive and industry environment in which the Company operates and the Company’s goals and strategies.
Director Qualifications and the Nominations Process
The Nominating and Governance Committee believes that the nominees presented in this Proxy Statement currently constitute, and would continue to constitute, a Board with an appropriate level and diversity of experience, education, skills, and independence. The Nominating and Governance Committee routinely considers the current composition of the Board and whether changes should be made or additional directors should be added.
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The Nominating and Governance Committee supervises the nomination process for directors. It considers the performance, independence, background, experience, gender and other forms of diversity, as well as other characteristics of our incumbent directors, including their willingness to serve, and any change in their employment or other circumstances in considering their nomination each year. We consider diversity in identifying nominees for a directorship among the various factors relevant to any particular nominee and the overall needs of the Board. In the event that a vacancy exists or the Company decides to increase the size of the Board, the Nominating and Governance Committee will identify, interview, examine, and make recommendations to the Board regarding appropriate candidates.
The Nominating and Governance Committee identifies potential candidates principally through suggestions from our directors and senior management. The committee may also seek candidates through informal discussions with third parties. We have not historically retained search firms to help identify director candidates.
In evaluating potential candidates, the Nominating and Governance Committee considers, among other factors, independence from management, experience, expertise, commitment, diversity, number of other public company board and related committee seats held, potential conflicts of interest, and the composition of the Board at the time of the assessment. Additionally, all potential nominees must:

• | demonstrate strong character and integrity;

• | have sufficient time to carry out their duties;

• | have experience at senior levels in areas of expertise helpful to the Company and consistent with the objective of having a diverse and well-rounded Board; and

• | have the willingness and commitment to assume the responsibilities required of a director of the Company.

In addition, candidates expected to serve on the various Board committees must meet applicable independence and financial literacy qualifications required by NASDAQ, the SEC, and other applicable laws and regulations. The evaluation process of potential candidates also includes personal interviews and discussions with appropriate references. Once the Nominating and Governance Committee has selected a candidate, it recommends the candidate to the full Board for election if a vacancy occurs or is created by an increase in the size of the Board during the course of the year, or for nomination if the director is to be first elected by our shareholders. All of our directors serve for one-year terms and must stand for reelection annually.
The Nominating and Governance Committee does not currently have any specific policies regarding the consideration of director candidates recommended by shareholders due to a historical absence of shareholder recommendations. In the event of such a recommendation, the Nominating and Governance Committee would consider the recommendation using the process and criteria set forth above. In the future, the Nominating and Governance Committee may in its discretion adopt policies regarding the consideration of director candidates recommended by shareholders. Shareholder recommendations for Board candidates must be directed in writing to the Company at 325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215, Attention: Secretary, and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and the Company within the last three years, and evidence of the recommending person’s ownership of our common shares.
Certain Relationships and Related Person Transactions
The Board recognizes that related person transactions present a heightened risk of conflicts of interest. We are currently not party to any transactions with related persons. The Company has no written policy with respect to related party transactions, because in the last 10 years we have only had one related party transaction to consider. The Audit Committee will review any potential related person transactions as they arise and are reported to the Board or the Audit Committee, regardless of whether the transactions are reportable pursuant to Item 404 of SEC Regulation S-K. For any related person transaction to be consummated or to continue, the Audit Committee must approve or ratify the transaction.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 2019 were Mr. Fortener, Mr. Laird, Ms. Meyer, Mr. Reeder, Mr. Shoup, and Ms. St. Pierre. No director who served on the Compensation Committee during 2019 currently is, or during 2019 was, an officer, employee or former officer of the Company, with the exception of Mr. Laird, our former CFO. No member of the Compensation Committee has or had any relationship during 2019 requiring disclosure by us under Item 404 of SEC Regulation S-K. During 2019, none of our executive officers served as a member of the board of directors or compensation committee of any other company that has an executive officer serving as a member of our Board or Compensation Committee.
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Executive Officers and Compensation Information
During 2019, Christopher M. Bingaman, Heather E. Brilliant, and Thomas E. Line were the Company’s only executive officers. In connection with Ms. Brilliant's appointment, Mr. Bingaman stepped down from his position as Chief Executive Officer and President effective September 3, 2019, but remains employed with the Company as a portfolio manager. Ms. Brilliant's business experience and qualifications are described above under the heading "Proposal 1 - Election of Directors, The Nominees," and Mr. Line's business experience and qualifications are described below. Each executive officer devotes his or her full time and effort to the affairs of the Company.
Thomas E. Line, age 52, has served as the CFO and Treasurer of the Company since 2015 and as the Chief Executive Officer of the Diamond Hill Funds since he joined the Company in 2014. Previously, Mr. Line served as an Independent Trustee and Chair for Diamond Hill Funds from 2005 to 2014. From 2012 to 2014, Mr. Line was Chief Operating Officer for Lancaster Pollard & Company. Mr. Line was Managing Director and Chief Financial Officer for Red Capital Group from 2005 to 2012 and was Vice President and Treasurer from 2004 to 2005. From 2002 to 2004, Mr. Line was President of Focused Financial Consulting, Inc. From 1998 to 2002, Mr. Line was Chief Operating Officer for Meeder Financial, Inc. From 1996 to 1998, Mr. Line was Vice President and Treasurer for BISYS Fund Services, Inc. Prior to 1996, Mr. Line spent seven years at KPMG in various roles. Mr. Line has over 25 years of experience in the investment management industry.
Mr. Line has a Bachelor of Science in Accounting from Wake Forest University and is a Certified Public Accountant (inactive).
Compensation Discussion and Analysis
In our Compensation Discussion and Analysis, we:

• | describe our compensation program objectives and how compensation for our named executive officers is determined; and

• | explain the tables and disclosures that follow.

This Compensation Discussion and Analysis presents compensation information for the following individuals (each, a "named executive officer"):

• | Heather E. Brilliant, who served as our CEO and President since September 3, 2019;

• | Thomas E. Line, who served as our CFO and Treasurer throughout 2019; and

• | Christopher M. Bingaman, who served as our CEO and President until September 3, 2019.

Background
We are in the investment management industry. Human capital is the most important resource of companies in our industry. Attracting and retaining employees can be more difficult in our industry than in others because of how heavily our industry depends on the contributions of talented individuals. We have been able to attract and retain high-quality employees due to:

• | our investment-centric culture;

• | employee ownership in our business;

• | our central Ohio location; and

• | the nationally-competitive compensation and benefits we offer to our employees.

Compensation, which is a critical element in a business dependent on talented employees, has a particularly significant impact on profitability in industries like ours that are not capital intensive. Achieving profitability in our industry while retaining high-quality talent requires balancing the economics between our operating profit margin and rewarding the employees who generate our profits and produce investment results for our clients. As of March 2, 2020, the record date for the Annual Meeting, our employees and directors owned approximately 17.3% of the Company. In contrast, many competitor firms are owned entirely by their employees and many publicly-traded asset managers are far less employee-owned. Despite our unique ownership structure given our industry, we believe that industry norms are helpful benchmarks for evaluating this balancing of economics.
At our 2019 Annual Meeting, our shareholders voted upon an advisory resolution to approve the compensation of our named executive officers, which was approved by 97% of the votes cast on the matter. The Compensation Committee of the Board (the “Committee”) believes that the results of the advisory vote on executive compensation support our previous compensation p
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ractices and the Committee's overall judgment related to our compensation practices. The Committee considered that endorsement in establishing the compensation of our executive officers for 2019.
Compensation Program Objectives
We seek to attract and retain people with integrity, intelligence and energy. All of our employees are paid a competitive base salary, provided with competitive benefits and participate in an annual cash and equity incentive compensation program. The amount of individual incentive awards is based on an assessment of individual performance and the size of the overall available incentive pool. The size of the incentive pool is based on (i) investment results in client portfolios, (ii) overall firm operating results, (iii) general market compensation data, and (iv) our profitability compared to other investment management firms.
In addition to annual incentive compensation, upon commencing employment with the Company, all employees are generally granted equity awards as an incentive to their continued employment. These awards typically cliff vest after five years of employment to promote employee retention and long-term employee ownership. We also seek to increase employee ownership because we believe such ownership encourages employees to act and think like owners. While compensation amounts differ depending upon position, responsibilities, performance and competitive data, we seek to reward all employees with similar compensation components based on these objectives.
Rewards Based on Performance
Our primary business objective is to meet our fiduciary duty to clients. Specifically, our focus is on long-term, five-year investment returns, with goals defined as rolling five-year periods in which client returns are sufficiently above relevant passive benchmarks, rank in the top quartile of similar investment strategies, and exceed a sufficient absolute return for the risk associated with the asset class. As it relates to our investment professionals, their compensation program is designed to reward performance that supports these objectives. The compensation program varies for those employees who are not a part of our investment team, but is based on rewarding performance that helps us meet our fiduciary duty to clients. We seek to fulfill our fiduciary duty to shareholders by managing the firm and its assets to increase shareholder value over time.
Compensation Setting Process
Role of the Compensation Committee. The Committee has the overall responsibility for evaluating and approving the structure, operation and effectiveness of our compensation plans, policies and programs for all employees. Each member of the Committee is a “non-employee director” for purposes of Section 16(b) of the Securities Exchange Act of 1934, and meets NASDAQ independence requirements. The Committee is specifically charged to:

• | review and approve the corporate goals and objectives relevant to the compensation of the CEO, to evaluate the CEO’s performance in light of these goals and objectives, and, based on this evaluation, approve the CEO’s compensation (including any long-term incentive or other compensation under any incentive-based or equity-based compensation plan);

• | review management’s recommendations and approve the compensation of other non-CEO executive officer compensation;

• | retain compensation consultants as it deems necessary to assist in its evaluation of director, CEO or other executive officer compensation programs or arrangements;

• | obtain advice and assistance as it deems necessary from internal or external legal, accounting or other advisors;

• | review management’s recommendations and make recommendations to the Board with respect to incentive-based compensation and equity-based compensation plans and programs that are subject to Board approval, and that may be applicable to all or any portion of the employees of the Company and/or its subsidiaries; and

• | exercise all power and authority of the Board in the administration of equity-based incentive compensation plans.

The Committee considers the sum of all pay elements when reviewing annual compensation recommendations for the named executive officers. Although the framework for compensation decision-making is tied to the Company’s overall financial performance and the creation of long-term shareholder value, the Committee retains the discretion to approve individual compensation based on other performance factors, such as demonstrated management and leadership capabilities and the achievement of certain investment results for client accounts and other strategic operating results.
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Role of Management. The Company’s CEO evaluates the CFO as part of our annual review process and makes recommendations to the Committee regarding all elements of compensation paid to him. Changes in compensation proposed by the CEO are based on our CFO's performance, the compensation of individuals with comparable responsibilities in competing or similar organizations, and the profitability of the Company. At the Committee’s request, management attends Committee meetings to provide general employee compensation and other information to the Committee, including information regarding the design, implementation and administration of our compensation plans. The Committee also meets in executive sessions without the presence of any executive officer whose compensation the Committee is scheduled to discuss.
Use of Compensation Consultants and Surveys in Determining Executive Compensation. The Committee’s charter gives it the authority to retain an independent outside executive compensation consulting firm to assist in evaluating policies and practices regarding executive compensation and provide objective advice regarding the competitive landscape. Historically, however, the Committee has not engaged compensation consultants, and did not do so in 2018 or 2019.
Each year the Committee obtains an asset management industry pay analysis prepared by McLagan, a compensation specialist focusing on the asset management industry. The companies in the McLagan analysis include approximately 160 public and private asset management companies with which we compete. This analysis provides the Committee with a general overview of compensation trends in the asset management industry. The Committee does not define a specific peer group, but rather takes a broad view of the analysis across our industry, including the types and amounts of compensation paid generally by the companies surveyed. The Committee does not set any compensation elements or levels based on targeting a certain percentile from the survey, but rather sets compensation that it believes to be both competitive and based on the executive’s value to the Company. The survey is just one of many factors that the Committee considers when determining executive compensation. Management and the Committee believe this broad view of the analysis is appropriate because we compete with both public and private asset management firms regardless of their size and scope of operations.
Elements of Compensation
Base Salary. Base salaries for our named executive officers are designed to compensate knowledge and experience and are intended to provide a fixed level of cash compensation that is appropriate given the executive’s role in the organization. Generally, base salaries are determined by (i) scope of responsibility and complexity of position, (ii) performance history, (iii) tenure of service, (iv) internal equity within the Company’s salary structure, and (v) relative salaries of persons holding similar positions at other companies within the investment management industry. Consistent with our desire to have the majority of total compensation paid to named executive officers at risk in the form of incentive compensation, a significant majority of total compensation of our executive officers was paid in the form of either cash bonuses and/or long-term equity grants.
Annual Cash Bonuses. The Committee awarded a discretionary cash bonus to Ms. Brilliant, to reward her for her strong performance and overall contributions to the Company in fiscal year 2019. The Committee believes a discretionary cash bonus provided the Committee with the flexibility to consider all aspects of Ms. Brilliant’s performance and contributions to the Company as CEO and President. In determining the amount of Ms. Brilliant’s cash bonus, the Committee considered the Company’s overall operating results for 2019, the target compensation levels detailed in Ms. Brilliant's employment agreement and her partial year of employment.
The Committee awarded a discretionary cash bonus to Mr. Line to reward him for his strong performance and overall contributions to the Company in fiscal year 2019. The Committee believes that a discretionary cash bonus provided the Committee with the flexibility to consider all aspects of Mr. Line's performance and contributions to the Company which, for a CFO and Treasurer, may not be as directly tied to our operating income. In determining the amount of Mr. Line's cash bonus, the Committee considered the Company’s overall operating results for 2019, contributions by Mr. Line that were not reflected in our operating results, and broad market compensation data.
Mr. Bingaman was awarded a discretionary cash bonus to reward him for his strong performance and overall contributions to the Company in fiscal year 2019. In evaluating Mr. Bingaman's cash bonus, the Company considered his contributions as both the CEO (through September 3, 2019) and as a Portfolio Manager. In determining the amount of Mr. Bingaman's cash bonus, the Company considered its overall operating results for 2019 and the investment results in the portfolios he manages.
Annual Stock Bonuses. The Committee awarded a discretionary stock bonus of $380,000 to Ms. Brilliant, to reward her for her strong performance and overall contributions to the Company in fiscal year 2019. Similar to the cash bonus awarded to Ms. Brilliant, the Committee believes a discretionary stock bonus provides the Committee with the flexibility to consider all aspects of Ms. Brilliant’s performance and contributions to the Company as CEO and President. In determining the amount of Ms.
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Brilliant’s stock bonus, the Committee considered the Company’s overall operating results for 2019, the desire to further align her interests with the Company and its shareholders, the target compensation levels detailed in Ms. Brilliant's employment agreement and her partial year of employment. The shares awarded in this stock bonus are fully vested but are restricted from sale until February 2025.
The Committee awarded a discretionary stock bonus of $300,000 to Mr. Line, to reward him for his strong performance and overall contributions to the Company in fiscal year 2019. Similar to the cash bonus awarded to Mr. Line, the Committee believes a discretionary stock bonus provides the Committee with the flexibility to consider all aspects of Mr. Line’s performance and contributions to the Company as CFO. In determining the amount of Mr. Line’s stock bonus, the Committee considered the Company’s overall operating results for 2019, the desire to further align his interests with the Company and its shareholders, contributions by Mr. Line that were not reflected in our operating results, and broad market compensation data. The shares awarded in this stock bonus are fully vested, but are restricted from sale until February 2025.
Mr. Bingaman was awarded a discretionary stock bonus of $637,500 to reward him for his strong performance and overall contributions to the Company in fiscal year 2019. Similar to the cash bonus awarded to Mr. Bingaman, the Company considered his contributions as both the CEO (through September 3, 2019) and as a Portfolio Manager. In determining the amount of Mr. Bingaman's stock bonus, the Company considered its overall operating results for 2019 and the investment results in the portfolios he manages. The shares awarded in this stock bonus are fully vested, but are restricted from sale until February 2025.
2019 Restricted Share Award to Ms. Brilliant. On September 30, 2019, the Committee awarded 21,719 restricted shares of the Company to Ms. Brilliant pursuant to the Company’s 2014 Plan and her employment agreement. The Committee believes this award strongly aligns the long-term interests of Ms. Brilliant with those of the Company and its shareholders. This long-term equity award is intended to represent a portion of Ms. Brilliant's total compensation for the five year period 2019 through 2024. Subject to Ms. Brilliant’s continued employment with the Company, the restricted shares will cliff vest on October 1, 2024.
2019 Restricted Share Award to Mr. Line. On February 20, 2019, the Committee awarded 8,000 restricted shares of the Company to Mr. Line pursuant to the Company’s 2014 Plan. The Committee believes this award strongly aligns the long-term interests of Mr. Line with those of the Company and its shareholders. This long-term equity award is intended to represent a portion of Mr. Line's total compensation for the five year period 2019 through 2023. Subject to Mr. Line’s continued employment with the Company, the restricted shares will cliff vest on January 1, 2024.
2014 Restricted Stock Unit Award to Mr. Line. In connection with his initial employment with the Company, in December 2014, the Committee awarded 15,000 restricted stock units ("RSUs") to Mr. Line pursuant to the Company's 2014 Plan as long-term incentive compensation. This award was subject to time-based vesting with 3,000 of these RSUs vesting on each April 1st from 2015 through 2019. This award has fully vested, with the final 3,000 RSUs having vested on April 1, 2019. Each RSU was settled in the Company's common shares on a 1-for-1 basis, with the resulting shares subject to restrictions on sale or transfer for an additional five years from each respective vesting date. The Committee believes this compensation structure strongly aligns the long-term interests of Mr. Line with those of the Company and its shareholders. This RSU award comprised all of Mr. Line's equity-based compensation for 2014 through 2018.
2018 Annual Stock award to Mr. Bingaman. The Committee awarded a discretionary stock bonus of $1,000,000 to Mr. Bingaman, to reward him for his strong performance and overall contributions to the Company in fiscal year 2018. Similar to the cash bonus awarded to Mr. Bingaman, the Committee believes a discretionary stock bonus provides the Committee with the flexibility to consider all aspects of Mr. Bingaman’s performance and contributions to the Company as CEO, President and Portfolio Manager. In determining the amount of Mr. Bingaman’s stock bonus, the Committee considered the Company’s overall operating results for 2018, the investment results in client portfolios, client service, overall contributions to the investment team, and broad market compensation data. The shares awarded in this stock bonus are fully vested, but are restricted from sale until February 2024.
Retirement Plan Benefits. We provide retirement benefits to our named executive officers through our 401(k) Plan. Each named executive officer is entitled to participate in the 401(k) Plan on the same terms and conditions as all other employees. The 401(k) Plan does not involve any guaranteed minimum or above-market returns, as plan returns depend on actual investment results.
Deferred Compensation Plans. We have two Deferred Compensation Plans: the Diamond Hill Fixed Term Deferred Compensation Plan (the “Fixed Term Plan”) and the Diamond Hill Variable Term Deferred Compensation Plan (the “Variable Term Plan”) (each individually, a "Plan", and collectively the “Deferred Compensation Plans”). Each named executive officer is eligible to participate in one of the Plans, along with certain other employees of the Company. The terms and conditions of the Plans are described in more detail under the heading “Pension Plans and Non-Qualified Deferred Compensation” below.
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Other Benefits and Perquisites. We do not provide supplemental retirement plan benefits to our named executive officers. As a general rule, we do not provide any perquisites or other personal benefits to our named executive officers that are not offered on an equal basis to all other employees. Our named executive officers are entitled to participate in benefit programs that entitle them to the same medical, dental, and short-term and long-term disability insurance coverage that are available to all employees.
Post-Employment Payments. Only Ms. Brilliant has an employment agreement which provides for payments upon termination of employment. More information on Ms. Brilliant's employment agreement and termination payments thereunder is set forth under the heading "Employment Agreements and Change in Control Benefits."
Section 162(m) of the Internal Revenue Code
Prior to December 22, 2017, when the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law, Section 162(m) of the Internal Revenue Code generally disallowed a tax deduction to publicly held companies for compensation paid to certain “covered employees” in excess of $1 million per covered employee in any year, except to the extent that the compensation in excess of the limit qualified as performance-based.
Under the TCJA, the performance-based exception has been repealed and the $1 million deduction limit now applies to (1) anyone serving as the chief executive officer or the chief financial officer at any time during the taxable year, (2) the top three other highest compensated executive officers serving at the end of the taxable year, and (3) any individual who had been a covered employee for any taxable year of the Company that started after December 31, 2016. However, the new rules do not apply to remuneration provided pursuant to a written binding contract in effect on November 2, 2017 that is not modified in any material respect after that date.
The Board of Directors has not adopted a formal policy regarding tax deductibility of compensation paid to our executive officers. While the Board and the Committee consider the potential tax deductibility of executive compensation under Section 162(m) of the Internal Revenue Code in establishing compensation for named executive officers, the Board and the Committee require the flexibility to consider additional factors in making compensation decisions in order to best fulfill the objectives of the Company's compensation program. Accordingly, the Committee may authorize compensation that might not be deductible, and may modify compensation that was initially intended to be exempt from Section 162(m), if it determines that such compensation decisions are in the best interests of the Company and its shareholders.
Risks Related to Compensation Policies and Practices
As part of its oversight of our executive and non-executive compensation programs, the Committee considers how our current compensation programs, including the incentives created by compensation awards, affect the Company’s risk profile. In addition, the Committee reviews our compensation policies, and particularly the incentives that they create, to determine whether they encourage an appropriate level of risk-taking and do not present a significant risk to the Company. The Committee also considered the following risk mitigating factors:

• | our current compensation programs reward portfolio managers and research analysts on trailing five-year investment performance in client accounts;

• | a significant portion of incentive compensation is in the form of long-term equity-based awards;

• | the sale restriction periods on equity-based compensation awards encourage executives and other employees to focus on the long-term performance of the Company;

• | the Committee's discretionary authority to adjust annual incentive awards;

• | the Company's internal controls over financial reporting and other financial, operational and compliance policies and practices; and

• | the consistency of base salaries with executives’ responsibilities so that they are not motivated to take excessive risks to achieve a reasonable level of financial security.

Based on this review, the Committee has concluded that our compensation policies and procedures are reasonably designed to not have a material adverse effect on the Company.
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Compensation Recoupment and Restitution Policy
Upon the recommendation of the Committee, the Board has adopted a compensation recoupment and restitution policy that applies to all incentive compensation received by all employees, including our named executive officers. Under the policy, we may recover all or a portion of incentive compensation (or pay out additional incentive compensation) related to awards made after the adoption of the policy, in three general situations:

• | if, due to error or malfeasance, the previously determined incentive pool, or an individual award, is either too large (or too small), then any overpayment made to an employee may, in the sole discretion of the Committee and the Board, be returned to the Company or an additional payment may be made to an employee;

• | if an employee engages in fraud or misconduct that contributes to the need for a financial restatement, or violates any law or regulation or any policy or procedure of the Company, then we may, in the sole discretion of the Committee and the Board, recoup all or a portion of the employee’s incentive compensation; and

• | if the Committee determines that the Company's previously issued financial statements are restated as a result of error, omission, fraud or non-compliance with financial reporting requirements, then we may recoup, in the sole discretion of the Compensation Committee and the Board, all or a portion of the employee’s incentive compensation.

The policy is intended to provide enhanced safeguards against certain types of employee misconduct and provide enhanced protection to, and alignment with, shareholders. These provisions are in addition to any policies or recovery rights that are provided under applicable laws, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
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Stock Ownership Guidelines
The Board adopted stock ownership guidelines for our named executive officers to further align their interests with those of our shareholders. The below table provides the target ownership level reflected in the guidelines and actual shares owned as of December 31, 2019. Each named executive officer currently holds shares well in excess of the amounts required under the guidelines.

Name | Title |  | Target Ownership Level |  | Target Number of Shares(a) |  | Number of Shares Owned (b) |  | Ownership Guideline Met
Heather E. Brilliant | CEO and President |  | 5x Salary |  | 4,746 |  |  | 22,954 |  |  | Yes
Thomas E. Line | Chief Financial Officer |  | 3x Salary |  | 5,340 |  |  | 18,302 |  |  | Yes

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(a) | Based on a per share price of $140.46 which was the closing price of our common shares on December 31, 2019, and the respective base salaries of our named executive officers as of that date.

(b) | Includes any unvested restricted stock and any shares held in the 401(k) Plan.

Summary Compensation Table
The following table sets forth the total compensation paid to or earned by our named executive officers for services rendered in the years indicated. Additional information on the elements of compensation included in the table below is available under the “Compensation Discussion and Analysis” section.

Name and Principal Position | Year |  | Salary |  | Bonus(1) |  | Stock Awards |  |  | All Other Compensation(6) |  | Total
Heather E. Brilliant | 2019 |  | $ | 133,333 |  |  | $ | 230,000 |  |  | $ | 3,380,000 |  | (2) |  | $ | 1,020,656 |  |  | $ | 4,763,989 |
Chief Executive Officer |  |  |  |  |  |  |  |  |  |  |  |  |
and President |  |  |  |  |  |  |  |  |  |  |  |
Thomas E. Line | 2019 |  | $ | 250,000 |  |  | $ | 250,000 |  |  | $ | 1,545,600 |  | (3) |  | $ | 43,100 |  |  | $ | 2,088,700 |
Chief Financial Officer | 2018 |  | $ | 250,000 |  |  | $ | 225,000 |  |  | $ | — |  |  |  | $ | 41,225 |  |  | $ | 516,225 |
and Treasurer | 2017 |  | $ | 200,000 |  |  | $ | 225,000 |  |  | $ | — |  |  |  | $ | 29,600 |  |  | $ | 454,600 |
Christopher M. Bingaman | 2019 |  | $ | 300,000 |  |  | $ | 637,500 |  |  | $ | 637,500 |  | (4) |  | $ | 47,600 |  |  | $ | 1,622,600 |
Former Chief Executive Officer and | 2018 |  | $ | 300,000 |  |  | $ | 500,000 |  |  | $ | 3,552,280 |  | (5) |  | $ | 45,313 |  |  | $ | 4,397,593 |
and President | 2017 |  | $ | 300,000 |  |  | $ | 550,000 |  |  | $ | — |  |  |  | $ | 38,700 |  |  | $ | 888,700 |

___________________________________

(1) | The amount reported represents a discretionary cash bonus award. These awards were not based upon any pre-established performance goals.

(2) | The amount reported includes the grant date fair value of Ms. Brilliant's discretionary stock bonus award of $380,000 which immediately vested upon grant. Shares acquired pursuant to this discretionary stock bonus are restricted from sale for five years following the grant date. The amount reported also includes the grant date fair value of $3,000,000 for Ms. Brilliant's initial equity award of 21,719 restricted shares which were awarded to her in 2019 pursuant to her employment agreement. Subject to Ms. Brilliant's continued employment, these restricted shares will cliff vest on October 1, 2024. Neither of these grants were based upon any pre-established performance goals.

(3) | The amount reported includes the grant date fair value of Mr. Line's discretionary stock bonus award of $300,000 which immediately vested upon grant. Shares acquired pursuant to this discretionary stock bonus are restricted from sale for five years following the grant date. The amount reported also includes the grant date fair value of $1,245,600 for Mr. Line's discretionary grant of 8,000 restricted shares which were awarded to him in 2019. Subject to Mr. Line's continued employment, these restricted shares will cliff vest on January 1, 2024. Neither of these grants were based upon any pre-established performance goals.

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(4) | The amount reported includes the grant date fair value for Mr. Bingaman's discretionary stock bonus award which immediately vested upon grant. Shares acquired pursuant to this discretionary stock bonus are restricted from sale for five years following the grant date. This grant was not based upon any pre-established performance goals.

(5) | The amount reported includes the grant date fair value for Mr. Bingaman's discretionary stock bonus award of $1,000,000 which immediately vested upon grant. Shares acquired pursuant to this discretionary stock bonus are restricted from sale for five years following the grant date. The amount reported also includes the grant date fair value of $2,552,280 for Mr. Bingaman's discretionary grant of 12,000 restricted shares which were awarded to him in 2018. Subject to Mr. Bingaman's continued employment, these restricted shares will vest on January 1, 2023. Neither of these grants were based upon any pre-established performance goals.

(6) | The following types of compensation are included in the “all other compensation” column:

Name | Year |  | Contributions to 401k Plan(a) |  | Contributions to Health Savings Account(a) |  | Supplemental Payment(b) |  | Total
Heather E. Brilliant | 2019 |  | $ | 18,789 |  |  | $ | 1,867 |  |  | $ | 1,000,000 |  |  | $ | 1,020,656 |
| 2018 |  |  |  |  |  |  |  |  |  | $ | — |
| 2017 |  |  |  |  |  |  |  |  |  | $ | — |
Thomas E. Line | 2019 |  | $ | 37,500 |  |  | $ | 5,600 |  |  |  |  | $ | 43,100 |
| 2018 |  | $ | 35,625 |  |  | $ | 5,600 |  |  |  |  | $ | 41,225 |
| 2017 |  | $ | 24,000 |  |  | $ | 5,600 |  |  |  |  | $ | 29,600 |
Christopher M. Bingaman | 2019 |  | $ | 42,000 |  |  | $ | 5,600 |  |  |  |  | $ | 47,600 |
| 2018 |  | $ | 39,188 |  |  | $ | 6,125 |  |  |  |  | $ | 45,313 |
| 2017 |  | $ | 32,400 |  |  | $ | 6,300 |  |  |  |  | $ | 38,700 |

(a) | The Company contributions to the 401(k) Plan and employee Health Savings Accounts are offered to all employees of the Company and its affiliates.

(b) | Represents an initial cash payment made pursuant to her employment agreement and in conjunction with the commencement of her employment with the Company.

Pay Ratio Disclosure
The below table shows the ratio of the median annual total compensation of all Company employees (excluding the CEO) to the annual total compensation of the Company's CEO. In determining the median employee, a listing was prepared of all current employees as of December 31, 2019. To determine the median employee, we included 2019 base salary and incentive compensation (annualized for those employees that were not employed for the full year of 2019). Once the median employee was identified, for purposes of comparison to the CEO, we then calculated the compensation for that employee in the same manner as the Total Compensation shown for our CEO in the Summary Compensation Table.

Median Employee total annual compensation | $ | 272,946 |  |
Heather E. Brilliant, CEO, total annual compensation | $ | 6,277,600 |  | (1)
Ratio of CEO to Median Employee Compensation | 23.0 : 1 |  |

(1) | The compensation shown for the CEO includes annualized base and incentive compensation, an initial $3,000,000 five-year restricted stock award granted on September 30, 2019, and an initial $1,000,000 cash award. Excluding the initial stock and initial cash awards, the CEO total annualized compensation was $2,277,600.

Voluntary Supplemental Pay Ratio Disclosure - GAAP Accounting
The compensation numbers presented in the below table use the actual compensation expense recorded by the Company on its financial statements contained in Form 10-K ("GAAP Accounting"). Under GAAP Accounting, in the below table long-term restricted stock awards are amortized over the vesting period of the award, as opposed to the above table, which inclu
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des the entire grant date value in the year the award is granted. The below table shows the same median employee as the above table.

Median Employee total annual compensation (1) | $ | 311,832 |
Heather E. Brilliant, CEO, total annual compensation (1) | $ | 3,427,600 |
Ratio of CEO to Median Employee Compensation | 11.0 : 1 |

(1) | The compensation shown above includes $38,886 and $150,000, respectively in GAAP Accounting compensation expense related to long-term restricted stock awards.

Grants of Plan Based Awards for 2019
The following table sets forth information regarding annual incentive plan awards granted to each of the named executive officers for the year ended December 31, 2019.

| Grant Date |  | Compensation Committee Action Date (1) |  | Estimated Possible Payouts Under Equity Incentive Plan Awards |  | Grant Date Fair Value of Stock and Options
Name | Threshold # |  | Target # |  | Maximum # |  | Awards $
Heather E. Brilliant (2) | 09/30/2019 |  | 07/05/2019 |  | — |  |  | 21,719 |  |  | — |  |  | 3,000,000 |
Thomas E. Line (2) | 02/20/2019 |  |  | 02/20/2019 |  | — |  |  | 8,000 |  |  | — |  |  | 1,245,600 |
Christopher M. Bingaman | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |

____________________

(1) | The Compensation Committee Action Date represents the date on which the Committee authorized the equity-based award.

(2) | The Compensation Committee granted the above awards to Ms. Brilliant and Mr. Line pursuant to the 2014 Plan. This award is intended to represent a portion of their total compensation for the five year period following the grant date. Subject to their continued employment the restricted shares will vest on October 1, 2024 for Ms. Brilliant and January 1, 2024 for Mr. Line.

Outstanding Equity Awards at December 31, 2019
The following table summarizes all outstanding equity awards held by our named executive officers as of December 31, 2019.

| Stock Awards
Name | Equity Incentive Plan Awards: Number of Unearned Shares That have Not Vested (1) |  | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares That Have Not Vested(2)
Heather E. Brilliant | 21,719 |  |  | $ | 3,050,651 |
Thomas E. Line | 8,000 |  |  | $ | 1,123,680 |
Christopher M. Bingaman | 12,000 |  |  | $ | 1,685,520 |

_______________

(1) | These shares represent a grant of restricted shares to Ms. Brilliant, Mr. Line, and Mr. Bingaman pursuant to the 2014 Plan. Subject to their continued employment with the Company, these restricted shares will vest on October 1, 2024, January 1, 2024, and January 1, 2023, respectively.

(2) | The amount in this column represents the value of the share grants shown multiplied by $140.46, the closing market price of our common shares as of December 31, 2019.

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Option Exercises and Stock Vested for 2019
No options have been granted to the named executive officers pursuant to the 2014 Plan. The following table sets forth information with respect to stock awards held by our named executive officers that vested in 2019.

| Stock Awards
Name | Number of Shares Acquired on Vesting |  | Value Realized on Vesting
Heather E. Brilliant | — |  |  | $ | — |
Thomas E. Line | 3,000 |  | (1) | $ | 427,200 |
Christopher M. Bingaman | — |  |  | $ | — |

_______________

(1) | On April 1, 2019, these shares were acquired upon satisfaction of the service-based vesting requirements applicable to the final portion of the 15,000 RSUs granted to Mr. Line in December 2014 pursuant to the 2014 Plan. Pursuant to the terms of the RSUs established by the Committee upon grant, 3,000 of the RSUs vested on each April 1st from 2015 through 2019. The RSUs were settled in the Company’s common shares on a 1-for-1 basis.

Pension Plans and Non-Qualified Deferred Compensation
We do not maintain any pension plans for named executive officers or other employees. We offer to our named executive officers and all other employees the opportunity to participate in two Non-Qualified Deferred Compensation Plans: the Fixed Term Plan and the Variable Term Plan (the “Deferred Compensation Plans”).
Deferrals of Incentive Compensation.
Pursuant to the Deferred Compensation Plans, participants may elect to defer up to 50% of the stock portion of their annual incentive compensation and up to 100% of the cash portion of their annual incentive compensation for a plan year (the calendar year). Generally, the participant must submit a deferral election by December 31 of the year before the services are to be performed. After the applicable deadline, a deferral election is irrevocable for that plan year except under circumstances set forth in the Deferred Compensation Plan.
None of the named executive officers contributed to the Deferred Compensation Plans, and none had a balance under such plans as of December 31, 2019.
Employment Agreements and Change in Control Benefits
We currently have an employment agreement with Ms. Brilliant. A description of the agreement is set forth below. We are not a party to an employment agreement with any other employee and are not obligated to provide change in control benefits to any employee other than Ms. Brilliant.
In July 2019, we entered into an employment agreement with Ms. Brilliant. The agreement has a current expiration date of December 31, 2024. The agreement provides for an annual salary of $400,000, which may be increased (but not reduced) by the Board annually, plus a target annual cash and equity bonus of $600,000 and $1,150,000, respectively. Ms. Brilliant also received an initial cash award of $1,000,000, and an initial restricted stock award of $3,000,000 (21,719 shares) that vests on October 1, 2024, provided Ms. Brilliant remains employed with the Company on that date. Ms. Brilliant’s employment agreement also entitles her to receive health insurance and six weeks paid vacation annually and to participate in other benefit programs offered to employees. The agreement also restricts Ms. Brilliant from competing with the Company during the term of the agreement and for one year following termination of her employment and provides that she will at all times maintain the confidentiality of Company information.
If we terminate Ms. Brilliant’s employment without "Cause" (as defined in Ms. Brilliant’s employment agreement), she would be entitled to the following payments, which are quantified to reflect the amounts she would have received had her employment been terminated at December 31, 2019:

1. | her accrued but unpaid base salary and vacation and unreimbursed business expenses as of the date of termination ($0 at December 31, 2019);

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2. | payments, if any, under other benefit plans and programs in effect at the time ($0 at December 31, 2019; we have no benefit plans that would result in payments upon termination);

3. | a single lump sum payment equal to her base salary in effect at the date of termination ($400,000 at December 31, 2019);

4. | a single lump sum payment equal to the sum of the annual target value of cash and equity incentive awards ($1,750,000 at December 31, 2019); and

5. | her accrued but unpaid annual cash bonus from the year prior to the date of termination ($200,000 at December 31, 2019).

Ms. Brilliant may terminate her employment for “Good Reason” (as defined in Ms. Brilliant’s employment agreement), which generally includes reduction of her annual base salary, relocation of the Company's principal place of business to a location more than 50 miles from its current location, assignment to her of duties inconsistent with her position and authority, a requirement that she no longer report directly to the Board, or a breach by the Company of her employment agreement. If she terminates her employment for Good Reason, Ms. Brilliant is entitled to all of the payments to which she would be entitled in the event she is terminated without Cause.
If Ms. Brilliant’s employment terminates due to her death or disability, if the employment agreement terminates in accordance with its terms or if we terminate Ms. Brilliant for “Cause” (as defined in Ms. Brilliant’s employment agreement), she will be entitled to receive the payments set forth in numbers 1 and 2 above. In the event of her death or disability, she will also receive the payments described in numbers 1, 2, and 5 above. Under the employment agreement, “Cause” generally includes material violations of our employment policies, conviction of crime involving moral turpitude, violations of securities or investment adviser laws, causing us to violate a law which may result in penalties exceeding $250,000, materially breaching the employment agreement, or fraud, willful misconduct, or gross negligence in carrying out her duties.
In the event that a “Change in Control” (as defined in Ms. Brilliant’s employment agreement), occurs and, within six months prior or 24 months following such Change in Control Ms. Brilliant's employment is terminated by the Company or its successor for any reason other than death, disability or for Cause, or Ms. Brilliant terminates her employment for Good Reason, she will be entitled to the following payments from us or our successor, in addition to the applicable payments set forth in numbers 1 through 5 above:

• | a single lump sum payment equal to the year-to-date pro-rata value of her target cash and equity incentive awards ($1,750,000 at December 31, 2019); and

• | full vesting of her a initial restricted stock award of 21,719 shares, to the extent not previously vested in a Change in Control transaction ($3,050,650 at December 31, 2019).

Compensation Committee Report
The Board’s Compensation Committee has submitted the following report for inclusion in this Proxy Statement:
We have reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management. Based on that review and discussion, we recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Submitted by the Compensation Committee of the Board of Directors:
James F. Laird
Randolph J. Fortener
Paula R. Meyer
Paul A. Reeder
Bradley C. Shoup
Nicole R. St. Pierre, Chair
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PROPOSAL 2 — RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the independent registered public accounting firm retained to audit the Company’s consolidated financial statements. To carry out this responsibility, the Committee engages in an evaluation of the independent auditor's qualifications, performance, and independence. The Committee also periodically considers whether the independent registered public accounting firm should be rotated and the advisability and potential impact of selecting a different independent registered public accounting firm.
The Audit Committee has reappointed KPMG LLP ("KPMG") to serve as our independent registered public accounting firm for 2020. KPMG was first appointed to serve as our independent registered public accounting firm on October 24, 2012.
The Audit Committee and the Board of Directors believe that the continued retention of KPMG as our independent registered public accounting firm is in the best interests of the Company and our shareholders, and we are asking our shareholders to ratify the selection of KPMG as our independent registered public accounting firm for fiscal 2020.
Representatives of KPMG are expected to be present at the Annual Meeting and will have the opportunity to make a statement, if they so desire, and respond to appropriate questions from shareholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF KPMG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2020.
If Proposal 2 is not approved, the Audit Committee will reconsider the appointment of KPMG as our independent registered public accounting firm for 2020, and may or may not make any changes to such appointment.
Disclosure of Fees Charged by the Independent Registered Public Accounting Firm
The following table summarizes the fees billed by KPMG for services rendered to the Company and its subsidiaries during 2019 and 2018.

| Year Ended |  | Year Ended
| 12/31/2019 |  | 12/31/2018
Audit Fees(1) | $ | 237,450 |  |  | $ | 205,600 |
Audit-Related Fees | — |  |  | — |
Tax Fees (2) | 57,966 |  |  | 91,806 |
All Other Fees | — |  |  | — |
Total Fees | $ | 295,416 |  |  | $ | 297,406 |

____________________

(1) | Audit Fees include professional services rendered for the audit of annual financial statements, reviews of quarterly financial statements, issuance of consents, and assistance with review of other documents filed with the SEC.

(2) | Tax Fees include professional services rendered for tax preparation and compliance.

Preapproval by Audit Committee
The Audit Committee has adopted policies and procedures which set forth the manner in which the committee will review and approve all audit and non-audit services to be provided by the independent registered public accounting firm (the “Services”) to ensure that the provision of the Services does not impair the firm’s independence. The pre-approval policies and procedures are as follows:

• | The Audit Committee has established a pre-approval fee cap of $25,000, under which any Services in excess of the $25,000 fee cap must be submitted to the Audit Committee for review and pre-approval, and any Services less than the $25,000 fee cap must be approved by the Chief Financial Officer and then reported to the Audit Committee at its next regularly scheduled meeting.

• | Pre-approval actions taken during Audit Committee meetings are recorded in the minutes of the meetings.

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Audit Committee Report
During 2019, the Audit Committee was comprised of six independent directors operating under a written charter adopted by the Board, the most current version of which is available on our website, ir.diamond-hill.com, under “Corporate Governance” on the right hand side of the site. Annually, the Audit Committee engages the Company’s independent registered public accounting firm. KPMG served as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2019.
Management is responsible for preparation of the Company’s financial statements and for designing and maintaining the Company’s systems of internal controls and financial reporting processes. The Company’s independent registered public accounting firm is responsible for performing an audit of the Company’s consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”) and issuing reports on the Company’s financial statements and the effectiveness of the Company’s internal controls over financial reporting. The Audit Committee’s responsibility is to provide independent, objective oversight of these processes.
Pursuant to this responsibility, the Audit Committee met and held discussions with management and KPMG regarding the audited consolidated financial statements of the Company for the fiscal year ended December 31, 2019. The Audit Committee reviewed the audit plan and scope with KPMG and discussed with KPMG the applicable requirements of the PCAOB and the SEC. The Audit Committee also met with KPMG without management present to discuss the results of their audit work, their evaluation of the Company’s system of internal controls and the quality of the Company’s financial reporting.
The Committee also discussed with KPMG its independence from management and the Company, and received its written disclosures and the letter from KPMG required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence.
Management has represented to the Audit Committee that the Company’s consolidated financial statements for the year ended December 31, 2019, were prepared in accordance with United States generally accepted accounting principles. Based on the Audit Committee’s discussions with management and KPMG and its review of KPMG’s report to the Audit Committee, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC.
Submitted by the Audit Committee of the Board of Directors:
Randolph J. Fortener, Chair
James F. Laird
Paula R. Meyer
Paul A. Reeder, III
Bradley C. Shoup
Nicole R. St. Pierre
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PROPOSAL 3 - ADVISORY VOTE ON THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
As described in the section entitled, “EXECUTIVE OFFICERS AND COMPENSATION INFORMATION,” we believe that executive compensation should be linked with the Company’s performance and significantly aligned with the interests of the Company’s shareholders. In addition, our executive compensation program is designed to allow us to retain, and recognize the contributions of, employees who play a significant role in our current and future success. We urge you to read the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure for a detailed description of the fiscal year 2019 compensation of our named executive officers.
The vote on this resolution is not intended to address any specific element of compensation; rather, the advisory vote relates to the overall compensation of our named executive officers. This vote is advisory and therefore not binding on the Company. However, the Board and the Compensation Committee will review the voting results and will take into account the outcome of the vote when determining future compensation for the Company’s named executive officers.
Accordingly, we ask our shareholders to vote on the following resolution:
“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2020 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure.”
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC.
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ADDITIONAL INFORMATION
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Given the Company’s relatively small size, our limited number of record shareholders, and the Board’s consistent practice of being open to receiving direct communications from shareholders, the Board believes that it is not necessary to implement, and we do not have, a formal process for shareholders to send communications to the Board. Our practice is to forward any communication addressed to the full Board to the Chairman; to a group of directors, to a member of the group; or to an individual director, to that person.
SHAREHOLDER PROPOSALS FOR 2021 ANNUAL MEETING
Shareholders are entitled to submit proposals on matters appropriate for shareholder action consistent with SEC rules and our Code of Regulations (the "Regulations"). Should a shareholder wish to have a proposal appear in the proxy statement for next year’s annual meeting, under applicable SEC rules, the proposal must be received by the Company’s Secretary on or before November 13, 2020, and must otherwise comply with the requirements of Rule 14a-8 of the Exchange Act. The Company will not be required to include in its proxy statement a shareholder proposal that is received after that date or that otherwise fails to meet the requirements for shareholder proposals established by applicable SEC rules.
Our Regulations govern the submission of director nominations and other business proposals that a shareholder wishes to have considered at an annual meeting of shareholders, but which are not included in our proxy statement for that meeting. Under our Regulations, director nominations or other business proposals to be addressed at our next annual meeting may be made by a shareholder entitled to vote who has delivered a notice to the Secretary of the Company not later than the close of business on January 28, 2021 and not earlier than December 29, 2020. To be eligible for consideration at an annual meeting of shareholders, a shareholder's proposal and notice thereof must otherwise comply with the procedures and requirements of our Regulations.
These advance notice provisions in our Regulations are in addition to, and separate from, the requirements that a shareholder must meet in order to have a proposal included in the proxy statement under the rules of the SEC. A proxy granted by a shareholder will give discretionary authority to the proxies to vote on any matters introduced pursuant to the above advance notice provisions in our Regulations, subject to applicable SEC rules. A copy of our Regulations may be obtained from the Gary R. Young, Secretary, at 325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215 or by phone at (614) 255-3333.
SHAREHOLDERS SHARING THE SAME ADDRESS
The SEC has implemented rules regarding the delivery of proxy materials (i.e., annual reports, proxy statements, proxy statements combined with a prospectus or any information statements provided to shareholders) to households. This method of delivery, often referred to as “householding,” generally permits the Company to send a single annual report and a single proxy statement to any household at which two or more different shareholders reside if the Company believes such shareholders are members of the same family, unless the shareholder(s) have opted out of the householding process. Each shareholder would continue to receive a separate notice of any meeting of shareholders and proxy card. The householding procedure reduces the volume of duplicate information you receive and reduces expenses. The Company has instituted householding. If (i) you wish to receive separate annual reports or proxy statements, either this year or in the future, or (ii) members of your household receive multiple copies of the annual report and proxy statement and you wish to request householding, you may contact the Company’s transfer agent, Continental Stock Transfer & Trust Company at 1 State Street, 30th Floor, New York, New York 10004, or by phone at (212) 509-4000, or write to Mr. Gary R. Young, Secretary, at 325 John H. McConnell Boulevard, Suite 200, Columbus, Ohio 43215, or by phone at (614) 255-3333.
In addition, many brokerage firms and other holders of record have instituted householding. If your family has one or more “street name” accounts under which our shares are beneficially owned, you may have received householding information from your broker, financial institution or other nominee in the past. Please contact the holder of record directly if you have questions, require additional copies of this Proxy Statement or Annual Report on Form 10-K or wish to revoke your decision to household and thereby receive multiple copies. You should also contact the holder of record if you wish to institute householding. These options are available to you at any time.
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OTHER BUSINESS
The Board knows of no other business to be acted upon at the Annual Meeting. However, if any other business properly comes before the Annual Meeting, it is the intention of the persons named in the enclosed proxy card to vote on such matters in accordance with their best judgment.
We appreciate your prompt completion, execution, and delivery of your proxy card or your submission of voting instructions electronically over the Internet or by telephone. Whether or not you expect to attend the Annual Meeting, please complete and sign the proxy card and return it in the enclosed envelope, or vote your proxy electronically via the Internet or telephonically.
By Order of the Board of Directors
Gary R. Young
Secretary
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