UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
(Rule 14a-101)
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Franklin Electric Co., Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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FRANKLIN ELECTRIC CO., INC.
9255 Coverdale Road
Fort Wayne, Indiana 46809
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held
May 6, 20225, 2023 at 8:00 a.m., Eastern Time
To the Shareholders of
Franklin Electric Co., Inc.
The Annual Meeting of Shareholders of Franklin Electric Co., Inc. (the "Company"), an Indiana corporation, will be held at Franklin Electric Global Headquarters and Engineering Design Center, 9255 Coverdale Road, Fort Wayne, Indiana 46809 on Friday, May 6, 2022,5, 2023, at 8:00 a.m., Eastern Time. The purposes of the meeting are to:
1.Elect Renee J. PetersonVictor D. Grizzle, Alok Maskara, and Jennifer L. ShermanThomas R. VerHage as directors for the terms expiring at the 20252026 Annual Meeting of Shareholders;
2.Ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the 20222023 fiscal year;
3.Approve, on an advisory basis, the executive compensation of the named executive officers as disclosed in the Proxy Statement;
4.Approve the Franklin Electric Co., Inc. Amended and Restated 2017 Stock Plan;
4.5.Approve, on an advisory basis, the frequency of future advisory votes on the compensation of the named executive officers as disclosed in the Proxy Statement; and
6.Transact any other business that may properly come before the Annual Meeting of Shareholders or any adjournment or postponement thereof.
Only shareholders of record at the close of business on March 1, 20222023 will be entitled to notice of and to vote at the Annual Meeting.
You are urged to vote your proxy whether or not you plan to attend the Annual Meeting of Shareholders. If you do attend, you may choose to vote in person which will revoke any previously executed proxy.
By order of the Board of Directors.
Jonathan M. Grandon
Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary
Fort Wayne, Indiana
March 22, 202221, 2023
TABLE OF CONTENTS
FRANKLIN ELECTRIC CO., INC.
9255 Coverdale Road, Fort Wayne, Indiana 46809
PROXY STATEMENT
Annual Meeting of Shareholders to be Held on May 6, 20225, 2023
GENERAL INFORMATION
This Proxy Statement and the enclosed proxy are furnished to shareholders in connection with the solicitation of proxies by the Board of Directors of Franklin Electric Co., Inc. (the "Company"), 9255 Coverdale Road, Fort Wayne, Indiana 46809 for use at the Annual Meeting of Shareholders to be held on May 6, 2022,5, 2023, or any adjournment or postponement thereof. Shareholders were sent a Notice of the Annual Meeting of Shareholders (the "Annual Meeting"), as well as information regarding how to access this Proxy Statement and the Company's 20212022 Annual Report, including the financial statements contained therein, beginning on or about March 22, 2022.21, 2023.
The expenses of solicitation, including the cost of printing and mailing, will be paid by the Company. Officers and employees of the Company, without additional compensation, may solicit proxies personally, by telephone, email, or by facsimile. Arrangements will also be made with brokerage firms and other custodians, nominees, and fiduciaries to forward proxy solicitation materials to the beneficial owners of shares held of record by such persons, and the Company will reimburse such entities for reasonable out-of-pocket expenses incurred by them in connection therewith.
NOTICE AND VOTING INSTRUCTIONS
Shareholders will receive a Notice Card with information regarding the availability of proxy materials over the internet. Shareholders who wish to receive a paper or email copy of the proxy materials must request one by submitting the request to the Secretary of the Company at the Company's address listed on the first page of this Proxy Statement. There is no charge for receiving a copy. Requests can also be made at the voting website, via telephone, or via email, as described in the Notice Card.
Voting by Internet: Use the internet link and control number provided to you on your Proxy Card. You may vote until 11:59 p.m., Eastern Time, on May 5, 2022.4, 2023. You will need the control number provided on your Proxy Card to access the website.
Voting by Telephone: Call the toll-free telephone number provided to you on your Proxy Card. Telephone voting will be available until 11:59 p.m., Eastern Time, on May 5, 2022.4, 2023. Detailed instructions will be provided during the call. The procedures are designed to authenticate votes cast by using the last 4 digits of a shareholder’s social security/taxpayer I.D. number.
Voting by Mail: Request a hard copy of the proxy materials by submitting your request to the Secretary of the Company at the Company's address listed on the first page of this Proxy Statement. Then complete the Proxy Card, date and sign it, and return it in the envelope provided. Shareholders may also vote their shares in person at the Annual Meeting.
Employees who are participants in the Company’s Retirement Program (401(k) plan) will receive a notice and instructions by email or other method that explains how to vote shares credited to their Retirement Program accounts.
If a shareholder does not specify the manner in which the proxy shall be voted, the shares represented thereby will be voted:
•FOR the election of the nominees for director as set forth in this Proxy Statement;
•FOR the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the 20222023 fiscal year;
•FOR approval of the compensation of the Company’s named executive officers;
•FOR approval of the Franklin Electric Co., Inc. Amended and Restated 2017 Stock Plan;
•FOR "one year" as the frequency of future advisory votes on compensation of the Company's named executive officers; and
•In accordance with the recommendations of management with respect to other matters that may properly come before the Annual Meeting.
A shareholder who has executed a proxy has the power to revoke it at any time before it is voted by (i) delivering written notice of such revocation to Mr. Jonathan M. Grandon, Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary, 9255 Coverdale Road, Fort Wayne, Indiana, 46809, (ii) executing and delivering a subsequently dated proxy by mail, or voting by telephone or through the internet at a later date, or (iii) attending the Annual Meeting and voting in person.
SHAREHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING
The Board of Directors of the Company fixed the close of business on March 1, 2022,2023, as the record date (the "Record Date") for determining shareholders entitled to notice of and to vote at the Annual Meeting. As of the Record Date, there were 65,000,000 shares of Common Stock, $.10 par value (the "Common Stock"), authorized, of which 46,417,28346,225,759 shares of Common Stock were outstanding. Each share of Common Stock is entitled to one vote on each matter submitted to a vote of the shareholders of the Company. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspectors of election appointed for the Annual Meeting and will be counted as present for purposes of determining whether a quorum is present. A majority of the outstanding shares of Common Stock, present in person or represented by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. Abstentions and broker non-votes (which occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner) will be counted for purposes of determining the presence or absence of a quorum but will not be counted as votes cast on any matter submitted to shareholders. As a result, abstentions and broker non-votes will not have any effect on the voting results with respect to any of the matters scheduled to be submitted to shareholders at the Annual Meeting.
LETTER TO SHAREHOLDERS
Fellow Shareholders,
I am proudFranklin Electric employees around the globe should take great pride in their achievements individually and as a team executing our 2022 plan, marking another exceptional year both strategically and financially. Facing the significant global headwinds – supply disruptions, labor shortages, significant inflation in the U.S. and Europe, the war in Ukraine, and remnants of the many achievements that made 2021 an exceptional year for Franklin Electric, driven by the strength, commitment, and execution ofglobal pandemic – our global team. We captured robust demand while building on our strong foundation through strategic acquisitions that expand our core offerings, enhance our end market positions, and extend our geographic reach. Our team was able to accomplish these objectives and deliver exceptional results against a difficult macroeconomic backdrop, navigating ongoing business challenges in the supply chain, rising input costs, and inflationary pressures. Our unwaveringmaintained its focus on our Key Factors for Success: quality, availability, service, innovation,Quality, Availability, Service, Innovation, and cost has guided us throughCost Control. In 2022, the most challenging of these challenges,factors was Availability – impacted by each of the macro headwinds as well as exceptional levels of demand, resulting in record backlog and we emerged from the year in an even stronger position.past-due levels last summer. Even with our record financial results, our supply chain is still recovering. We expect our operational and delivery performance to continue improving.
From a financial perspective, 20212022 was the highest performingmost successful year in our history, capped off bynearly 80-year history. We achieved record sales and earningsoperating income in each of our fourth quarter. Demand remained strongreporting segments driven by robust demand throughout the year. Achievements within Water Systems results were driven by a robust housing markethealthy demand in residential and agricultural applications in the U.S., strongincreased crop and metal prices, as well as global economic growth, and dry weather in some regions, and market recovery outside of the U.S. with strong demand in developing regions. Growth in the groundwater market was underpinned by residential and agricultural demand, while Fueling Systems also experienced strong sales, driven by pent-up need for infrastructure buildoutconsolidation and marketer conversions in the U.S. and a continued focus on environmental protection globally, particularly in India. Our Distribution business exhibited spectacular growth, bothsegment had another solid year, growing organically and through strategic acquisitions, as we remain keenly focused oncontinued our network expansion to more than 400 branch and OSI (On Site Inventory) locations serving groundwater contractors.contractors across the U.S.
We continuedcontinue to execute on our strategy by growing as a global provider of water and fuel systems through geographic expansion and product line extensions as well as leveraging our global platform and competency in system design. Our commitment to this strategy has yielded outstanding results, putting usresults. In the summer of 2018, we set strategic and 2023 financial objectives. Since then, we’ve been focused on executing on those objectives and have exceeded our revenue goal of $2 billion, our operating income goal of $250 million, and our pre-tax return on invested capital goal of 20 percent in 2022, in each case a strong financial position. We maintained strong freefull year ahead of our initial forecasts.
With supply challenges and record demand, our inventory levels increased significantly in 2022. While our cash flowconversion rate has been solid over the last four years, it remains below target primarily due to this large increase. With our supply chain stabilizing and investedimproving, we expect a reduction in inventory levels in 2023 which should increase cash generation and exceed our conversion goal of 100 percent of net income. Even with our increase in working capital investments in 2022 our leverage ratio remains low. This financial strength and flexibility enabled our Board to approve the Company’s 31st consecutive annual dividend increase.
We remain focused on using our scale to gain operating leverage. We have integrated the 2021 year-end groundwater distribution acquisition and moved all while returning tangible valueour acquired water treatment businesses onto a common ERP platform. This positions us to realize better operating leverage over the months and years to come. We see water treatment as a natural extension of our groundwater business and additive to our shareholders by deliveringincreased focus on commercial and industrial pumping systems. We continue to identify and evaluate acquisition opportunities that extend our 30th consecutive year of increased dividends. We completed several strategic acquisitions: three in the water treatment space in the U.S., one in the U.S. groundwater distribution space and one small, dewatering pump acquisition in Australia. We feel confident that each of these acquisitions has a strong runway for growth while expanding our capabilities and footprint. While I am tremendously proud of our results in 2021, our focus now turns to the road ahead as we look to capitalize on our position by meeting customer needs and expanding the core businessproduct lines and geographic reach through further strategic acquisitions with a focus on Water Treatment, Distribution and Grid Solutions.reach.
Guiding our growth strategy, our goal is to becomebe an indispensable partner to our customers.customers. We deliver a positive impact to the communities we operate in by expanding the availability of clean water on a global scale, innovatingdeveloping new innovations such as higher efficiency water and fuel delivery systems, as well as addressing the safety and lowest total cost of ownership in the maintenance and operation of Fuelingfueling stations. Our belief is that environmentalEnvironmental protection and sustainability are intertwined with the long-term success of our business, and we are constantly looking for ways to increase transparency forcommunicate progress to our stakeholders.
On behalf of the management team and our Board of Directors, I want to thank all of our employees around the world for their commitment and service to our customers, coworkers,colleagues, business partners, and communities. We could not have had such ananother incredible year without alldue to their hard work. We grew our employment base in 2021, both through organic growth of our businesses,work and by welcoming new employees through acquisitions. We recognize the challenges that our employees have faced through the uncertainty of the last couple of years, andwe are extremely blessed to havework with such an engaged and enthusiastic workforce.team. We continueare continuing to look for waysexplore opportunities to make their experience with Franklin more flexible and fulfilling and to allow their diverse experiences and perspectives to be heard and celebrated.
I would also like to thank our Board of Directors, who collectively provide a wealth of wisdom and experience, drive our performance through our goal-setting process, and review and approve our long-term strategic objectives and direction. We look forward to another successful year and apprising shareholders of our progress along the way.in 2023.
Sincerely,
Gregg Sengstack
Chairperson of the Board and Chief Executive Officer
Franklin Electric Co., Inc.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table shows the persons known by the Company to be the beneficial owners of more than five percent of the Company’s Common Stock as of March 1, 2022,2023, unless otherwise noted. The nature of beneficial ownership is sole voting and dispositive power, unless otherwise noted. | | | | | | | | | | | |
| Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of class |
BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | 7,859,533 | | (1) | 16.93 | % |
The Vanguard Group, Inc.
100 Vanguard Blvd.
Malvern, PA 19355 | 4,597,884 | | (2) | 9.91 | % |
Patricia Schaefer
5400 Deer Run Court
Muncie, IN 47304 | 4,000,168 | | (3) | 8.62 | % |
Diane D. Humphrey
2279 East 250 North Road
Bluffton, IN 46714 | 3,023,103 | | (4) | 6.51 | % |
Earnest Partners, LLC
1180 Peachtree Street NE, Suite 2300
Atlanta, GA 30309 | 2,481,303 | | (5) | 5.35 | % |
| | | | | | | | | | | |
| Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of class |
BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | 7,916,306 | | (1) | 17.13 | % |
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355 | 4,642,378 | | (2) | 10.04 | % |
Patricia Schaefer
5400 Deer Run Court
Muncie, IN 47304 | 3,200,168 | | (3) | 6.92 | % |
Diane D. Humphrey
2279 East 250 North
Bluffton, IN 46714 | 2,784,147 | | (4) | 6.02 | % |
State Street Corporation
One Lincoln Street
Boston, MA 02111 | 2,368,925 | | (5) | 5.12 | % |
(1)According to a Schedule 13G filed with the SEC, as of December 31, 2021,2022, BlackRock. Inc. has sole voting power with respect to 7,605,6447,715,434 shares and sole dispositive power with respect to 7,859,5337,916,306 shares.
(2)According to a Schedule 13G filed with the SEC, as of December 31, 2021,February 28, 2023, The Vanguard Group Inc. has shared voting power with respect to 85,40377,360 shares, sole dispositive power with respect to 4,476,5094,524,507 shares and shared dispositive power with respect to 121,375117,871 shares.
(3)Pursuant to agreements with Ms. Schaefer, the Company has a right of first refusal with respect to 3,416,0802,616,080 shares owned by Ms. Schaefer.
(4)Pursuant to agreements with Ms. Humphrey, the Company has a right of first refusal with respect to 2,719,3992,478,443 shares owned by Ms. Humphrey.
(5)According to a Schedule 13G filed with the SEC, as of December 31, 2021, Earnest Partners, LLC2022, State Street Corporation has soleshared voting power with respect to 1,682,4392,268,986 shares and soleshared dispositive power with respect to 2,481,3032,368,925 shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the number of shares of Common Stock beneficially owned by directors, nominees, each of the executive officers named in the "Summary Compensation Table" on page 3231 of this Proxy Statement and all executive officers and directors as a group, as of March 1, 2022.2023. The nature of beneficial ownership is sole voting and investment power, unless otherwise noted, except for restricted shares, with respect to which the holder has investment power only after the shares vest. | | | | | | | | |
| Name of beneficial owner | Amount and nature of beneficial ownership | Percent of class |
| Victor D. Grizzle | 0(2) | * |
| Alok Maskara | 2,5715,731 | * |
| Renee J. Peterson | 0(2) | * |
| Jennifer L. Sherman | 0(2) | * |
| Thomas R. VerHage | 0(2) | * |
| Chris Villavarayan | 1,838(2) | * |
| David M. Wathen | 01,838(2)
| * |
| | |
| Gregg C. Sengstack | 934,153983,195(1)(5)(6)(7)
| 2.012.13 |
| Jeffery L. Taylor | 10,53916,494(1)(4)
| * |
John J. Haines | 194,279(1)(7)
| * |
| Donald P. Kenney | 136,121155,070(1)(3)(5)(7)
| * |
| DeLancey W. Davis | 20,07620,986(1)(3)(5)(7)
| * |
Jonathan M. GrandonJay J. Walsh | 68,20033,818(1)(3)(4)(5)(7)
| * |
| All directors and executive officers as a group | 1,440,7021,311,746(1)(2)(3)(4)(5)(6)(7)
| 3.102.84 |
* Less than 1 percent of class
(1)Includes shares issuable pursuant to stock options exercisable within 60 days after March 1, 20222023 as follows: Mr. Sengstack, 482,222;546,621; Mr. Haines, 143,898;Taylor, 3,262; Mr. Kenney, 80,267;95,961; Mr. Davis, 13,860;11,367; and Mr. Grandon, 49,092.Walsh, 20,606. All directors and executive officers as a group, 815,667.741,668.
(2)Does not include stock units credited pursuant to the terms of the Non-Employee Directors’ Deferred Compensation Plan described under “Director Compensation” to: Mr. Grizzle, 5,941;9,216; Ms. Peterson, 31,527;35,068; Ms. Sherman, 34,129;37,673; Mr. VerHage, 51,446;55,349; Mr. Villavarayan, 1,246; and Mr. Wathen, 91,186.92,059.
(3)Includes shares held by the 401(k) Plan Trustee as of March 1, 2022:2023: Mr. Kenney, 32,45932,508; Mr. Davis, 125; and Mr. Davis, 125.Walsh, 21. All executive officers as a group, 32,605.36,901.
(4)Includes unvested restricted shares as follows: Mr. Taylor, 10,5399,135 and Mr. Grandon, 6,170.Walsh, 1,641. All executive officers as a group, 25,512.20,221.
(5)Does not include unvested restricted stock units as follows: Mr. Sengstack, 44,829;39,318; Mr. Kenney, 10,862;9,347; Mr. Davis, 5,169; and Mr. Davis, 5,866.Walsh, 2,646. All executive officers as a group, 63,050.60,365.
(6)Includes 275,000 shares owned by a trust.
(7)Includes shares based on estimated release of performance share units earned in 20212022 as follows: Mr. Sengstack, 19,889; Mr. Haines, 5,535;33,160; Mr. Kenney, 4,143;8,038; Mr. Davis, 2,817,4,372, and Mr. Grandon, 2,884.Walsh, 2,964. All executive officers as a group, 37,919.53,106. See the "Compensation Discussion and Analysis" section for further information.
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Amended and Restated By-laws provide that the Board of Directors shall consist of at least seven directors and not more than eleven members, divided into three classes. Each year, the directors of one of the three classes are elected to serve terms of three years or until their successors have been elected and qualified. TwoThree directors will be elected at the Annual Meeting this year. Directors are elected by the affirmative vote of a majority of the shares voted, unless the number of nominees for director exceeds the number of directors to be elected, in which case directors shall be elected by a plurality of the shares voted (i.e., the twothree nominees who receive the most votes will be elected).
Renee J. PetersonVictor D. Grizzle, Alok Maskara, and Jennifer L. ShermanThomas R. VerHage have been nominated to serve as directors of the Company for terms expiring in 2025.2026. The nominees are current directors of the Company and have indicated their willingness to continue to serve as directors if elected. If, however, any nominee is unwilling or unable to serve as a director, shares represented by the proxies will be voted for the election of another nominee proposed by the Board of Directors or the Board may reduce the number of directors to be elected at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE ELECTION OF EACH NOMINEE.
INFORMATION CONCERNING NOMINEES AND CONTINUING DIRECTORS
Set forth below for the director nominees and continuing directors are their ages, year they first became a director, principal occupations and directorships for at least the past five years, and legal proceedings, if any, for the past ten years. With respect to each nominee or continuing director, we describe under the heading “Relevant Experience” the particular experience and other attributes that have led to the conclusion that the individual should serve on the Board of Directors of the Company.
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Directors with terms expiring in 2022 |
Renee J. Peterson Jennifer L. Sherman
| | | | | | | | |
Renee J. Peterson | Age: 60 |
Director of the Company | Director Since: 2015 |
| Principal Occupation: Vice President and Chief Financial Officer of The Toro Company, a leading provider of solutions for the outdoor environment, including turf maintenance, snow and ice management, landscape, retail and specialty construction equipment, and irrigation and outdoor lighting solutions, since 2011.
|
| Formerly: Vice President, Finance and Planning of Eaton Corporation from 2008 to 2011; prior thereto, Vice President and Division Chief Financial Officer of the Aerospace and Defense Segment of Honeywell International Inc. Ms. Peterson held a variety of positions of increasing responsibility throughout her Honeywell career from 1983 to 2008.
|
| Relevant Experience: Ms. Peterson received her bachelor's degree in accounting from Saint Cloud State University and her MBA from the University of Minnesota. Ms. Peterson brings financial and operational experience at three large manufacturers that provides the Board with specific expertise and assists in its deliberations. At Toro, Ms. Peterson also provides leadership oversight of the Information Systems function. Her background enables her to serve as an "audit committee financial expert."
|
Jennifer L. Sherman | Age: 57 |
Director of the Company | Director Since: 2015 |
| Principal Occupation: President and Chief Executive Officer of Federal Signal Corporation, a diversified manufacturer of specialized vehicles and systems in maintenance and infrastructure as well as safety and security products, including audible and visual warning devices, since 2016.
|
| Formerly: Chief Operating Officer of Federal Signal from 2014 to 2015; prior thereto, Chief Administrative Officer of Federal Signal from 2010 to 2014; prior thereto, General Counsel of Federal Signal from 2004 to 2010.
|
| Relevant Experience: Ms. Sherman received her bachelor's degree in business administration and her Juris Doctor from the University of Michigan. She is also a fellow of the Kellogg School of Management at Northwestern University. Ms. Sherman's background has provided her with a broad range of experiences that will complement the Board. Specifically, Ms. Sherman’s experience includes, but is not limited to, compliance, human resources, legal issues, governance and business operations. Consequently, Ms. Sherman has the background and capability to serve as an important member of the Board.
|
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Directors with terms expiring in 2023 |
Victor D. Grizzle Alok Maskara Thomas R. VerHage
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| |
| |
| |
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| Victor D. Grizzle | Age: 6061 |
| Director of the Company | Director Since: 2020 |
| Principal Occupation: President and Chief Executive Officer of Armstrong World Industries, Inc., a leading designer and manufacturer of commercial and residential ceiling, wall and suspension system solutions, since 2016. |
| Formerly: Executive Vice President and Chief Executive Officer of Armstrong Building Products from 2011 to 2016; prior thereto, Group President of Global Structures, Coatings and Tubing for Valmont Industries, a global leader of infrastructure and manufacturer of mechanized irrigation equipment for large scale farming. And prior to Valmont Industries, held several General Management positions over 16 years with the General Electric Company. |
| Relevant Experience: Mr. Grizzle received his Bachelor of Science in Mechanical Engineering from California Polytechnic University. He brings to the Board his experience as CEO of Armstrong, in addition to extensive senior leadership experience in the areas of international business, acquisitions, process improvement, sales and marketing for large, publicly traded manufacturing companies. |
| Alok Maskara | Age: 5051 |
| Director of the Company | Director Since: 2021 |
| Principal Occupation: Chief Executive Officer of Lennox International Inc. since May 2022. |
| Formerly: Chief Executive Officer of Luxfer Holdings PLC, a leading producer of highly engineeredan international industry company focused on advanced materials that help to protect lives, keep the environment cleaner, and make industry more efficient, since 2017. |
| Formerly: Businessmaterials. Prior thereto, business segment President at Pentair PLC, a water solutions company, for eight years where he led businesses of progressively larger sizes. Prior to Pentair, Mr. Maskara was employed by General Electric Corporation where he gained significant experience in Lean Manufacturing. Mr. Maskara also worked at McKinsey & Company in both their Chicago and Amsterdam offices where he advised businesses on industrial turnarounds and driving growth through customer insights and segmentation.
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| Relevant Experience: Mr. Maskara holds an M.B.A. from the J.L. Kellogg Graduate School of Management at Northwestern University, an M.S. in Chemical Engineering from the University of New Mexico, and a Bachelor of Technology degree in Chemical Engineering from the Indian Institute of Technology, Mumbai. He has nearly thirty years of leadership experience in multiple manufacturing and technology industries, including advanced materials, water and flow technologies, and electrical protection. His background enables him to serve as an “audit committee financial expert.” |
| Thomas R. VerHage | Age: 6970 |
| Director of the Company | Director Since: 2010 |
| Principal Occupation: Retired in 2011. |
| Formerly: Vice President and Chief Financial Officer, Donaldson Company, Inc., a worldwide provider of filtration systems and replacement parts, from 2004 until 2011; prior thereto, Partner, Deloitte & Touche, LLP, an international accounting and consulting firm, from 2002 to 2004; prior thereto, Partner, Arthur Andersen, LLP, a consulting and accounting firm, from 1976 to 2002. |
| Relevant Experience: Mr. VerHage received his bachelor’s degree in business administration and his MBA from the University of Wisconsin. Mr. VerHage adds to the Board his financial and accounting expertise from his experience as CFO of Donaldson Company, Inc. and his prior experience with two major public accounting firms. His background enables him to serve as an “audit committee financial expert.” |
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| Directors with terms expiring in 2024 |
Gregg C. Sengstack David M. Wathen
| | | | | | | | |
| Gregg C. Sengstack | Age: 6364 |
| Director and Chief Executive Officer of the Company | Director Since: 2014 |
| Principal Occupation: Chief Executive Officer of the Company since 2014. | |
| Formerly: President and Chief Operating Officer of the Company from 2011-2014; prior thereto, Senior Vice President and President, Franklin Fueling Systems and International Water Group from 2005-2011; prior thereto, Chief Financial Officer of the Company from 1999-2005. |
| Directorships - Public Companies: Woodward, Inc. | |
| Relevant Experience: Mr. Sengstack received his bachelor's degree in math and economics from Bucknell University and his MBA from the University of Chicago. Mr. Sengstack joined the Company in 1988 and has significant experience holding various positions in the Company, which provides the Board with a unique depth of understanding of the Company's markets and businesses that is beneficial to the Board in its deliberations. Mr. Sengstack's long tenure with the Company also helps give the Board a historical perspective of the Company. |
| David M. Wathen | Age: 6970 |
| Director of the Company | Director Since: 2005 |
| Principal Occupation: Retired in 2016. | |
| Formerly: President and Chief Executive Officer of TriMas Corporation, a manufacturer of engineered products, that serve a variety of industrial, commercial and consumer end markets worldwide, from 2009-2016; prior thereto, President and Chief Executive Officer, Balfour Beatty, Inc. (U.S. Operations), an engineering, construction and building management services company, from 2002-2006; prior thereto, Group Executive/Corporate Officer, Eaton Corporation, a global technology leader in diversified power management solutions, from 1997-2000. |
| Relevant Experience: Mr. Wathen received his bachelor's degree in mechanical engineering from Purdue University and his MBA from Saint Francis College, Fort Wayne, Indiana. Mr. Wathen brings to the Board his experience as CEO of two companies and leadership positions in others, including over twenty years direct technical and general management experience in the same industry as the Company and direct experience managing electrical businesses serving pump OEMs and distributor channels similar to those served by the Company. His background enables him to serve as an "audit committee financial expert". His experience on the Board of the Company also helps give the Board a historical perspective in its deliberations. |
| | | | | |
| Directors with terms expiring in 2025 |
Renee J. Peterson Jennifer L. Sherman Chris Villavarayan | | | | | | | | |
| Renee J. Peterson | Age: 61 |
| Director of the Company | Director Since: 2015 |
| Principal Occupation: Vice President and Chief Financial Officer of The Toro Company, a leading provider of solutions for the outdoor environment, including turf maintenance, snow and ice management, landscape, retail and specialty construction equipment, and irrigation and outdoor lighting solutions, since 2011. |
| Formerly: Vice President, Finance and Planning of Eaton Corporation from 2008 to 2011; prior thereto, Vice President and Division Chief Financial Officer of the Aerospace and Defense Segment of Honeywell International Inc. Ms. Peterson held a variety of positions of increasing responsibility throughout her Honeywell career from 1983 to 2008. |
| Relevant Experience: Ms. Peterson received her bachelor's degree in accounting from Saint Cloud State University and her MBA from the University of Minnesota. Ms. Peterson brings financial and operational experience at three large manufacturers that provides the Board with specific expertise and assists in its deliberations. At Toro, Ms. Peterson also provides leadership oversight of the Information Systems function. Her background enables her to serve as an "audit committee financial expert." |
| Jennifer L. Sherman | Age: 58 |
| Director of the Company | Director Since: 2015 |
| Principal Occupation: President and Chief Executive Officer of Federal Signal Corporation, a diversified manufacturer of specialized vehicles and systems in maintenance and infrastructure as well as safety and security products, including audible and visual warning devices, since 2016. |
| Formerly: Chief Operating Officer of Federal Signal from 2014 to 2015; prior thereto, Chief Administrative Officer of Federal Signal from 2010 to 2014; prior thereto, General Counsel of Federal Signal from 2004 to 2010. |
| Relevant Experience: Ms. Sherman received her bachelor's degree in business administration and her Juris Doctor from the University of Michigan. She is also a fellow of the Kellogg School of Management at Northwestern University. Ms. Sherman's background has provided her with a broad range of experiences that will complement the Board. Specifically, Ms. Sherman’s experience includes, but is not limited to, compliance, human resources, legal issues, governance and business operations. Consequently, Ms. Sherman has the background and capability to serve as an important member of the Board. |
| Chris Villavarayan | Age: 52 |
| Director of the Company | Director Since: 2022 |
| Principal Occupation: Chief Executive Officer and President of Axalta Coating Systems Ltd., since 2023. |
| Formerly: Former Chief Executive Officer and President of Meritor, Inc., a leading global supplier of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for commercial vehicle and industrial markets. |
| Relevant Experience: Mr. Villavarayan holds a bachelor’s degree in engineering from McMaster University in Hamilton, Ontario. Mr. Villavarayan has over twenty years of significant global manufacturing operations experience, providing the Board with specific expertise in the areas of engineering, product development, manufacturing, plant management and operations. |
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
Director Independence
The Board of Directors of the Company has determined that each of the current directors, except for Gregg C. Sengstack, Chief Executive Officer, is an “independent director” in compliance with the independence standards set forth in the Company’s Corporate Governance Guidelines and under the applicable rules adopted by The NASDAQ Stock Market, Inc. (“NASDAQ”). In making its independence determinations, the Board concluded that no director, other than Mr. Sengstack, has any material relationship in the Company, except as a director and shareholder.
Board Leadership Structure and Risk Oversight
The Board is led by Mr. Sengstack, who has served as Chairperson of the Board and Chief Executive Officer since 2015. The Board consists of Mr. Sengstack and sixseven other directors. The Board has three standing committees - Audit, Management Organization and Compensation, and Corporate Governance. The Audit Committee is primarily responsible for risk oversight and the full Board receives regular reports from the Audit Committee and from the Company's officers and other management personnel regarding risk management. Each of the other two committees also considers risk as it falls within its area of responsibility.
The Company’s Corporate Governance Guidelines provide for an independent non-executive director to act as Lead Independent Director. The Lead Independent Director is appointed by a majority of the independent directors and serves for a two-year term; however, he or she may be removed or replaced by a majority of the independent directors at any time. Thomas R. VerHage currently serves as the Company’s Lead Independent Director. The Lead Independent Director receives additional compensation for his or her services, as the Board determines from time to time.
The specific responsibilities of the Lead Independent Director when acting as such include the following:
•Acting as a liaison between the Chairperson and the Independent Directors;
•Assisting the Chairperson and Secretary in setting the Board agenda and determining what materials will be provided to the directors in advance of Board meetings and ensuring that the agenda items receive adequate time for discussion and deliberation;
•Providing leadership to the Board to ensure that the Board works cohesively and independently;
•Determining when the Board should meet in executive session without management present, coordinating and developing the agenda for, and chairing, such executive sessions; and
•In the event of the incapacitation of the Chairperson, serving as non-executive chairperson until a permanent chairperson is appointed.
The Lead Independent Director also performs any additional responsibilities delegated to the Lead Independent Director by the Board.
The Board believes that the Chairperson and Chief Executive Officer should consist of a single individual who is seen by the Company’s customers, business partners, investors, and shareholders as someone who provides strong leadership for the Company and is viewed as such in the industries in which the Company operates. The Company believes that the Lead Independent Director, the Board committees, all of which are chaired by and consist of independent directors, and the full Board of Directors, provide effective oversight of the Company’s businesses and the risks involved in them.
Meetings
The Board held five meetings during 2021.2022. Each director attended at least 75 percent of the aggregate meetings of the Board and Board committees of which he or she was a member during the period that each served as a director. All directors attended the 20212022 Annual Meeting of Shareholders.
Committees
Audit Committee
The members of the Audit Committee during 20212022 were Renee J. Peterson (Chairperson), Alok Maskara, Chris Villavarayan, and David M. Wathen. The Board of Directors has determined that each member of the Audit Committee is an “independent director” in compliance with the independence standards set forth in the Company’s Corporate Governance Guidelines and under the applicable NASDAQ rules. The Board of Directors has adopted an Audit Committee charter, a copy of which is available on the Company’s website at www.franklin-electric.com under “Governance,” that sets forth the duties and responsibilities of the
responsibilities of the Audit Committee. Under its charter, the Audit Committee appoints the Company’s independent registered public accounting firm and assists the Board of Directors in fulfilling its oversight responsibilities by reviewing the Company’s financial information, the Company’s system of internal control, the Company’s processes for monitoring compliance with laws and regulations and the Company’s audit and risk management processes. It is the general responsibility of the Audit Committee to advise and make recommendations to the Board of Directors in all matters regarding the Company’s accounting methods and internal control procedures. The Audit Committee held four meetings in 2021.2022.
The Audit Committee is also responsible for the review, approval, or ratification of transactions between the Company and “related persons.” The Audit Committee reviews information compiled in response to the Directors' and Officers' Questionnaires or otherwise developed by the Company with respect to any transactions with the Company in which any director, executive officer, 5%5 percent beneficial holders, or any member of his or her immediate family, has a direct or indirect material interest that would require disclosure under applicable SEC regulations. In 2021,2022, there were no such transactions.
The Board of Directors has determined that all members of the Audit Committee are “audit committee financial experts” as defined by Item 407(d)(5)(ii) of Regulation S-K of the Exchange Act and are “independent” under the applicable NASDAQ rules.
Management Organization and Compensation Committee
The members of the Management Organization and Compensation Committee (the "Compensation Committee") during 20212022 were Jennifer L. Sherman (Chairperson), Victor D. Grizzle, Alok Maskara, and Thomas R. VerHage. The Board of Directors has determined that each member of the Compensation Committee is an “independent director” in compliance with the independence standards set forth in the Company’s Corporate Governance Guidelines and under applicable NASDAQ rules. The Board of Directors has adopted a Compensation Committee charter, a copy of which is available on the Company’s website at www.franklin-electric.com under “Governance,” that sets forth the duties and responsibilities of the Compensation Committee. Under its charter, the Compensation Committee recommends to the Board of Directors the annual salary and bonus for the Chief Executive Officer, determines and approves the equity awards for the Chief Executive Officer and the annual salary, bonus and equity awards of the other executive officers of the Company; reviews and submits to the Board of Directors recommendations concerning bonus and stock plans; periodically reviews the Company's policies in the area of management benefits; and oversees the Company's management development and organization structure. As part of its oversight responsibilities, the Compensation Committee evaluated the risks arising from the Company’s compensation policies and practices, with the assistance of Meridian Compensation Partners, LLC, an independent executive consulting firm. The Committee considered, among other factors, the design of the incentive compensation programs, which are closely linked to corporate performance and capped the mix of long- and short-term compensation, the distribution of compensation as between equity and cash, and other factors that mitigate risk. The Committee concluded that the Company’s compensation policies and practices do not involve undue risk. The Compensation Committee held five meetings in 2021.2022.
Corporate Governance Committee
The members of the Corporate Governance Committee (the “Governance Committee”) during 20212022 were Victor D. Grizzle (Chairperson), Jennifer L. Sherman, and Thomas R. VerHage. The Board of Directors has determined that each member of the Governance Committee is an “independent director” in compliance with the independence standards set forth in the Company’s Corporate Governance Guidelines and under applicable NASDAQ rules. The Board of Directors has adopted a Governance Committee charter, a copy of which is available on the Company’s website at www.franklin-electric.com under “Governance,” that sets forth the duties and responsibilities of the Governance Committee. Under its charter, the Governance Committee reviews the size of the Company’s Board of Directors and committee structure and recommends appointments to the Board and the Board Committees; reviews and recommends to the Board of Directors the compensation of non-employee directors, including awards to non-employee directors under the Company’s equity-based compensation plans; and develops and recommends to the Board corporate governance guidelines deemed necessary for the Company. The Governance Committee held twothree meetings in 2021.2022.
Director Nomination Process
The Governance Committee is responsible for identifying and recommending to the Board candidates for director. The Governance Committee considers diversity when identifying candidates for directorships. Although the Company does not have a written policy regarding diversity, the Governance Committee seeks to identify persons from various backgrounds and with a variety of life experiences who have a reputation for, and a record of, integrity and good business judgment and the willingness to make an appropriate time commitment. The Governance Committee also considers whether a person has experience in a highly responsible position in a profession or industry relevant to the conduct of the Company’s business. The Governance Committee takes into account the current composition of the Board and the extent to which a person’s particular expertise, experience and ability will complement the expertise and experience of other directors. Candidates for director should
also be free of conflicts of interest or relationships that may interfere with the performance of their duties. Based on its evaluation and consideration, the Governance Committee submits its recommendation for director candidates to the full Board of Directors, which is then responsible for selecting the candidates to be elected by the shareholders. The Governance Committee evaluates its success in achieving these goals for Board composition from time to time, particularly when considering Board succession and candidates to fill vacancies.
The Governance Committee will consider as candidates for director persons recommended or nominated by shareholders. Shareholders may recommend candidates for director by writing to the Secretary of the Company at the address listed below under “Other Corporate Governance Matters.” Nominations of directors may be made by any shareholder entitled to vote in the election of directors, provided that written notice of intent to make a nomination is given to the Secretary of the Company not later than 90 days prior to the anniversary date of the immediately preceding Annual Meeting of shareholders. The notice must set forth (i) information regarding the proposed nominee as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC, and (ii) the consent of such nominee to serve as a director of the Company if so elected.
Board Diversity
The Board of Directors considers and recognizes the diverse attributes of its directors. The Board does not establish specific goals with respect to diversity, rather diversity is a consideration in the overall director nomination process and is a component of the overall assessment of the Board’s composition and effectiveness. The Board includes two female directors and onetwo racially/ethnically diverse director. In addition, both female directors serve the Board in leadership roles, with female Chairs of the Audit Committee and the Management, Organization and Compensation Committee.
Environmental, Social and Governance Items
In April 2021,2022, the Company published an updated annual Sustainability Report, highlighting the Company’s commitment to environmental protection, safety of our employees and customers, and social and governance concerns. The Sustainability Report also provides information on the Company’s corporate governance and compliance practices and details the Board’s oversight of sustainability initiatives and enterprise risk management. The Sustainability Report can be found on the Company’s website at www.franklin-electric.com.
Other Corporate Governance Matters
The Board of Directors has adopted Corporate Governance Guidelines, a copy of which is available on the Company’s website at www.franklin-electric.com under “Governance,” that provide, among other things, that the Company’s independent
directors will meet in executive session, outside the presence of the non-independent directors and management, at least twice each year. In 2021,2022, the independent directors met in executive session five times.
Each Board committee, on an annual basis, conducts and reviews with the Board a performance evaluation of the committee, which evaluation compares the committee's performance against the requirements of the committee's charter and sets the committee's goals for the coming year.
Anyone may contact the Board of Directors, any Board Committee, the Lead Independent Director, any independent director or any other director by writing to the Secretary of the Company as follows:
Franklin Electric Co., Inc.
Attention: [Board of Directors], [Board Committee], [Board Member]
c/o Corporate Secretary
9255 Coverdale Road
Fort Wayne, IN 46809
The independent directors of the Board have approved a process for collecting, organizing and responding to written shareholder communications addressed to the Board, Board Committees or individual directors.
Copies of the Company’s corporate governance documents, including the Board Committee charters and the Corporate Governance Guidelines are available upon written request to the Secretary of the Company at the address listed above or on the Company's website at www.franklin-electric.com under "Governance."
In compliance with Section 406 of the Sarbanes-Oxley Act of 2002, the Company has adopted a code of business conduct and ethics for its directors, principal financial officer, controller, principal executive officer, and other employees (the "Code"). The Company has posted the Code on the Company’s website at www.franklin-electric.com under "Governance." The Company will disclose any amendments to the Code and any waivers from the Code for directors and executive officers by posting such information on its website.
MANAGEMENT ORGANIZATION AND
COMPENSATION COMMITTEE REPORT
The Management Organization and Compensation Committee of the Board of Directors hereby furnishes the following report to the shareholders of the Company in accordance with rules adopted by the Securities and Exchange Commission.
The Management Organization and Compensation Committee has reviewed and discussed with management the Company’s Compensation Discussion and Analysis contained in this Proxy Statement.
Based upon this review and discussion, the Management Organization and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
This report is submitted on behalf of the 20212022 members of the Management Organization and Compensation Committee.
| | | | | |
| Jennifer L. Sherman (Chairperson) |
| Alok MaskaraVictor D. Grizzle |
| Alok Maskara |
| Thomas R. VerHage |
COMPENSATION DISCUSSION AND ANALYSIS
This section of the proxy statement is intended to provide shareholders with information about the compensation awarded in fiscal 20212022 to the Company’s executives, including the “named executive officers.” This information includes a discussion of the key elements of the Company’s compensation program and the philosophy and rationale behind the Management Organization and Compensation Committee’s executive compensation decisions. The named executive officers are those listed below and in the Summary Compensation Table of this proxy statement:
| | | | | |
| Gregg C. Sengstack: | Chairperson of the Board and Chief Executive Officer (CEO) |
| Jeffery L. Taylor: | VP, Chief Financial Officer (CFO)(1) |
John J. Haines: | Former VP, Chief Financial Officer (CFO)(2)
|
| Donald P. Kenney: | VP and President, Global Water |
| DeLancey W. Davis: | VP and President, Headwater Companies |
Jonathan M. Grandon:Jay J. Walsh: | VP and Chief Administrative Officer (CAO), General Counsel and Corporate SecretaryPresident, Franklin Fueling Systems |
(1)Mr. Taylor joined Franklin Electric as CFO on June 14, 2021.
(2)Mr. Haines retired as CFO on June 14, 2021 and served the remainder of the year as a special advisor to support his successor during a transition period.
You should review this Compensation, Discussion and Analysis section together with the tabular disclosures beginning on page 3231. Executive Summary
The Management Organization and Compensation Committee of the Board (the “Committee”) believes that a significant portion of the total compensation opportunity for each executive should be tied to performance, both of the Company and of the individual executive. This summary contains a discussion of the 20212022 executive compensation highlights, 20212022 performance and the prior year Advisory Vote on Executive compensation ("say on pay") results.
20212022 Executive Compensation Overview
•Performance-based compensation represented between 53%53 percent and 64%64 percent of the named executive officers’ total targeted compensation for fiscal 2021.2022.
•The annual cash incentive awards are directly aligned with critical one-year operating results. No cash awards are earned unless a threshold level of performance is attained. Earned payouts cannot exceed 200%200 percent of the target opportunity.
•Performance is evaluated holistically and include assessment of objectives relative to applicable Environmental, Social and Governance risk and metrics, which are aligned to the Company’s key strategic objectives;
•Long-term incentive awards are equity-based and are designed to align management’s interests with those of the Company’s shareholders and to foster retention of key executives. The 20212022 long-term incentive grants are predominantly performance-based, with 40% of the targeted value awarded as stock options and 30%40 percent of the targeted value awarded as performance-based share units (earned units cannot exceed 200%200 percent of the target number of units). and 30 percent of the targeted value awarded as stock options. The remaining 30%30 percent of the targeted value is awarded as time-based restricted stock or restricted stock units. These awards focus executives on delivering results that drive shareholder value.
•In 2022,2023,additional weight will be added to performance-based share units (from 30%40 percent to 40%)50 percent). Beginning in 2022,2023, the LTI mix will consist of 40%50 percent performance-based share units, 30%25 percent stock options and 30%25 percent time-based restricted stock units. This change emphasizes the Company’s commitment to linking executive pay with company performance.
•The Company generally does not provide perquisites to the named executive officers, but will, in certain circumstances, such as relocation, provide perquisites.
•The Company has stock ownership requirements in place to further align the interests of the Company’s executives with those of the Company’s shareholders.
•For 2022, stock ownership guidelines for executives other than the CEO were increased from one times base salary to three times base salary. The change was made to more closely align with market best practice and with the interests of shareholders.
•The Company has a recoupment policy that permits the recovery of incentive compensation paid to executives in instances where misconduct results in a restatement of financial statements or material harm to the Company. Recoupment policy will be reviewed and revised to comply with the Securities Exchange Commission’s (SEC’s) Final Rule on the Dodd-Frank mandatory compensation recoupment policy once listing standards have been proposed and approved.
•The Company has anti-hedging and anti-pledging provisions that prohibit executives and directors from hedging the value of Company securities or pledging Company securities held by them.
20212022 Company Performance
The financial results achieved by the Company included sales of $1,661.9$2,043.7 million compared to $1,247.3$1,661.9 million in the prior year. The sales increase reflected strong end user demand across all of the Company’s business segments.was primarily due to price and acquisitions. Full year 20212022 operating income was $257.2 million, up from $189.2 million compared to full year operating income in 2020 of $130.5 million,2021, an increase of 4536 percent. Full year 20212022 GAAP fully diluted earnings per share (EPS) was $3.25,$3.97, versus GAAP fully diluted EPS in 20202021 of $2.14.$3.25. Water Segment sales were $963.6$1,157.5 million in 2021,2022, an increase of $228.9$193.9 million compared to 2020.2021. Fueling Segment sales were $289.1$334.1 million in 2021,2022, an increase of $44.0$45.0 million from 2020.2021. Distribution sales were $497.6$668.1 million versus 20202021 sales of $328.4$497.6 million, an increase of $169.2$170.5 million.
In addition, in 2021, the Company launchedAfter launching its first ever employee survey andin 2021, the Company’s leadership team is usingused the results in 2022 to drive improvement in employee engagement. The Company also participated in the United Front Initiative, designed to assist managers in providing and maintaining an inclusive culture. The Company issued its second annualthird Sustainability Report, available on ourits website, detailing important Environmental, Social and Governance initiatives and increasing transparency of non-financial metrics that are important to our stakeholders.
Water Systems Segment
Water Systems is a global leader in the production and marketing of water pumping systems and is a technical leader in submersible motors, pumps, drives, electronic controls, water treatment systems, and monitoring devices. The Water Systems segment designs, manufactures and sells motors, pumps, drives, electronic controls, monitoring devices, and related parts and equipment primarily for use in groundwater, water transfer and wastewater.
Water Systems motors, pumps and controls are used principally for pumping clean water and wastewater in a variety of residential, agricultural, municipal and industrial applications. Water Systems also manufactures electronic drives and controls for the motors which control functionality and provide protection from various hazards, such as electrical surges, over-heatingover- heating and dry wells or dry tanks. In the last three years, the Company acquired First Sales, LLC; Waterite, Inc.; Puronics, Inc.; New Aqua, LLC; and B&R Industries, Inc. expanding its portfolio to include water treatment systems and acquired Minetuff Dewatering Pumps Australia Pty Ltd expanding its industrial dewatering product line.
Water Systems products are sold in highly competitive markets. Water Systems contributes about 60 percent of the Company’s total revenue. Significant portions of segment revenue come from selling groundwater and surface pumps, motors, and controls for residential and commercial buildings, as well as agricultural sales which are more seasonal and subject to commodity price changes. The Water Systems segment generates approximately 30 to 35 percent of its revenue in developing markets, which often lack municipal water systems. As those countries install water systems, the Company views those markets as an opportunity. The Company has had 6 to 9 percent compounded annual sales growth in developing regions in recent years. Water Systems competes in each of its targeted markets based on product design, quality of products and services, performance, availability, and price. The Company’s principal competitors in the specialty water products industry are Grundfos Management A/S, Pentair, Inc. and Xylem, Inc.
20212022 Water Systems research and development expenditures were primarily related to the following activities:
•Electronic variable frequency drives and controls for Pump and HVAC applications, including the developmentenhancements of mobile application capabilities for SubDrive Connect and Cerus X-Drive and development of standard panels to include support for HES (High Efficiency Systems) motor;motors
•Development of new standard electric skid pump package designs and electronic variable frequency drive skid packages for mining and municipal dewatering markets
•Greywater pumping equipment, including making FPS Non-Clog products explosion proof capable, the development of a 1HP Grinder pump, and development of 60Hz electrical submersible pumps withfrom the recent acquisition of Minetuff;Minetuff and the expansion of grinder pumps for the Brazil market
•Submersible and surface pumps for residential, commercial, municipal, and agricultural applications including the development of a standard global 4” pump family, development ofdeveloping a new Submersible Turbine products,cast stainless submersible turbine line, and upgrading the performance of our recently acquired lineshaftline shaft turbine product offerings;offerings
•Submersible motor technology and motor protection,development, including the developmentintroduction of energy efficient permanent magnet motors into submersible water pumping systems, substantially reducing energy usage in residential pumping applications, 4 pole motor designs for 8” and 10” diametersdiameter products, and 4” Oil-filled motors; andmotors
•Water Treatmenttreatment products focused on component improvements and IOT enabled sensing systems.systems
Fueling Systems Segment
Fueling Systems is a global leader in the production and marketing of fuel pumping systems, fuel containment systems, and monitoring and control systems. The Fueling Systems segment designs, manufactures and sells pumps, pipe, sumps, fittings, vapor recovery components, electronic controls, monitoring devices and related parts and equipment primarily for use in fueling system applications.
Fueling Systems offers a complete array of components between the tank and the dispenser, including submersible pumps, station hardware, piping, sumps, vapor recovery, corrosion control systems, and electronic controls. The Fueling Systems segment growth has been sustained by a commitment to protecting human health and the environment while delivering the lowest total cost of ownership. Fueling Systems takes steps to ensure its products are installed and maintained properly through robust global certification tools for their third-party contractors. The segment serves other energy markets such as power reliability systems and includes intelligent electronic devices that are designed for online monitoring for the power utility, hydroelectric, and telecommunication and data center infrastructure.
Fueling Systems products are sold in highly competitive markets. Rising vehicle use is leading to more investment in fueling stations which, in turn, leads to increased demand for the Company’s Fueling Systems products. The Company believes there is growth opportunity in developing markets. Fueling Systems competes in each of its targeted markets based on product design, quality of products and services, performance, availability, and value. The Company’s principal competitors in the petroleum equipment industry are Vontier Corporation, formerly a part of Fortive Corporation, and Dover Corporation.
20212022 Fueling Systems research and development expenditures were primarily related to the following activities:
•Developed and launched new Celltron Advantage Digital battery handheld tester;distribution transformer monitor
•Developed new vapor flow meter for Chinese vapor recovery monitoring regulation
•Developed and launched new Desiccant Sensor for monitoring desiccant bags in corrosive environments;
•Developed and launched new low level float to measure very small amounts of water in Diesel tanks;
•Developed new Vapor Flow Meter for Chinese Vapor Recovery Monitoring regulation;
•Developed UNITE, server software to collect data from Battery Monitoringbattery monitoring, battery testers, NexPhase, and Battery Testers;distribution monitoring
•Developed Press-Fit Connector for Cabletight electrical conduit;conduit
•Continued developmentDeveloped testable termination fitting for APT fueling piping system
•Developed and launched NexPhase Electric Vehicle Switchgear
•Developed car wash monitor of our Distribution Transformer Monitor; anddetergent liquids at car wash stations
•Updated Vapor Recovery equipment to meet safety and performance for Turkey Vapor Recovery regulation.Developed new hybrid wired battery monitoring system
Distribution Segment
The Distribution Segment is operated as a collection of wholly owned leading groundwater distributors known as the Headwater Companies. Headwater Companies deliver quality products and leading brands to the industry, providing contractors with the availability and service they demand to meet their application challenges. The Distribution segment operates within the U.S. professional groundwater market. The Distribution Segment continued its geographic expansion in 2021 through the acquisition of Blake Group Holdings, Inc., a professional groundwater distributor operating in the northeastern United States.
Prior Year Say on Pay Results
At the May 7, 20216, 2022 shareholders meeting, the “Advisory Vote on Executive Compensation” proposal (the “say on pay” vote) received support from 96.1%94.6 percent of votes cast. The Committee considered these results and determined that the results of the vote did not call for any significant changes to the executive compensation plans and programs already in place for 20212022 or for 2022.2023.
Management Organization and Compensation Committee
The Committee, consisting entirely of independent directors, has the responsibility for establishing, implementing and monitoring adherence with the Company’s compensation program and providing input to the Board with respect to management development and succession planning. The role of the Committee is to oversee, on behalf of the Board, the Company’s compensation and benefit plans and policies, administer its stock plans (including reviewing and approving equity grants to the CEO and all other executive officers), review and approve all other compensation decisions relating to the executive officers of the Company other than the CEO, and recommend CEO compensation to the Board for its approval.
In addition, the Committee (i) reviews the Company’s organization structure, (ii) reviews the recruitment of key employees and management’s development plans for key employees, (iii) makes recommendations to the Board with respect to the CEO succession plan and (iv) reviews compensation risk to determine whether the compensation policies and practices are reasonably likely to have a material adverse effect on the Company. The Committee meets a minimum of three times annually to discharge its duties and held five meetings in 2021.2022.
Compensation Philosophy and Pay Objectives
The Company and the Committee believe that compensation paid to executive officers, including the named executive officers, should be aligned with the strategy and performance of the Company on both a short-term and long-term basis, and that such compensation should assist the Company in attracting and retaining key executives critical to the Company’s success.
Compensation is structured to ensure that a significant portion of the executive’s compensation opportunities will be directly related to Company performance and other factors that directly and indirectly influence shareholder value, including performance evaluated against the achievement of objectives relative to applicable Environmental, Social and Governance risks and metrics.
The Committee encourages superior short-term performance through annual cash incentive awards and superior long-term performance through equity incentive awards. For the Company’s CEO, CFO and CAO the cash incentive compensation is designed to reward Company-wide performance by tying 100%100 percent of their target cash incentive opportunity to corporate financial goals, including earnings per share and consolidated working capital ratio. For other named executive officers, the cash incentive compensation is weighted to reward the achievement of specific financial metrics within areas under his or her control or influence, although Company-wide performance is still an important factor. Stock-based compensation consists of a combination of stock options, restricted stock (or restricted stock units for retirement-eligible executives) and performance share units. The Committee believes that all three equity-based components create a strong link to shareholder value creation, with the majority of the awards in the form of stock options and performance share units.
Historically, the Committee has set executive pay opportunities based on a number of factors deemed appropriate by the Committee, including market competitive pay data, individual performance and the experience level of the executive. Subject to the factors set forth above, the Committee used the following pay objectives as a guide in assessing competitiveness of pay opportunities at a peer group of companies for 20212022 pay decisions (the same levels were used in 2020)2021). The higher targeted pay objectives for annual bonus and long-term incentive components reflect the Committee’s objective to attract and retain high quality executive talent in order to meet the aggressive performance goals of the Company and its belief that a significant portion of total compensation should be at risk and variable.
| | | | | |
| Pay Component | Targeted Pay Objectives |
| Base Salary | 50th percentile |
| Annual Bonus Opportunity | 65th percentile |
| Long-Term Incentives | 65th percentile |
Role of Management in Compensation Decisions
The Committee makes CEO compensation recommendations to the Board, for its review and approval, and makes all compensation decisions with respect to all other executive officers of the Company.
The CEO reviews the performance of other executive officers, including the other named executive officers, and makes recommendations to the Committee with respect to their annual salary adjustments, annual cash incentive opportunities and payments, and grants of long-term incentive awards. The Committee approves the compensation of these executives after considering the CEO’s input and recommendations and its own judgment of each executive’s performance during the period.
The Committee and the CEO also review the financial metrics to be used to measure the performance of the Company and its business units, taking into account the strategic goals of the Company, including those related to performance against Environmental, Social and Governance risks and metrics. For this purpose, the CEO provides information and commentary relevant to the Committee’s review and ultimate determination.
Although the CEO regularly attends Committee meetings, he is present only by invitation of the Committee and has no independent right to attend such meetings. In fiscal 2021,2022, Mr. Sengstack attended all of the Committee meetings but did not participate in any of the executive sessions.
Role of Compensation Consultant and Advisers in Compensation Decisions
The Committee utilizes the Company’s Human Resources department and has the authority under its charter to engage the services of outside consultants to assist the Committee. In accordance with this authority, the Committee has engaged the services of Meridian Compensation Partners, LLC (“Meridian”), an independent executive compensation consulting firm, to conduct reviews of its total compensation program for executive officers and to provide advice to the Committee in the design and implementation of its executive compensation program. Pursuant to its charter and NASDAQ listing standards, the
Committee regularly reviews Meridian’s independence relative to key factors, including: (i) whether Meridian provides any other services to the Company; (ii) the amount of fees paid to Meridian relative to the total revenue of the firm; (iii) policies in place to prevent conflicts of interest; (iv) any personal or business relationships with members of the Committee; (v) ownership of Company stock; and (vi) any personal or business relationships with executive officers.
One or more representatives from Meridian are invited by the Committee to attend the relevant portions of its meetings. During 2021,2022, Meridian participated in all five of the Committee meetings in person or virtually. In the course of fulfilling its consulting responsibilities, representatives of Meridian frequently communicate with the Chairperson of the Committee outside of regular Committee meetings. A representative of Meridian meets with the Committee in executive session at most meetings. Meridian also interacts with management from time to time to exchange information and to review proposals that management may present to the Committee.
Peer Group Benchmarking
In late 2020,2021, the Committee, with the assistance of Meridian, conducted an analysis of the current peer group used for compensation benchmarking purposes to ensure that all included companies continued to be relevant comparators. As part of this process, the Committee considered revenue size and industry, as well as companies that compete with the Company for executive talent. Based on this review and input from Meridian, no changes were made to the current peer group with the exception of Esterline Technologies which was removed due to acquisition.group. As a result, the Committee approved the 24-company24- company peer group listed below (the “2021“2022 Peer Group”) for purposes of updating the executive pay study to assist in 20212022 pay decisions. The companies in the 20212022 Peer Group are primarily engaged in manufacturing, are publicly traded, and had trailing twelve-month revenue (as of 9/30/2020)2021) between $370$354 million and $3.54$3.875 billion. Due to the differences in size among the companies in the 20212022 Peer Group, Meridian used a form of regression analysis to adjust the pay study results based on Company revenue as compared to revenue of other companies in the 20212022 Peer Group and each executive’s level of responsibility as compared to executives in comparable positions in the 20212022 Peer Group.
| | | | | | | | |
Actuant Corporation (n.k.a. Enerpac)Chart Industries, Inc. | Hillenbrand, Inc. | SPX FLOW, Inc. |
Chart Industries,CIRCOR International, Inc. | IDEX Corporation | Standex International Corp. |
CIRCOR International, Inc.Crane Holdings Co. | ITT, Inc. | The Gorman-Rupp Co. |
Crane Co.Curtiss-Wright Corporation | Lindsay Corporation | The Timken Co. |
Curtiss-Wright Corporation | Lydall, Inc. | Toro Co. |
| Donaldson Company, Inc. | Lydall, Inc. | The Toro Co. |
| Enerpac Tool Group Corporation | Mueller Water Products, Inc. | TriMas Corporation |
| ESCO Technologies, Inc. | Nordson Corporation | Watts Water Technologies, Inc. |
| Graco, Inc. | RBC Bearings, Inc. | Woodward, Inc. |
Setting Executive Compensation
In General
The Company compensates its executives through programs that emphasize performance-based compensation. For the executive officers, including the named executive officers, the compensation package for 20212022 included base salary, an annual cash incentive opportunity and an annual long-term incentive opportunity in the form of stock options, performance share units, and restricted stock/units. Base salary is intended to provide a certain level of fixed compensation commensurate with an executive’s position, responsibilities and contributions to the Company. The Company has structured annual and long-term incentive compensation to motivate executives to achieve the strategic objectives set by the CEO and the Board, to tie executives’ long- term interests to those of the Company’s shareholders, to reward the executives for achieving such goals, and to provide a retention incentive.
The mix of compensation among base salary, annual bonus opportunity and long-term incentives is a result of the targeted pay objective for each component of pay. This approach results in a significant portion of the compensation of those executive officers having the greatest ability to influence the Company’s performance being performance-based, which the Committee believes is appropriate. Additionally, after setting each separate component of pay, the Committee reviews the total compensation package of each named executive officer to assess the level of total target compensation provided in relation to the competitive range of market practice and may make adjustments to one or more components of pay based on this assessment.
Each year Meridian provides a study of market competitive compensation data. The updated study included 20202021 compensation data for the companies in the 20212022 Peer Group, with cash data “aged” at an annualized rate of 3.0%3.0 percent to reflect expected 20212022 compensation levels for the 20212022 Peer Group. In February 2021,2022, the Committee set the specific components of the compensation of the named executive officers, with the overall goal of providing compensation opportunities at levels generally competitive with the 20212022 pay study.
The following table shows the 20212022 total targeted compensation (the sum of base salary, target annual bonus opportunity and long-term incentives) for the named executive officers, using targets of the 50th percentile of the 20212022 Peer Group for base salary and the 65th percentile of the 20212022 Peer Group for annual bonus opportunity and long-term incentives:
| | | | | | | | | | | |
| Named Executive Officer | | 20212022 Targeted
Total Compensation(1) ($) |
| Gregg C. Sengstack | | | 5,227,0005,890,000 |
Jeffery L. Taylor(2) | | | 1,431,2501,711,875 |
John J. HainesDonald P. Kenney | | | 1,840,0001,771,875 |
Donald P. KenneyDeLancey W. Davis | | | 1,706,2501,216,250 |
DeLancey W. DavisJay J. Walsh | | | 1,170,000 |
Jonathan M. Grandon | | | 1,155,0001,100,000 |
(1)Based on annualized base salary rates plus target annual bonus opportunity (based on salary targeted to be paid for 2021)2022) and economic value of long-term incentives.
(2)Mr. Taylor's employment with the Company commenced on June 14, 2021. The table reflects his annualized target compensation for 2021.
The following sections discuss the individual elements of the Company’s compensation program, including any changes made for fiscal 2021.2022.
Base Salary
The Company pays its executives annual salaries, which provide a degree of financial stability and are intended to reflect the competitive marketplace and help attract and retain quality executives. In determining the 20212022 base salary for each executive, the Committee took into account the targeted annual salary objective for the position based on the results of the pay study for 20212022 and assessed the responsibilities associated with the position, individual contribution and performance, skill set, prior experience and external pressures to attract and retain talent.
Applying these factors, the 20212022 salaries are shown in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Named Executive Officer | | 2021 Base Salary Rate(1)($) | | 2020 Base Salary Rate(2)($) | % Change | | |
| Gregg C. Sengstack | | | 870,000 | | | | 815,000 | | | 6.7% |
| Jeffery L. Taylor | | | 475,000 | | | | N/A | | | N/A |
| John J. Haines | | | 480,000 | | | | 450,000 | | | 6.7% |
| Donald P. Kenney | | | 475,000 | | | | 430,000 | | | 10.5% |
| DeLancey W. Davis | | | 400,000 | | | | 385,000 | | | 3.9% |
| Jonathan M. Grandon | | | 400,000 | | | | 362,500 | | | 10.3% |
(1)Mr. Taylor was paid a pro rata amount based on his June 14, 2021 employment commencement date.
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| Named Executive Officer | | 2022 Base Salary Rate ($) | | 2021 Base Salary Rate ($) | % Change | | |
| Gregg C. Sengstack | | | 900,000 | | | | 870,000 | | | 3.4% |
| Jeffery L. Taylor | | | 492,500 | | | | 475,000 | | | 3.7% |
| Donald P. Kenney | | | 492,500 | | | | 475,000 | | | 3.7% |
| DeLancey W. Davis | | | 415,000 | | | | 400,000 | | | 3.8% |
| Jay J. Walsh | | | 390,000 | | | | N/A | | | N/A |
Annual Cash Incentive Award
The executive officers of the Company are eligible to participate in the Executive Officer Annual Incentive Cash Bonus Program (the “Annual Bonus Plan”). The Annual Bonus Plan is designed to motivate and reward participants for achieving or exceeding financial goals that support the overall business objectives and strategic direction of the Company.
The table below shows the target annual bonus opportunities for each of the named executive officers for 2021.2022. Target amounts for the named executive officers are based on their respective target bonus percentage (which did not change from 2020)2021) multiplied by the amount of base salary paid to the executive for the year.
| | | | | | | | | | | | | | | | | | | | |
| Named Executive Officer | | 2021 Target Bonus Opportunity (as a % of Base Salary) | | 2021 Target Bonus Opportunity ($) (1) |
| Gregg C. Sengstack | | 110% | | | 957,000 | |
| Jeffery L. Taylor | | 75% | | | 356,250 | |
| John J. Haines | | 75% | | | 360,000 | |
| Donald P. Kenney | | 75% | | | 356,250 | |
| DeLancey W. Davis | | 75% | | | 300,000 | |
| Jonathan M. Grandon | | 67.5% | | | 270,000 | |
(1)For Mr. Taylor, the table reflects the full year annualized target bonus opportunity since that amount was used to compare compensation for his role to the 2020 Peer Group. His target bonus opportunity based on base salary actually paid to him in 2021 was $198,678. | | | | | | | | | | | | | | | | | | | | |
| Named Executive Officer | | 2022 Target Bonus Opportunity (as a % of Base Salary) | | 2022 Target Bonus Opportunity ($) |
| Gregg C. Sengstack | | 110% | | | 990,000 | |
| Jeffery L. Taylor | | 75% | | | 369,375 | |
| Donald P. Kenney | | 75% | | | 369,375 | |
| DeLancey W. Davis | | 75% | | | 311,250 | |
| Jay J. Walsh | | 75% | | | 292,500 | |
In the first quarter of 2021,2022, the Committee approved financial performance targets to be used under the Annual Bonus Plan for 2021.2022. As in prior years, the corporate-wide financial performance targets for the named executive officers were
consolidated working capital ratio (WC) and earnings per share (EPS). The Committee selected WC due to its determination that management should continue to focus on managing key elements of the balance sheet, including inventory, accounts receivable and accounts payable. The Committee continues to believe that diluted EPS as adjusted is an important indicator of profitability that aligns the interests of the executive officers with those of the Company’s shareholders. Financial performance targets for Mr. Davis, Mr. Kenney and Mr. KenneyWalsh also included their business unit’s operating income after non-GAAP adjustments. While the Committee continues to set individual goals for executives, including relating to Environmental, Social and Governance risk and metrics, and assesses their achievement for purposes of merit increases and promotions, individual performance will not impact the annual bonus outside of extraordinary circumstances.
With respect to each performance measure, the Committee set a threshold level of performance below which no bonus is earned for that performance measure. For each of the financial-based measures other than the WC ratio, the performance threshold was set at 80%80 percent of the target performance level. Payout for threshold level performance was set at 33%33 percent of target. For every 1%1 percent by which performance exceeds the threshold level, the actual payout level increases 3.35%3.35 percent up to the target level (i.e., 100%100 percent of target payout), and for every 1%1 percent by which performance exceeds the target level, up to 120%110 percent of the target, the actual payout increases 5%10 percent up to the maximum performance level (i.e., 200%200 percent of target payout).
Thefollowinggraphillustratesthepayoutpercentagesbyperformanceforthefinancial-basedbonusmetrics:
The following graph illustrates the payout percentages by performance for the financial-based bonus metrics other than WC ratio:
With respect to the working capital ratio metric, the performance threshold was set at 90% of the target performance level, with a corresponding payout set at 33% of target. For every 1% by which working capital ratio performance exceeds the threshold level, the actual payout level increases 6.7% up to the target level, and for every 1% by which performance exceeds the target level, up to 110% of target, the actual payout increases 10% up to the maximum performance level.
The following graph illustrates the payout percentages by performance for the WC ratio metric:
The performance measures, and the relative percentage of the 20212022 target bonus opportunity assigned to each performance measure, were as follows:
| | Performance Measure | Performance Measure | Gregg C. Sengstack | Jeffery L. Taylor | John J. Haines | Donald P. Kenney | DeLancey W. Davis | Jonathan M. Grandon | Performance Measure | Gregg C. Sengstack | Jeffery L. Taylor | Donald P. Kenney | DeLancey W. Davis | Jay J. Walsh |
| Consolidated Working Capital Ratio | Consolidated Working Capital Ratio | 50% | 25% | 50% | Consolidated Working Capital Ratio | 50% | 25% |
| EPS | EPS | 50% | 25% | 50% | EPS | 50% | 25% |
| Headwater Operating Income Growth | Headwater Operating Income Growth | | | 50% | | Headwater Operating Income Growth | | 50% | |
| Global Water Operating Income | Global Water Operating Income | | 50% | | Global Water Operating Income | | 50% | |
| Fueling Systems Operating Income | | Fueling Systems Operating Income | | | | 50% |
The chart below sets forth the threshold, target, maximum and actual performance levels for the 20212022 performance goals (other than business unit operating income), and for all performance goals, the percentage at which target was attained. The performance goals were established assuming the goals would be adjusted for certain discrete items. Accordingly, with the approval of the Committee, the followingrestructuring expense was excluded in calculating EPS: restructuring income/expense and the non- operational impact of the bargain purchase gains recognized in the fourth quarter 2020 and second quarter 2021 acquisitions,EPS, which decreased EPS by $0.11.$0.03. This adjustment to EPS was approved solely for the purpose of calculating the achievement of performance goals under the Annual Bonus Plan. The “Actual” results shown in the table reflect these adjustments.
The Company does not publicly report operating income by business units below the operating segment level given the size of the business units as compared to its competitors and the potential for competitive harm. The operating income goals were set at the beginning of 20212022 and the Committee believed at the time that it would require a high degree of execution of the 20212022 business plan in order to attain these goals.
| | Performance Goal Achievement | Performance Goal Achievement | Threshold | Target | Maximum | Actual | % of Attainment of Target | Performance Goal Achievement | Threshold | Target | Maximum | Actual | % of Attainment of Target |
| Working Capital Ratio | Working Capital Ratio | 30.8% | 28.0% | 25.2% | 27.4% | 102.2% | Working Capital Ratio | 31.8% | 26.5% | 23.9% | 31.8% | 80.0% |
| EPS ($) | EPS ($) | 2.00 | 2.50 | 3.00 | 3.14 | 125.6% | EPS ($) | 2.80 | 3.50 | 3.85 | 4.00 | 200.0% |
| Business Unit Operating Income | Business Unit Operating Income | | 112.2% - 189.5% (1) | Business Unit Operating Income | | 109.7% - 120.0% (1) |
(1)The percentage of attainment of target results for the business unit metrics represents the range of results for the business units.
Mr. Sengstack evaluated the extent to which the other named executive officers attained their individual strategic goals, including those relating to Environmental, Social and Governance risks and metrics. The annual bonus plan has a discretionary adjustment component of a positive or negative 20%.20 percent. The intended application of this discretionary adjustment component is reserved, in part, for “above and beyond” accomplishments based on individual achievements, or extraordinary events outside of the executive’s control despite exceptional performance. Based on his evaluation, Mr. Sengstack did not recommend any discretionary adjustments to the calculated bonus payouts for 2021,2022, and the Committee did not make any changes, resulting in the entire bonus payments being based on the pre-established financial goals.
Based on the results summarized above, the following table sets forth the actual bonus payouts for each named executive officer as a percentage of his target opportunity.
| | | | | | | | |
| Named Executive Officer | | Payout Percentage (% of Target) |
| Gregg C. Sengstack | | 160.7%116.5% |
| Jeffery L. Taylor | | 160.7%116.5% |
John J. Haines | | 160.7% |
| Donald P. Kenney | | 160.9%156.6% |
| DeLancey W. Davis | | 180.4%158.3% |
Jonathan M. GrandonJay J. Walsh | | 160.7%158.2% |
For additional information about the specific awards made to the named executive officers for 20212022 pursuant to the above criteria, see the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 3231. Long-Term Incentive Compensation
The Committee grants equity incentives to its executive officers to more closely align the executives’ compensation with the return received by the Company’s shareholders, to offer an incentive for long-term performance, to provide a retention incentive and to encourage stock ownership. The regular cycle long-term incentive awards to executive officers generally
include a combination of performance share units, stock options and restricted stock/units. Retirement eligible executives, including the eligible named executive officers, receive restricted stock units instead of restricted stock because, unlike restricted stock units, restricted stock grants to a retirement eligible individual results in the early recognition of income even though the individual has not actually retired and received the stock subject to awards. By policy, grants and awards are only made at times when the Company’s trading “window” for executive officer transactions in the Company’s stock is open (i.e., during the regularly scheduled “window period” and at a time when trading is not restricted for other reasons), and grants and awards are dated the date of official action approving such awards, and the valuation of stock or stock unit grants and the exercise price of options will be the closing price on the date of grant.
LTI Award Target Values
In determining the size of equity grants made to the named executive officers, the Committee uses the pay study provided by Meridian as a guide. The Committee then considers other important factors such as experience level and individual performance to approve the long-term incentive value to be granted to each named executive officer.
The following table shows the 20212022 targeted economic value for the annual equity awards to the named executive
officers.
| | | | | | | | | | | | | | |
| Named Executive Officer | | Targeted Economic Value for 20212022 ($) |
| Gregg C. Sengstack | | | 3,400,0004,000,000 | |
| Jeffery L. Taylor | | | 600,000850,000 | |
John J. HainesDonald P. Kenney | | | 1,000,000910,000 | |
Donald P. KenneyDeLancey W. Davis | | | 875,000490,000 | |
DeLancey W. DavisJay J. Walsh | | | 470,000 | |
Jonathan M. Grandon | | | 485,000417,500 | |
(1)Mr. Taylor joined the Company after the 2021 LTI was granted. Mr. Taylor received a sign on equity grant in the amount of $600,000 at the commencement of his employment.
LTI Award Mix
Based on a review of market data and input from Meridian, the Committee determined to deliver the targeted economic value of long-term incentives to the named executive officers as follows: 40%40 percent in the form of stock options; 30%performance share units; 30 percent in the form of restricted stock (or restricted stock units); and 30%30 percent in the form of performance share units.stock options. All three long-term incentive components are used to align the interests of the named executive officers with those of shareholders. Stock options provide an element of risk to the executives in that value is created for the executive only when the stock price increases, while restricted stock and restricted stock units provide executives with outright value which supports their retention and helps manage the potential increased dilution that would result in using only options. Through the use of performance share units, the Committee can focus the executives on one or more select performance metrics deemed to be critical to driving Company performance and, in turn, increasing shareholder value.
In 2022,2023, additional weight will be added to performance-based share units (from 30%40 percent to 40%)50 percent). Beginning in 2022,2023, the LTI mix will consist of 40%50 percent performance-based share units, 30%25 percent stock options and 30%25 percent time-based restricted stock units. This change emphasizes the Company’s commitment to linking executive pay with company performance.
Performance Share Units
The performance share units vest based solely on the aggregate change in the Company’s consolidated normalized EBITDA (adjusted for certain non-recurring items) relative to the aggregate change in the consolidated normalized EBITDA reported by companies in the S&P Small Cap 600® Industrials Index (adjusted for non-recurring items) over a three-year performance period, as reported by Thompson Reuters. For purposes of determining this aggregate increase, a target dollar increase in adjusted operating income is established for the Company for each year of the three-year performance period based on the annual percentage increase of the S&P 600® Industrials Index consolidated normalized EBITDA from the base year. The annual target amounts are then aggregated to calculate the cumulative three-year target dollar increase. The actual cumulative growth of the Company’s consolidated normalized EBITDA (in dollars) over the performance period will be compared to the target level of cumulative growth in consolidated normalized EBITDA based on the increases relative to the companies in the S&P Small Cap 600® Industrials Index over the performance period. The Committee believes that consolidated normalized EBITDA is a relevant benchmark to gauge Company performance over time against a broad index of similarly situated manufacturing firms.
For performance share units granted in 2021,2022, the applicable performance period is January 1, 20212022 through December 31, 2023.2024. Performance share units will be earned based on the following:
| | | | | | | | |
Performance Level (1) | Aggregate Actual Change for Company Relative to Targeted Change | Number of Performance Share Units Earned (as a % of Target) |
| Below Threshold | <75% | 0% |
| Threshold | 75% | 50% |
| Target | 100% | 100% |
| Maximum | 125% (or more) | 200% |
(1)Performance between threshold and target, and target and maximum will be interpolated on a straight-line basis.
Earned performance share units will be paid out in shares of Company stock. Any dividends declared during the performance period will accrue and be paid out in cash at the end of the performance period based on the number of performance share units actually earned.
For additional information about the material terms of these awards, see the narrative disclosure under the Summary Compensation Table.
Performance Share Units Earned in Fiscal 20212022
The three-year performance period for the performance share units awarded in 20192020 ended on December 31, 2021.2022. The base year for measuring the aggregate change in the consolidated normalized EBITDA for both the Company and the S&P 600® Industrials Index in each year of the performance period was 2018.2019. The annual change in normalized EBITDA for each year in the performance period for the S&P 600® Industrials Index was 2.3%, -0.2%-7.4 percent, 9.1 percent and 6.6%,29.5 percent, which represents the respective annual target levels for the Company. Normalized EBITDA consists of the Company's reported operating income adjusted for restructuring expense, transaction costs for acquisitions, depreciation and amortization expense. For 2019, these values were $127.2 million, $2.5 million, $0.2 million, $27.6 million and $9.4 million. The following table provides the threshold, target and maximum performance levels (based on the table above) for the performance period:
| | | | | | | | | | | |
| Year 1 Target (Fiscal 2019)2020) | Year 2 Target (Fiscal 2020)2021) | Year 3 Target (Fiscal 2021)2022) |
Base Year Company Normalized EBITDA Target Change in Normalized EBITDA (over Base Year) Target Level of Normalized EBITDA for Relevant Period |
$172.7166.9 million
2.3% ($4.0-7.4% (-$12.4 million)
$176.7154.5 million |
$172.7166.9 million
2.2%1.0% ($3.71.7 million)
$176.4168.6 million |
$172.7166.9 million
8.9%30.9% ($15.451.5 million)*
$188.0218.4 million* |
As a result, (i) the Company’s target level of aggregate adjusted operating income over the performance period was
$541.1541.5 million ($176.7154.5 million + $176.4$168.6 million + $188.0$218.4 million) and (ii) the threshold level was calculated as $405.9$406.1 million (75%(75 percent of target) and (iii) the maximum level was calculated as $676.4$676.9 million (125%(125 percent of target). The Company’s actual aggregate consolidated normalized EBITDA for the performance period was $570.8$714.8 million, resulting in an estimated 105.5%132.0 percent attainment of target ($570.8714.8 ÷ $541.1)$541.5) and 121.9%200.0 percent of the targeted level of the performance share units were estimated to be earned. Normalized EBITDA for the performance period consisted of operating income of $576.9 million, restructuring expense of $5.3 million, transaction costs for acquisitions of $1.1 million, depreciation expense of $90.5 million and amortization expense of $41.0 million.
*The numbers for 20212022 are based on all but three companies in the index having reported their 20212022 financial results, including normalized EBITDA. It is expected that the final results will not exceed the payout amounts reflected in the table above, butchange the final results could reduce the amountpayout result of the payout to 117.3%, which would result in an aggregate of 1,429 fewer shares earned by the executive officers of which 1,329 would be earned by the named executive officers.200 percent.
LTI Award Grant Practices
Equity grants are typically made on an annual basis at the Committee’s meeting following the public release of the Company’s fiscal year-end results. Stock options are valued as of the date of grant using a modified Black-Scholes methodology. They have an exercise price equal to 100%100 percent of the fair market value of the Company’s common stock on the date of grant and vest ratably over three years. Restricted stock, restricted stock units and performance share units are valued based on the closing price of the Company’s common stock on the date of grant. The restricted stock and restricted stock units generally vest 100%100 percent on the third anniversary of the grant date. Performance share units are earned based on the level of performance attainment against the pre-established earnings goal (relative to the S&P Small Cap 600® Industrials Index) set by the Committee over a three-year performance period.
Stock Ownership Guidelines
The Company’s stock ownership guidelines for its executives and non-employee directors require executives and non-employee directors to maintain direct ownership in the Company’s common stock in amounts as follows:
•CEO: six times annual base salary;
•Corporate Vice Presidents: three times annual base salary (increased from one times in October 2021);salary; and
•Non-Employee Directors: five times annual retainer.
Executives and non-employee directors have five years from the date appointed to their position to comply with these guidelines. Corporate Vice Presidents have a three-year grace period from time of ownership guideline increase (October 2021) to comply with the increased ownership guideline disclosed above. All shares held directly or beneficially, including shares of restricted stock, restricted stock units, shares of stock acquired upon exercise of stock options and shares credited under the Retirement Program, as well as in-the-money value of vested stock options count toward these guidelines. Performance share units do not count toward these guidelines until, and only to the extent, they are settled in actual shares. Until an executive or non-employee director attains the requisite stock ownership, the executive or non-employee director must retain 50%50 percent of all shares acquired under the Company’s compensation plans. All shares held directly or beneficially, including stock awards, shares acquired upon exercise of stock options and stock units credited under the Non-Employee Directors’ Compensation Plan, count toward these guidelines. As of the end of 2021,2022, all named executive officers and non-employee directors met their respective stock ownership requirements or were within the applicable grace period to comply with such requirements.
Incentive Compensation Recoupment Policy
The Company’s Incentive Compensation Recoupment Policy permits the Board to recoup from an executive cash or equity-based compensation granted on or after January 1, 2014 in the event that the executive engages in misconduct that results in a restatement of the Company’s financial statements or a material loss or damage to the Company. Recoupment covers any incentive compensation that is awarded or paid or that vests within 36 months following the occurrence of the misconduct. Misconduct includes an act of fraud, dishonesty or recklessness, the material breach of a fiduciary duty, a knowing material violation of a Company policy, or a knowing material violation of a confidentiality, non-solicitation or non-competitionnon- competition covenant.
The recoupment policy will be reviewed and revised to comply with the SEC’s Final Rule on the Dodd-Frank mandatory compensation recoupment policy once listing standards have been proposed and approved.
Retirement Plans
The Company has various retirement plans in which certain of the named executive officers currently participate.
Pension Plan
Basic Retirement Portion
The Basic Retirement portion of the Pension Plan generally covers employees in the U.S. A participant retiring at age 65 is eligible to receive a monthly single life annuity equal to his credited service times a flat dollar amount ($25 for most U.S. salaried employees). Participants age 55 or older with 10 years of vesting service may retire prior to age 65 with a reduced benefit. Participants who were younger than 50 as of December 31, 2011 (which includes Mr. Davis)Messrs. Davis and Walsh) stopped accruing benefits as of such date, and participants 50 or older as of such date (which include Messrs. Sengstack and Kenney) accrued benefits until December 31, 2016. Mr. Haines, Mr. Grandon, and Mr. Taylor areis not eligible to participate in this portion of the Pension Plan because they werehe was hired after February 21, 2006 when the Pension Plan was closed to all new salaried employees.
Cash Balance Portion
The Cash Balance portion of the Pension Plan covers most salaried employees in the U.S. All participants stopped accruing benefits as of December 31, 2011. At termination of employment a participant is eligible to receive the amount credited to his account or a monthly single life annuity based on the amount credited to his account. The account consists of: (i) an opening balance for a participant at December 31, 1999 equal to the present value of the participant’s accrued benefit earned at December 31, 1999 under the applicable prior pension plan; (ii) annual Company contributions through 2011 ranging from 3%3 percent to 12%12 percent of a participant’s compensation and transitional credits for certain participants from 2000-2004 equal to 6%6 percent of compensation; and (iii) interest credits, which continue until distribution of the account, based on the 30-year Treasury rate (subject to a minimum of 4.5%)4.5 percent). All named executive officers participate in the Cash Balance portion.
portion except Mr. Taylor because he was hired after the plan was frozen.Pension Restoration Plan
In order to provide eligible executives with the portion of their retirement benefits that cannot be paid under the tax- qualified Pension Plan due to IRS limits on compensation, the Company maintains the Pension Restoration Plan. All participants other than Mr. Sengstack (which include Messrs. Haines andincludes Mr. Davis) stopped accruing benefits as of December 31, 2011, and effective as of January 1, 2012, their benefits were transferred to the Supplemental Retirement and Deferred Compensation Plan. Mr. Kenney, Mr. Grandon,Taylor, and Mr. TaylorWalsh do not participate in the Pension Restoration Plan because it was frozen before Mr. Kenney and Mr. Walsh became an executive officerofficers and before Mr. Grandon and Mr. Taylor werewas hired.
Retirement Program
The Retirement Program is a tax-qualified 401(k) plan that covers the majority of U.S. employees, including the named executive officers. A participant can elect to defer 1-50%1-50 percent of his compensation, in accordance with the Retirement Program plan documents, up to a maximum in 20202022 of $19,500,$20,500, or $26,000$27,000 if age 50 or over, and the Company will make a matching contribution equal to 100%100 percent of the first 2%2 percent of the participant’s deferral contributions plus 50%50 percent of the next 3%3 percent of the participant’s deferral contributions, for a total of 3.5%3.5 percent of the participant’s compensation.
The Company also makes annual service-based contributions to most participants, ranging from 3%3 percent to 9%9 percent of a participant’s compensation, depending on his or her years of service with the Company (3%(3 percent in the case of hourly employees). The service-based contribution generally is made to all employees. Compensation taken into account under the Retirement Program is limited by the Internal Revenue Code (the limit for 20212022 was $290,000)$305,000). The Retirement Program also holds employees’ accounts that were held in the Company’s Employee Stock Ownership Plan, which was merged into the Retirement Program in 2010.
Supplemental Retirement and Deferred Compensation Plan
The Company maintains the Supplemental Retirement and Deferred Compensation Plan (the “Supplemental Retirement Plan”), which provides an additional benefit to attract and retain key executives. The Supplemental Retirement Plan permits executive officers of the Company to elect each year to defer up to 90%90 percent of their bonus awards and up to 50%50 percent of their salary. Deferred amounts are credited to a bookkeeping account maintained on behalf of the participant.
The Company provides two types of contributions under the Supplemental Retirement Plan to the named executive officers other than Mr. Sengstack, who continues to participate in the Pension Restoration Plan. These contributions include: (i) the portion of the service- based contribution that could not be made under the Retirement Program due to IRS limitations; and
(ii) a supplemental contribution of 2%2 percent to 4%4 percent of a participant’s compensation depending on years of service. In addition, participants who stopped accruing benefits under the Pension Restoration Plan (which includes Messrs. Haines andMr. Davis) had their benefit transferred to the Supplemental Retirement Plan as of January 1, 2012. A participant’s deferral account, service contribution account and transferred Pension Restoration Account are credited with earnings and losses based on the investment funds made available under the Plan. Earnings on the supplemental contribution account will follow the methodology used in the now-frozen Cash Balance Plan, which credits earnings based on the 30-year Treasury rate, but not less than 4.5%.4.5 percent.
A participant’s accounts under the Supplemental Retirement Plan generally will be distributed to him or her in the seventh month following termination of employment. No named executive officerMr. Walsh elected to contribute to the Supplemental Retirement Plan in 2021,2022, and Messrs. Haines,Taylor, Kenney, Davis, Grandon, and TaylorWalsh received Company contributions.
Perquisites, Other Personal Benefits, and Other Compensation
The Company generally does not provide the named executive officers with perquisites or other personal benefits such as Company vehicles, club memberships, financial planning assistance or tax preparation. The Company offers an executive annual physical program which is available to the named executive officers. The named executive officers other than Mr. Sengstack receive a Medicare tax reimbursement relating to the annual Company contributions in the Supplemental Retirement Plan. Mr. Sengstack may use the Company airplane from time to time for non-business use. The amount of income attributed to Mr. Sengstack for income tax purposes for use of the airplane is determined by the Standard Industry Fare Level method, and Mr. Sengstack is responsible for paying the tax on this income. This income is included under the "All Other Compensation" column of the Summary Compensation Table.
Employment Agreements
The Company has an employment agreementsagreement with Messrs. Sengstack and Haines.Mr. Sengstack. The agreements areagreement is a three-year agreements,agreement, which automatically extendextends for an additional year unless either party gives notice not to renew. The agreements provideagreement provides the following:
•If the agreement is not renewed by the Company, and the executiveMr. Sengstack terminates his employment, the executivehe is entitled to a payment equal to 12 months of salary and the target bonus, a bonus pro-rated for the time of employment in the current year, continued participation in the Company’s health and welfare plans for 12 months, a lump sum payment equal to the additional benefits that would have accrued under the Company’s retirement plans for 12 months, and immediate vesting of all stock options and pro-rata vesting of restricted stock, restricted stock units and performance share units (based on actual performance).
•If the executive’sMr. Sengstack’s employment is terminated prior to a change in control without cause by the Company or for good reason by the executive (as defined in the agreements), Mr. Haines is entitled to the same benefits as described above, and Mr. Sengstack is entitled to severance based on 18 months of continued salary, 1-1/2 times the target bonus, and 18 months of health and welfare plan coverage and retirement plan payment.
•If the executive’sMr. Sengstack’s employment is terminated without cause by the Company or for good reason by the executiveMr. Sengstack within two years following a change in control of the Company, the executiveMr. Sengstack is entitled to receive a payment equal to 36 months of continued salary, three times the target bonus, (24 months of salary and two times bonus for Mr. Haines), a bonus pro- rated for the time of employment in the current year, continued participation in the Company’s health and welfare plans for 36 months (24 for Mr. Haines) and a lump sum payment equal to the additional benefits that would have been accrued under the Company’s retirement plans (other than the Pension Restoration Plan) for 36 months, (24 months for Mr. Haines), and immediate vesting and cash-out of outstanding options and vesting of restricted stock, restricted stock units and performance share units (at target level). With respect to any 280G excise tax, each executiveMr. Sengstack can elect to either (i) receive the full amount of severance benefits and be responsible for paying any excise tax or (ii) receive severance benefits that are reduced to the maximum amount that can be paid without triggering the excise tax.
The employment agreements containagreement contains a restrictive covenant that prohibits the executivesMr. Sengstack from competing with the Company and soliciting the Company’s customers and employees for 24 months following termination.
Mr. Haines entered into a Separation Agreement and General Release (the “Agreement”) on June 14, 2021, which detailed his eventual separation from the Company. Pursuant to the Agreement, Mr. Haines remained employed until December 31, 2021 as a Special Advisor to the Chief Executive Officer to support the transition of his successor. All payments made to Mr. Haines pursuant to the Agreement are further described in the Summary Compensation Table beginning on page 32.Employment Security Agreements
The Company has entered into employment security agreements (“ESAs”) with Messrs. Taylor, Kenney, Davis, Grandon, and Taylor,Walsh, as well as certain other executives that provide benefits upon a change in control of the Company, in order to extend these benefits to some executives who are not party to employment agreements.
Each ESA provides that if within two years after a change in control the Company terminates the executive’s employment for any reason other than cause, or the executive terminates his employment with the Company for good reason (as defined in the ESA), the executive is entitled to the following:
•A lump sum payment equal to the sum of two times the executive’s base salary, a pro-rata portion of the executive’s target bonus for the current year (based on the termination date), and two times the executive’s target bonus for the current year;
•A lump sum payment equal to the increase in benefits under the Company’s tax-qualified and supplemental retirement plans that results from crediting the executive with additional service for 24 months;
•Immediate vesting of all stock-based awards and deemed satisfaction of performance goals at target levels;
•Continued coverage under the Company’s health and welfare plans for 24 months following termination; and
•12 months of executive outplacement services (not to exceed $50,000) with a professional outplacement firm selected by the Company.
The ESAs contain a restrictive covenant that prohibits the executive from soliciting employees of the Company for 18 months following termination.
Executive Non-CIC Severance Plan
As described above, following a comprehensive review of Franklin Electric’s executive compensation plans in comparison to market practice inIn December 2020, the Committee approved the addition of the Executive Severance Policy, which provides non-CIC severance for executives (with the exception of the CEO and CFO, whose existing employment agreements include non-CIC severance benefits). Under the policy, if the executive’s employment is terminated by the Company without cause and prior to a change in control (as defined in the ESA), the executive is entitled to the following payments and benefits:
•A lump sum payment equal to the one and one-half times the sum of the annual base pay plus target bonus in the case of the Chief Executive Officer, and one times annual base pay plus target bonus for all other Executive Officers;
•A lump sum payment equal to a pro-rata portion of the Executive Officer’s annual bonus in effect on the employment termination date, based on the level of achievement of the Company’s performance goals, as approved by the Management Organization and Compensation Committee of the Board for the year in which the Executive’s termination of employment occurs;
•Accelerated vesting of stock-based awards not otherwise eligible for accelerated vesting under the terms of an applicable stock award agreement, and the removal of all restrictions on time-based awards of restricted stock or restricted stock units; and
•Accelerated vesting of any performance-based stock awards or units; and
•Payment of COBRA premiums until the eighteen-month anniversary, in the case of the Chief Executive Officer, or the one-year anniversary, in the case of all other Executive Officers, of the termination date.
Confidentiality and Non-Compete Agreements
Each named executive officer has signed a confidentiality and non-compete agreement with the Company. Under this agreement, they agree to maintain all confidential information of the Company, and for a period of 18 months after termination of employment from the Company they agree not to, directly or indirectly, participate in the design, development, manufacture, or distribution of electrical submersible motors or related products in competition with the Company. These agreements are in addition to the restrictive covenants set forth in the employment agreements and ESAs.
The Company determined that the employment agreements, ESA and Executive Severance Policy serve the Company’s goal of attracting and retaining key executives. By providing these agreements and policy the executives are able to remain focused on the best interests of the shareholders in the event of a potential change-in-control situation. Additionally, these agreements and policy provide benefits which strive to retain the executives during a transitional period.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code as in effect prior to 2018 limited the deductibility for federal income tax purposes of executive compensation paid to the CEO and the three other most highly compensated officers other than the chief financial officer of a public company to $1,000,000 per year, but contained an exception for certain performance-based compensation. The Tax Cuts and Jobs Act of 2017 amended Section 162(m) to cover a public company’s chief financial officer and eliminate the performance-based exception, beginning in 2018. Accordingly, the annual cash incentive awards, stock options and performance shares granted in 2018 and later years will no longer qualify for this exception (base salary and time- based restricted stock/units by their nature have never qualified as performance-based compensation). In addition, compensation paid to a covered employee after termination of employment will also be subject to the million dollar limitation. Following the Tax Cuts and Jobs Act, the Committee may consider tax deductibility as a factor in determining executive compensation, but may also choose to structure its compensation arrangements in ways that do not maximize tax deductibility, to achieve its goal to provide a compensation program that appropriately attracts, retains and rewards the executive officers who are crucial to the Company’s success.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation information for the Company’s Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers ("named executive officers") for the fiscal years ended December 31, 2021,2022, December 31, 20202021 and December 31, 2019. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position |
Year
| Salary ($)(1) | | Bonus ($)(2) | Time-Based Stock Awards ($)(3) | Performance-Based Stock Awards ($)(3)(4) | Option Awards ($)(5) | Non-Equity Incentive Plan Compensation ($)(6) | Change in Pension Value & Nonqualified Deferred Compensation Earnings ($)(7) | All Other Compensation ($)(8) |
Total
($) |
| Gregg C. Sengstack, Chairperson & CEO | 2021 | 870,000 | | | — | | 1,020,010 | | 1,020,010 | | 1,360,004 | | 1,537,899 | | 1,031,359 | | 57,651 | | 6,896,933 | |
| 2020 | 824,404 | | | — | | 989,992 | | 989,992 | | 1,320,000 | | 916,373 | | 875,333 | | 37,823 | | 5,953,917 | |
| 2019 | 798,333 | | | — | | 899,991 | | 899,991 | | 1,199,972 | | 562,697 | | 1,939,627 | | 70,737 | | 6,371,348 | |
| Jeffery L. Taylor, VP & CFO | 2021 | 264,904 | | | — | | 600,000 | | — | | — | | 319,276 | | — | | 24,353 | | 1,208,533 | |
John J. Haines,
VP & CFO | 2021 | 480,000 | | | — | | 300,020 | | 300,020 | | 399,996 | | 578,520 | | — | | 86,444 | | 2,145,000 | |
| 2020 | 455,192 | | | — | | 299,983 | | 299,983 | | 400,003 | | 344,962 | | 4,299 | | 71,164 | | 1,875,586 | |
| 2019 | 441,040 | | | — | | 250,482 | | 250,482 | | 333,992 | | 211,865 | | 4,889 | | 76,678 | | 1,569,428 | |
Donald P. Kenney,
VP and President, Global Water | 2021 | 477,000 | | | — | | 262,499 | | 262,499 | | 349,999 | | 573,206 | | 2,051 | | 118,678 | | 2,045,932 | |
| 2020 | 428,731 | | | — | | 239,974 | | 239,974 | | 319,993 | | 333,695 | | 42,706 | | 91,783 | | 1,696,856 | |
| 2019 | 408,767 | | | — | | 187,489 | | 187,489 | | 249,994 | | 190,061 | | 51,484 | | 111,930 | | 1,387,214 | |
DeLancey W. Davis,
VP and President, Headwater Companies | 2021 | 400,000 | | | — | | 141,014 | | 141,014 | | 188,009 | | 541,050 | | — | | 91,133 | | 1,502,220 | |
| 2020 | 389,818 | | | — | | 130,526 | | 130,526 | | 173,993 | | 319,676 | | 14,384 | | 66,856 | | 1,225,779 | |
| 2019 | 379,962 | | | — | | 127,475 | | 127,475 | | 169,993 | | 121,996 | | 13,872 | | 74,827 | | 1,015,600 | |
Jonathan M. Grandon, VP, CAO, General Counsel
and Corporate Secretary | 2021 | 400,125 | | | — | | 145,475 | | 145,475 | | 193,998 | | 433,890 | | — | | 59,976 | | 1,378,939 | |
| 2020 | 366,683 | | | — | | 136,497 | | 136,497 | | 181,996 | | 250,097 | | — | | 36,538 | | 1,108,308 | |
| Dr. Paul N. Chhabra, VP Global Product Supply | 2019 | 358,750 | | | 50,000 | | 119,973 | | 119,973 | | 160,003 | | 179,720 | | — | | 37,680 | | 1,026,099 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position |
Year
| Salary ($)(1) | | Time-Based Stock Awards ($)(2) | Performance-Based Stock Awards ($)(2)(3) | Option Awards ($)(4) | Non-Equity Incentive Plan Compensation ($)(5) | Change in Pension Value & Nonqualified Deferred Compensation Earnings ($)(6) | All Other Compensation ($)(7) |
Total
($) |
| Gregg C. Sengstack, Chairperson and CEO | 2022 | 894,231 | | | 1,200,022 | | 1,599,973 | | 1,199,993 | | 1,145,957 | | 557,862 | | 102,209 | | 6,700,247 | |
| 2021 | 870,000 | | | 1,020,010 | | 1,020,010 | | 1,360,004 | | 1,537,899 | | 1,031,359 | | 57,651 | | 6,896,933 | |
| 2020 | 824,404 | | | 989,992 | | 989,992 | | 1,320,000 | | 916,373 | | 875,333 | | 37,823 | | 5,953,917 | |
| Jeffery L. Taylor, VP and CFO | 2022 | 489,135 | | | 254,972 | | 339,963 | | 255,003 | | 427,382 | | — | | 51,926 | | 1,818,381 | |
| 2021 | 264,904 | | | 600,000 | | — | | — | | 319,276 | | — | | 24,353 | | 1,208,533 | |
Donald P. Kenney,
VP and President, Global Water | 2022 | 489,135 | | | 273,011 | | 363,958 | | 273,004 | | 574,401 | | — | | 151,520 | | 2,125,029 | |
| 2021 | 477,000 | | | 262,499 | | 262,499 | | 349,999 | | 573,206 | | 2,051 | | 118,678 | | 2,045,932 | |
| 2020 | 428,731 | | | 239,974 | | 239,974 | | 319,993 | | 333,695 | | 42,706 | | 91,783 | | 1,696,856 | |
DeLancey W. Davis,
VP and President, Headwater Companies | 2022 | 412,115 | | | 146,993 | | 195,990 | | 147,000 | | 489,129 | | — | | 117,610 | | 1,508,837 | |
| 2021 | 400,000 | | | 141,014 | | 141,014 | | 188,009 | | 541,050 | | — | | 91,133 | | 1,502,220 | |
| 2020 | 389,818 | | | 130,526 | | 130,526 | | 173,993 | | 319,676 | | 14,384 | | 66,856 | | 1,225,779 | |
| Jay J. Walsh, VP and President, Fueling Systems | 2022 | 387,115 | | | 125,263 | | 166,961 | | 125,248 | | 459,457 | | — | | 131,396 | | 1,395,440 | |
| Jonathan M. Grandon, VP, CAO, General Counsel and Corporate Secretary | 2021 | 400,125 | | | 145,475 | | 145,475 | | 193,998 | | 433,890 | | — | | 59,976 | | 1,378,939 | |
| 2020 | 366,683 | | | 136,497 | | 136,497 | | 181,996 | | 250,097 | | — | | 36,538 | | 1,108,308 | |
(1)Salary adjustments for 20212022 were effective January 1, 2021March 14, 2022
(2)Bonus for Dr. Chhabra, in 2019, represents a retention bonus.
(3)These amounts represent the grant date fair value, computed in accordance with FASB Codification Topic 718, of the restricted stock and performance share unit awards granted in 20212022 to the named executive officers. The value of the performance share units is based upon the probable outcome of the performance conditions. See Note 14 of the Company's Annual Report to Shareholders for the fiscal year ending December 31, 20212022 for a complete description of the assumptions used for these valuations.
(4)(3)The grant date value of the performance shares granted in 2021,2022, assuming the performance conditions were met at the maximum level, was: Mr. Sengstack: $2,040,020;$3,199,946; Mr. Haines: $600,040;Taylor: $679,926; Mr. Kenney: $524,998;$727,916; Mr. Davis: $282,028;$391,980; and Mr. Grandon: $290,950.Walsh: $333,922.
(5)(4)These amounts represent the grant date fair value, computed in accordance with FASB Codification Topic 718, of the stock options granted to the named executive officers in 2021.2022. See Note 14 of the Company's Annual Report to Shareholders for the fiscal year ending December 31, 20212022 for a complete description of the assumptions used for these valuations.
(6)(5)These amounts represent the bonuses paid to the named executive officers under the Company's performance-based Executive Officer Annual Incentive Cash Bonus Program. A description of this program can be found in the "Compensation Discussion and Analysis" section of this Proxy Statement.
(7)(6)These amounts represent the annual change in the present value of each named executive officer's benefits under the Company's defined benefit pension plans, which calculations use the same assumptions required to be used for financial reporting purposes. Benefits under the pension plans were frozen as of December 31, 2011 for most participants, including Messrs. HainesDavis and Davis;Walsh; Messrs. Taylor and Grandon were never participants.
(8)(7)These amounts for 20212022 represent (i) Company contributions under the Retirement Program: Mr. Sengstack: $36,250;$38,125; Mr. Taylor $18,850; Mr. Haines: $24,650;$19,825; Mr. Kenney: $36,250;$38,125; Mr. Davis: $30,450;$32,025; and Mr. Grandon $24,650;Walsh $38,125; (ii) Company contributions under the Supplemental Retirement and Deferred Compensation Plan: Mr. Taylor $5,298; Mr. Haines: $60,266;$31,271; Mr. Kenney: $80,415;$110,654; Mr. Davis: $59,182;$83,498; and Mr. Grandon $34,420;Walsh $91,004; (iii) a Medicare tax reimbursement related to the non-qualified retirement plans: Mr. Sengstack: $10,529;$52,794; Mr. Taylor $128; Mr. Haines: $1,450;$752; Mr. Kenney: $1,935;$2,663; Mr. Davis: $1,424;$2,009; and Mr. Grandon: $828;Walsh: $2,189; (iv) the Company's life insurance contributions of $78 for each named executive officer; (v) the non-business use of the Company airplane: Mr. Sengstack $10,794.$11,212.
Restricted Stock/Restricted Stock Unit/Performance Stock Unit Awards
The 2022 restricted awards were granted on February 24, 2022 to Mr. Sengstack and the remaining Named Executive Officers. The awards consisted of 14,303 restricted stock units and 19,070 performance share units awarded to Mr. Sengstack; 3,039 restricted stock awards and 4,052 performance share units awarded to Mr. Taylor; 3,254 restricted stock units and 4,338 performance stock units awarded to Mr. Kenney; 1,752 restricted stock units and 2,336 performance stock units awarded to Mr. Davis; 1,493 restricted stock units and 1,990 performance stock units awarded to Mr. Walsh.
The 2021 restricted awards were granted on February 18, 2021 to Mr. Sengstack and the remaining Named Executive Officers besides Mr. Taylor. The awards consisted of 13,946 restricted stock units and 13,946 performance share units awarded to Mr. Sengstack; 4,102 restricted stock units and 4,102 performance share units awarded to Mr. Haines; 3,589 restricted stock units and 3,589 performance stock units awarded to Mr. Kenney; 1,928 restricted stock units and 1,928 performance stock units awarded to Mr. Davis; 1,989 restricted stock awards and 1,989 performance stock units awarded to Mr. Grandon. On June 14, 2021, 7,500 restricted stock awards were awarded to Mr. Taylor.
The 2020 restricted awards were granted on February 20, 2020 to Mr. Sengstack and the remaining Named Executive Officers. The awards consisted of 16,580 restricted stock units and 16,580 performance share units awarded to Mr. Sengstack; 5,024 restricted stock units and 5,024 performance share units awarded to Mr. Haines; 4,019 restricted stock units and 4,019 performance stock units awarded to Mr. Kenney; 2,186 restricted stock units and 2,186 performance stock units awarded to Mr. Davis; and 2,286 restricted stock awards and 2,286 performance stock units awarded to Mr. Grandon.
The 2019 restricted awards were granted on February 21, 2019 to Mr. Sengstack and the remaining Named Executive Officers. The awards consisted of 16,316 restricted stock units and 16,316 performance share units awarded to Mr. Sengstack; 4,541 restricted stock units and 4,541 performance share units awarded to Mr. Haines; 3,399 restricted stock units and 3,399 performance stock units awarded to Mr. Kenney; 2,311 restricted stock units and 2,311 performance stock units awarded to Mr. Davis; and 2,175 restricted stock awards and 2,175 performance stock units awarded to Dr. Chhabra.
Restricted stock and restricted stock unit awards vest on the third anniversary of the grant date. All grants are subject to accelerated pro rata vesting upon death, disability, or retirement and accelerated vesting on a change in control. Performance share units granted in 20212022 vest at the end of the three-year performance period ending December 31, 2023,2024, depending on the level of achievement of the performance goals (subject to pro rata vesting at the end of the performance period upon death, disability or retirement and accelerated vesting at target level upon a change in control). Dividends are paid on restricted stock awards and dividend equivalents are paid on restricted stock unit awards. Dividend equivalents are paid on performance share unit awards only to the extent the awards vest.
Option Awards
The 2022 grants to the named executive officers consisted of options for 46,065 shares to Mr. Sengstack; 9,789 shares to Mr. Taylor; 10,480 shares to Mr. Kenney; 5,643 shares to Mr. Davis; and 4,808 shares to Mr. Walsh. These grants had an exercise price of $83.90.
The 2021 grants to the named executive officers consisted of options for 62,673 shares to Mr. Sengstack; 18,433 shares to Mr. Haines; 16,129 shares to Mr. Kenney; 8,664 shares to Mr. Davis; and 8,940 shares to Mr. Grandon. These grants had an exercise price of $73.14.
The 2020 grants to the named executive officers consisted of options for 84,453 shares to Mr. Sengstack; 25,592 shares to Mr. Haines; 20,473 shares to Mr. Kenney; 11,132 shares to Mr. Davis; and 11,644 shares to Mr. Grandon. These grants had an exercise price of $59.71.
The 2019 grants to the named executive officers consisted of options for 76,872 shares to Mr. Sengstack; 21,396 shares to Mr. Haines; 16,015 shares to Mr. Kenney; 10,890 shares to Mr. Davis; and 10,250 shares to Dr. Chhabra. These grants had an exercise price of $55.16.
Stock options granted in 2022, 2021, 2020, and 20192020 vest over three years at 33%33 percent per year. All stock options are subject to accelerated vesting upon death, disability, retirement or a change in control)control and expire after ten years.
Change in Pension Value and Nonqualified Deferred Compensation Earnings
In connection with the redesign of the Company's retirement program, effective as of December 31, 2011, all named executive officers other than Messrs. Sengstack and Kenney stopped accruing benefits under the Pension Plan and/or the Pension Restoration Plan. Descriptions of these retirement plans, as in effect before and after December 31, 2011, and the level of participation by the named executive officers, can be found in the 20212022 Pension Benefits Table and accompanying narrative included in this Proxy Statement.
20212022 Grant of Plan Based Awards Table
The following table sets forth the plan-based grants made during the fiscal year ended December 31, 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name
|
Grant Date
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Possible Payouts Under Equity Incentive Plan Awards(2) |
All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options
(#) |
Exercise or Base Price of Option Awards ($/sh)(4) |
Grant Date Fair Value of Stock and Option Awards ($)(5) |
| Threshold ($) | Target
($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Gregg C. Sengstack | 2/18/2021 | 315,810 | | 957,000 | | 1,914,000 | | | | | | | | |
| 2/18/2021 | | | | 6,973 | | 13,946 | | 27,892 | | | | | |
| 2/18/2021 | | | | | | | 13,946 | | 62,673 | | 73.14 | | 3,400,025 | |
| Jeffery L. Taylor | 6/14/2021 | 65,564 | | 198,678 | | 397,356 | | | | | | | | |
| 6/14/2021 | | | | — | | — | | — | | | | | |
| 6/14/2021 | | | | | | | 7,500 | | — | | — | | 600,000 | |
| John J. Haines | 2/18/2021 | 118,800 | | 360,000 | | 720,000 | | | | | | | | |
| 2/18/2021 | | | | 2,051 | | 4,102 | | 8,204 | | | | | |
| 2/18/2021 | | | | | | | 4,102 | | 18,433 | | 73.14 | | 1,000,037 | |
| Donald P. Kenney | 2/18/2021 | 118,058 | | 357,750 | | 715,500 | | | | | | | | |
| 2/18/2021 | | | | 1,795 | | 3,589 | | 7,178 | | | | | |
| 2/18/2021 | | | | | | | 3,589 | | 16,129 | | 73.14 | | 874,998 | |
| DeLancey W. Davis | 2/18/2021 | 99,000 | | 300,000 | | 600,000 | | | | | | | | |
| 2/18/2021 | | | | 964 | | 1,928 | | 3,856 | | | | | |
| 2/18/2021 | | | | | | | 1,928 | | 8,664 | | 73.14 | | 470,037 | |
| Jonathan M. Grandon | 2/18/2021 | 89,128 | | 270,084 | | 540,168 | | | | | | | | |
| 2/18/2021 | | | | 995 | | 1,989 | | 3,978 | | | | | |
| 2/18/2021 | | | | | | | 1,989 | | 8,940 | | 73.14 | | 484,949 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name
|
Grant Date
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Possible Payouts Under Equity Incentive Plan Awards(2) |
All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options
(#) |
Exercise or Base Price of Option Awards ($/sh)(4) |
Grant Date Fair Value of Stock and Option Awards ($)(5) |
| Threshold ($) | Target
($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Gregg C. Sengstack | 2/24/2022 | 324,606 | | 983,654 | | 1,967,308 | | | | | | | | |
| 2/24/2022 | | | | 9,535 | | 19,070 | | 38,140 | | | | | |
| 2/24/2022 | | | | | | | 14,303 | | 46,065 | | 83.90 | | 3,999,988 | |
| Jeffery L. Taylor | 2/24/2022 | 121,061 | | 366,851 | | 733,702 | | | | | | | | |
| 2/24/2022 | | | | 2,026 | | 4,052 | | 8,104 | | | | | |
| 2/24/2022 | | | | | | | 3,039 | | 9,789 | | 83.90 | | 849,938 | |
| Donald P. Kenney | 2/24/2022 | 121,061 | | 366,851 | | 733,702 | | | | | | | | |
| 2/24/2022 | | | | 2,169 | | 4,338 | | 8,676 | | | | | |
| 2/24/2022 | | | | | | | 3,254 | | 10,480 | | 83.90 | | 909,973 | |
| DeLancey W. Davis | 2/24/2022 | 101,998 | | 309,086 | | 618,172 | | | | | | | | |
| 2/24/2022 | | | | 1,168 | | 2,336 | | 4,672 | | | | | |
| 2/24/2022 | | | | | | | 1,752 | | 5,643 | | 83.90 | | 489,983 | |
| Jay J. Walsh | 2/24/2022 | 95,811 | | 290,336 | | 580,672 | | | | | | | | |
| 2/24/2022 | | | | 995 | | 1,990 | | 3,980 | | | | | |
| 2/24/2022 | | | | | | | 1,493 | | 4,808 | | 83.90 | | 417,472 | |
(1)The amounts in these columns reflect estimated possible payouts for 20212022 and were established under the Executive Officer Annual Incentive Bonus Program. The estimated payouts shown in the Table were based on performance in 2021,2022, which has now occurred. Thus, the amounts shown in “threshold”, “target”, and “maximum” columns reflect the range of potential payouts when the performance goals were set in early 2021.2022. Actual amounts paid for 20212022 are reflected in the Summary Compensation Table. A description of this program can be found in the “Compensation Discussion and Analysis” section of this Proxy Statement.
(2)The amounts in these columns reflect the estimated possible payouts of shares of common stock that may be issued pursuant to the settlement of performance share units that were granted in 2021.2022. Vesting occurs at the end of the three-year performance period (December 31, 2023)2024), depending on the level of attainment of the performance goals. A pro rata portion is paid at the end of the performance period in the event of the executive's death, disability or retirement, and vesting is accelerated at target level upon a change in control. Dividend equivalents are paid to the extent the performance share units vest. A description of the performance share units can be found in the "Compensation, Discussion, and Analysis" section of this Proxy Statement.
(3)Restricted stock units were granted to Messrs. Sengstack, Haines, Kenney, Davis, and DavisWalsh because they are retirement eligible or will become retirement eligible within the vesting period, and restricted stock was granted to Messrs. Taylor and Grandon.Mr. Taylor. The awards vest three years from the grant date if they are still employed with the Company on such date. Vesting is accelerated upon a change in control of the Company and a pro rata portion is accelerated upon death, disability or retirement.
(4)The exercise price for grants of stock options is determined using the closing price of the Company’s common stock on the date of grant. The option grants expire after ten years and vest over three years, at 33%33 percent per year. Vesting is accelerated upon a change in control of the Company, death, disability or retirement.
(5)The grant date fair value of the target performance share units, restricted stock, restricted stock units and option awards shown in the above table was computed in accordance with FASB Codification Topic 718.
20212022 Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth the outstanding equity awards as of December 31, 2021. | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name
| Option Awards(1) | Stock Awards |
Number of Securities Underlying Unexercised Options (#) Exercisable
| Number of Securities Underlying Unexercised Options (#) Unexercisable
| Option Exercise price
($/sh) | Option Expiration Date
| Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(7) | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($)(7) |
| Gregg C. Sengstack | 66,144 | | — | | 36.67 | | 2/26/2025 | 67,339(2) | 6,367,576 | | 46,842(8) | 4,429,380 | |
| 94,952 | | — | | 29.08 | | 2/25/2026 |
| 70,569 | | — | | 43.00 | | 2/24/2027 |
| 72,376 | | 24,125 | | 40.25 | | 2/22/2028 |
| 51,242 | | 25,630 | | 55.16 | | 2/21/2029 |
| 28,148 | | 56,305 | | 59.71 | | 2/20/2030 |
| — | | 62,673 | | 73.14 | | 2/18/2031 |
| Jeffery L. Taylor | — | | — | | — | | — | | 7,500(3) | 709,200 | | — | — | |
John J. Haines
| 29,769 | | — | | 29.08 | | 12/31/2024 | — | — | | 9,133(9) | 863,616 | |
| 22,389 | | — | | 42.20 | | 12/31/2024 |
| 26,319 | | — | | 40.25 | | 12/31/2024 |
| 21,396 | | — | | 55.16 | | 12/31/2024 |
| 25,592 | | — | | 59.71 | | 12/31/2024 |
| 18,433 | | — | | 73.14 | | 12/31/2024 |
| Donald P. Kenney | 7,824 | | — | | 36.67 | | 2/26/2025 | 14,734(4) | 1,393,247 | | 11,007(10) | 1,040,822 | |
| 11,035 | | — | | 29.08 | | 2/25/2026 |
| 8,825 | | — | | 42.20 | | 2/23/2027 |
| 13,160 | | 4,386 | | 40.25 | | 2/22/2028 |
| 10,675 | | 5,340 | | 55.16 | | 2/21/2029 |
| 6,823 | | 13,650 | | 59.71 | | 2/20/2030 |
| — | | 16,129 | | 73.14 | | 2/18/2031 |
| DeLancey W. Davis | — | | 3,632 | | 40.25 | | 2/22/2028 | 9,511(5) | 899,360 | | 6,425(11) | 607,548 | |
| — | | 3,631 | | 55.16 | | 2/21/2029 |
| — | | 7,422 | | 59.71 | | 2/20/2030 |
| — | | 8,664 | | 73.14 | | 2/18/2031 |
| Jonathan M. Grandon | 12,747 | | — | | 42.20 | | 2/23/2027 | 9,712(6) | 918,367 | | 6,641(12) | 627,973 | |
| 10,844 | | 3,614 | | 40.25 | | 2/22/2028 |
| 7,430 | | 3,717 | | 55.16 | | 2/21/2029 |
| 3,880 | | 7,764 | | 59.71 | | 2/20/2030 |
| — | | 8,940 | | 73.14 | | 2/18/2031 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Name
| Option Awards(1) | Stock Awards |
Number of Securities Underlying Unexercised Options (#) Exercisable
| Number of Securities Underlying Unexercised Options (#) Unexercisable
| Option Exercise price
($/sh) | Option Expiration Date
| Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(7) | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($)(7) |
| Gregg C. Sengstack | 66,144 | | — | | 36.67 | | 2/26/2025 | 44,829(2) | 3,575,113 | | 49,596(8) | 3,955,281 | |
| 94,952 | | — | | 29.08 | | 2/25/2026 |
| 70,569 | | — | | 43.00 | | 2/24/2027 |
| 96,501 | | — | | 40.25 | | 2/22/2028 |
| 76,872 | | — | | 55.16 | | 2/21/2029 |
| 56,296 | | 28,157 | | 59.71 | | 2/20/2030 |
| 20,888 | | 41,785 | | 73.14 | | 2/18/2031 |
| — | | 46,065 | | 83.90 | | 2/24/2032 |
| Jeffery L. Taylor | — | | 9,789 | | 83.90 | | 2/24/2032 | 6,789(3) | 541,423 | | 4,052(9) | 323,147 | |
| Donald P. Kenney | 7,824 | | — | | 36.67 | | 2/26/2025 | 10,862(4) | 866,245 | | 11,946(10) | 952,694 | |
| 11,035 | | — | | 29.08 | | 2/25/2026 |
| 8,825 | | — | | 42.20 | | 2/23/2027 |
| 17,546 | | — | | 40.25 | | 2/22/2028 |
| 16,015 | | — | | 55.16 | | 2/21/2029 |
| 13,647 | | 6,826 | | 59.71 | | 2/20/2030 |
| 5,375 | | 10,754 | | 73.14 | | 2/18/2031 |
| — | | 10,480 | | 83.90 | | 2/24/2032 |
| DeLancey W. Davis | — | | 3,712 | | 59.71 | | 2/20/2030 | 5,866(5) | 467,814 | | 6,450(11) | 514,388 | |
| 2,887 | | 5,777 | | 73.14 | | 2/18/2031 |
| — | | 5,643 | | 83.90 | | 2/24/2032 |
| Jay J. Walsh | 1,634 | | — | | 42.20 | | 2/23/2027 | 4,616(6) | 368,126 | | 5,113(12) | 407,762 | |
| 2,151 | | — | | 40.25 | | 2/22/2028 |
| 2,755 | | — | | 55.16 | | 2/21/2029 |
| 5,032 | | 2,518 | | 59.71 | | 2/20/2030 |
| 2,457 | | 4,916 | | 73.14 | | 2/18/2031 |
| — | | 4,808 | | 83.90 | | 2/24/2032 |
(1)Each option grant has a ten-year term and vests pro rata over three or four years beginning on the first anniversary of the grant date. Vesting is accelerated upon death, disability, retirement or a change in control of the Company. Exercise prices are determined using the closing price of the Company’s Common Stock on the date of grant.
(2)Of Mr. Sengstack's restricted awards, 14,303 shares vest after three years on February 24, 2025, 13,946 shares vest after three years on February 18, 2024, and 16,580 shares vest after three years on February 20, 2023, 16,3162023.
(3)Of Mr. Taylor's restricted awards, 3,039 shares vest after three years on February 21, 2022, and 20,497 shares vest after four years on February 22, 2022.
(3)Of Mr. Taylor's restricted awards, 3,750 shares vest after one year on June 14, 202224, 2025 and 3,750 shares vest after two years on June 14, 2023.
(4)Of Mr. Kenney's restricted awards, 3,254 shares vest after three years on February 24, 2025, 3,589 shares vest after three years on February 18, 2024, and 4,019 shares vest after three years on February 20, 2023, 3,3992023.
(5)Of Mr. Davis's restricted awards, 1,752 shares vest after three years on February 21, 2022, and 3,727 shares vest after four years on February 22, 2022.
(5)Of Mr. Davis's restricted awards,24, 2025, 1,928 shares vest after three years on February 18, 2024, and 2,186 shares vest after three years on February 20, 2023, 2,3112023.
(6)Of Mr. Walsh's restricted awards, 1,493 shares vest after three years on February 21, 2022, and 3,086 shares vest after four years on February 22, 2022.
(6)Of Mr. Grandon's restricted awards, 1,98924, 2025, 1,641 shares vest after three years on February 18, 2024, 2,286 shares vest after three years on February 20, 2023, 2,366and 1,482 shares vest after three years of February 21, 2022, and 3,071 shares vest after four years on February 22, 2022.20, 2023.
(7)The market value of the stock and stock unit awards was determined using the closing price of the Company’s common stock on December 31, 20212022 ($94.5679.75 per share).
(8)Of Mr. Sengstack’s target performance share awards, 19,070 will vest at the end of the performance period that ends on December 31, 2024 and 13,946 will vest at the end of the performance period that ends on December 31, 2023 and 16,5802023.
(9)Of Mr. Taylor’s target performance share awards, 4,052 will vest at the end of the performance period that ends on December 31, 2022.2024.
(10)Of Mr. Haines’sKenney's target performance share awards, 1,2904,338 will vest at the end of the performance period that ends on December 31, 20232024 and 3,302 will vest at the end of the performance period that ends on December 31, 2022.
(10)Of Mr. Kenney's target performance share awards, 3,589 will vest at the end of the performance period that ends on December 31, 2023 and 4,0192023.
(11)Of Mr. Davis's target performance share awards, 2,336 will vest at the end of the performance period that ends on December 31, 2022.
(11)Of Mr. Davis's target performance share awards,2024 and 1,928 will vest at the end of the performance period that ends on December 31, 2023 and 2,1862023.
(12)Of Mr. Walsh's target performance share awards, 1,990 will vest at the end of the performance period that ends on December 31, 2022.
(12)Of Mr. Grandon's target performance share awards, 1,9892024 and 1,641 will vest at the end of the performance period that ends on December 31, 2023 and 2,286 will vest at the end of the performance period that ends on December 31, 2022.2023.
2021
2022 Option Exercises and Stock Vested Table
The following table sets forth the exercised options and vested awards for the fiscal year ended December 31, 2021. | | | | | | | | | | | | | | |
Name
| Option Awards | Stock Awards |
Number of Shares Acquired on Exercise
(#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#)(2) | Value Realized on Vesting ($)(3) |
| Gregg C. Sengstack | 96,043 | | 5,348,486 | | 35,238 | | 3,076,871 | |
| Jeffery L. Taylor | — | | — | | — | | — | |
| John J. Haines | 72,742 | | 3,706,348 | | 24,407 | | 2,213,006 | |
| Donald P. Kenney | 8,927 | | 516,090 | | 10,088 | | 838,030 | |
| DeLancey W. Davis | 14,257 | | 357,300 | | 5,675 | | 480,907 | |
| Jonathan M. Grandon | — | | — | | 5,657 | | 480,867 | |
| | | | | | | | | | | | | | |
Name
| Option Awards | Stock Awards |
Number of Shares Acquired on Exercise
(#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#)(2) | Value Realized on Vesting ($)(3) |
| Gregg C. Sengstack | — | | — | | 69,973 | | 5,723,228 | |
| Jeffery L. Taylor | — | | — | | 3,750 | | 266,438 | |
| Donald P. Kenney | — | | — | | 15,164 | | 1,237,172 | |
| DeLancey W. Davis | 10,973 | | 377,960 | | 9,769 | | 799,963 | |
| Jay J. Walsh | — | | — | | 8,519 | | 701,456 | |
(1)Represents the difference between the closing price of the stock on the date of exercise and the exercise price, multiplied by the number of shares covered by the options.
(2)Includes shares based on estimated release of performance share units earned in 20212022 as follows: Mr. Sengstack, 19,889; Mr. Haines, 5,535;33,160; Mr. Kenney, 4,143;8,038; Mr. Davis, 2,817;4,372; and Mr. Grandon, 2,884.Walsh, 2,964. See the "Compensation Discussion & Analysis" section for further information.
(3)Represents the value realized by multiplying the closing price of the stock on the date of vesting by the number of shares that vested. Includes vesting of restricted stock/units granted in 20172018 and 2019 and performance share awards granted in 2019.2020. See the "Compensation Discussion & Analysis" section for a discussion of this vesting.
Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, the Company is providing the following information about the relationship of the median of the annual total compensation of Company employees and the annual total compensation of Mr. Sengstack:
For 2020,In 2021, the Company identified its median employee, who was a production assembly workeris an administrative employee employed in the Company’s manufacturing facility in South Africa. As of December 31,The median employee’s compensation and employment circumstances have not materially changed relative to 2021 and the median employee was no longer employed by the Company. The Company has not experienced significant changes in its employee population or compensation practices that would result in a material change to this pay ratio disclosure, therefore, as permitted by Item 402(u) of Regulation S-K,disclosure. Therefore, the Company substitutedbelieves the median employee with another employee with substantially similar compensation to the previous median employee. The newpreviously identified median employee for 2021 remains appropriate for 2022 and is also a production assembly worker employed indisclosing the Company’s manufacturing facility in South Africa.updated calculation of the total compensation earned by that median employee for 2022. For 2021,2022, the median of the annual total compensation of all employees of the Company (other than Mr. Sengstack), was $22,131$25,165 and the annual total compensation of Mr. Sengstack was $6,896,933.$6,700,247. The median employee’s base compensation and benefits were converted from South African Rand to United States Dollars using the exchange rate in effect on December 31, 2021.2022.
Based on this information, for 20212022 the ratio of the median of the annual total compensation of all employees to the annual total compensation of Mr. Sengstack was 1 to 312.266. This ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of SEC Regulation S-K.
To determine the median of the annual compensation of all employees, to identify the median employee and to determine the annual total compensation of the median employee and Mr. Sengstack, the Company used the following material assumptions, adjustments, and estimates:
•As of December 31, 2020, the Company’s employee population consisted of approximately 5,116 individuals working at the Company and its wholly-owned subsidiaries. This population consisted of full-time, part-time, and temporary employees.
•As permitted under SEC rules, the employee population was adjusted to exclude 189 non-U.S. employees (or approximately 3.7%3.7 percent of the employee population) working in India. The Company excluded these employees because the complex compensation structure for employees in India, which includes a number of social and economic benefits commonly provided to such employees, is not easily comparable to that of employees in other jurisdictions. Additionally, 505 employees (or approximately 9.9%9.9 percent of the employee population) who were hired during 2020, but who were not employed for a full year, were excluded. Based on the exclusion of these employees, the adjusted employee population was 4,422 employees.
•Each employee’s base salary was determined using fiscal year 2020 payroll records and the median employee was identified from the adjusted employee population based on these records.
In accordance with the SEC rules, the median employee’s annual total compensation for 20212022 was calculated as follows:
$22,131,25,165, which represents the amount of such employee’s compensation for fiscal year 20212022 that would have been reported in the Summary Compensation Table in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K if the employee was a named executive officer for 2021.2022.
In accordance with the SEC rules, the annual total compensation of Mr. Sengstack is equal to 6,896,933,$6,700,247, which represents the amount reported in the “Total” column of the Summary Compensation Table beginning on page 3231. Pay versus Performance
As required by Item 402(v) of Regulation S-K, the Company is providing the following information about the relationship between executive compensation actually paid and the Company’s financial performance for each of the last three completed fiscal years. In determining the “compensation actually paid” to named executive officers (“NEOs”), the Company is required to make various adjustments to amounts that have been previously reported in the Summary Compensation Table in each such previous year, as the valuation methods for this disclosure under Item 402(v) differ from those required in reporting the compensation information in the Summary Compensation Table. For NEOs other than the principal executive officer (the “PEO”), compensation is reported as an average.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year | Summary Compensation Table Total for PEO ($)(1) | Compensation Actually Paid to PEO ($)(1)(3)(5) | Average Summary Compensation Table Total for Non-PEO NEOs ($)(2) | Average Compensation Actually Paid to Non-PEO NEOs ($)(2)(4)(5) | Value of Initial Fixed $100 Investment Based On: | Net Income ($)(7) | Adjusted EPS ($/sh)(8) |
Total Stockholder Return
($) | Peer Group Total Stockholder Return ($)(6) |
| 2022 | 6,700,247 | | 4,504,643 | | 1,711,922 | | 1,428,875 | | 143 | | 132 | | 187,332,000 | | 4.00 | |
| 2021 | 6,896,933 | | 14,635,531 | | 1,656,125 | | 2,850,173 | | 168 | | 139 | | 153,860,000 | | 3.14 | |
| 2020 | 5,953,917 | | 8,684,141 | | 1,476,632 | | 2,139,130 | | 122 | | 115 | | 100,460,000 | | 2.20 | |
(1)Gregg C. Sengstack is the PEO for each year presented.
(2)The Non-PEO NEOs for each year presented are:
2022 - Jeffery L. Taylor, Donald P. Kenney, DeLancey W. Davis, Jay J. Walsh
2021 - John J. Haines, Jeffery L. Taylor, Donald P. Kenney, DeLancey W. Davis, Jonathan M. Grandon
2020 - John J. Haines, Donald P. Kenney, DeLancey W. Davis, Jonathan M. Grandon
(3)The table below presents adjustments to the summary compensation table total to reflect the compensation actually paid to the PEO for 2022, 2021, and 2020.
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Summary Compensation Table Total for PEO | $ | 6,700,247 | | $ | 6,896,933 | | $ | 5,953,917 | |
| Less: Grant Date Fair Value of Equity Awards and Change in Pension Value Reported in the Summary Compensation Table | (4,557,850) | | (4,431,383) | | (4,175,317) | |
| Add: Actuarially Determined Service Cost for Services Rendered During the Fiscal Year and Change in Pension Value Attributable to Plan Amendments Made in the Current Year | 371,687 | | 287,737 | | 247,704 | |
| Add: Year-End Fair Value of Awards Granted in the Current Year | 3,600,652 | | 5,479,618 | | 4,239,112 | |
| Add: Change in Fair Value from Prior Year-End to Vesting Date of Equity Awards Granted in Prior Years that Vested in the Current Year | (1,253,153) | | 878,040 | | (184,789) | |
| Add: Change in Fair Value from Prior Year-End to Current Year-End of Outstanding and Unvested Equity Awards Granted in Prior Years | (474,620) | | 5,424,642 | | 2,523,911 | |
| Less: Fair Value at the End of the Prior Year of Equity Awards that were Forfeited in the Current Year | — | | — | | — | |
| Add: Value of Dividends or Other Earnings Paid on Stock or Option Awards not Otherwise Reflected in Fair Value or Total Compensation | 117,680 | | 99,944 | | 79,603 | |
| Compensation Actually Paid for PEO | $ | 4,504,643 | | $ | 14,635,531 | | $ | 8,684,141 | |
(4)The table below presents adjustments to the average summary compensation table total to reflect the average compensation actually paid to the Non-PEO NEOs for 2022, 2021, and 2020.
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
| Average of Summary Compensation Table Total for Non-PEO NEOs | $ | 1,711,922 | | $ | 1,656,125 | | $ | 1,476,632 | |
| Less: Grant Date Fair Value of Equity Awards and Change in Pension Value Reported in the Summary Compensation Table | (666,842) | | (686,414) | | (687,834) | |
| Add: Actuarially Determined Service Cost for Services Rendered During the Fiscal Year and Change in Pension Value Attributable to Plan Amendments Made in the Current Year | — | | — | | — | |
| Add: Year-End Fair Value of Awards Granted in the Current Year | 600,271 | | 923,429 | | 863,867 | |
| Add: Change in Fair Value from Prior Year-End to Vesting Date of Equity Awards Granted in Prior Years that Vested in the Current Year | (160,773) | | 318,544 | | (28,487) | |
| Add: Change in Fair Value from Prior Year-End to Current Year-End of Outstanding and Unvested Equity Awards Granted in Prior Years | (71,623) | | 678,613 | | 498,417 | |
| Less: Fair Value at the End of the Prior Year of Equity Awards that were Forfeited in the Current Year | — | | (56,683) | | — | |
| Add: Value of Dividends or Other Earnings Paid on Stock or Option Awards not Otherwise Reflected in Fair Value or Total Compensation | 15,920 | | 16,559 | | 16,535 | |
| Average Compensation Actually Paid for Non-PEO NEOs | $ | 1,428,875 | | $ | 2,850,173 | | $ | 2,139,130 | |
(5)The fair values of unvested and outstanding equity awards were remeasured as of the end of each fiscal year and as of each vesting date during the years presented in the compensation actually paid calculation. For performance share units, fair values reflect the probable outcome of the performance vesting conditions as of each measurement date. For stock options, fair values use the Black-Scholes valuation method with an expected life assumption that uses the midpoint of the remaining contractual term and time until vesting as of each valuation date. The other Black-Scholes valuation criteria remained consistent with the criteria used at the grant of the options.
(6)The peer group consists of the proxy disclosed peer group listed in the "Compensation Discussion and Analysis" section of this Proxy Statement.
(7)Net Income refers to "Net Income attributable to Franklin Electric Co., Inc." as reported in the Company's Annual Report on Form 10-K in Item 8. Financial Statements and Supplementary Data.
(8)In 2022, restructuring expense was excluded in calculating Adjusted EPS, which decreased GAAP EPS by $0.03. In 2021, restructuring expense and the non-operational impact of the bargain purchase gains recognized in the fourth quarter of 2020 and second quarter 2021 acquisitions were excluded in calculating adjusted EPS, which increased GAAP EPS by $0.11. In 2020, restructuring expense and the non-operational income statement impact of the December 31, 2020 acquisition were excluded in calculating adjusted EPS, which decreased GAAP EPS by $0.06.
As illustrated in the table above and the charts on the next page, the compensation actually paid (calculated as required under SEC rules) for the Company’s named executive officers over the past three fiscal years has directionally aligned with the Company’s Total Stockholder Return (“TSR”), Net Income, and Adjusted Earnings Per Share (“EPS”), the Company-selected financial performance metric. The Company believes the compensation actually paid in each of the years reported above and over the three-year cumulative period are reflective of the Compensation Committee’s emphasis on pay-for-performance as the compensation actually paid fluctuated year-over-year, primarily due to the result of the Company’s stock performance and varying levels of achievement against pre-established performance goals under the Company’s annual and long-term incentive programs.
The chart below shows the relationship between compensation actually paid to the PEO and the average of the compensation actually paid to the other NEOs and the Company’s net income over the three fiscal years ending December 31, 2022. The SEC requires companies to compare compensation actually paid to the PEO and other NEOs and net income. However, the Company does not link NEO compensation to net income performance.
The chart below shows the relationship between compensation actually paid to the PEO and the average of compensation actually paid to the other NEOs and the Company’s cumulative TSR over three fiscal years ending December 31, 2022. The SEC requires companies to compare compensation actually paid to the PEO and other NEOs and the Company’s cumulative TSR. However, the Company does not link NEO compensation to the Company’s cumulative TSR.
The chart below shows the relationship between compensation actually paid to the PEO and the average of the compensation actually paid to the other NEOs and Adjusted EPS over three fiscal years ending December 31, 2022.
The chart below compares the Company’s cumulative TSR to the cumulative TSR of the Company’s Peer Group over the three fiscal years ending December 31, 2022.
The financial performance measures listed below represent the most important metrics the Company used to link compensation actually paid to the PEO and other NEOs to Company performance for the most recently completed fiscal year.
| | | | | |
| Financial Performance Measure | Relationship to Pay |
| Adjusted EPS | Annual Incentive Plan |
| Operating Income | Annual Incentive Plan |
| Working Capital | Annual Incentive Plan |
| Normalized EBITDA | Long-term Incentive Plan |
2022 Pension Benefits Table
The following table sets forth (i) the years of service currently credited to each named executive officer under the Company’s pension plans and (ii) the present value of the accumulated benefit payable under each pension plan to each of the named executive officers upon retirement. | | | | | | | | | | | | | | |
Named Executive Officer
| Plan Name(1) | Number of Years of Credited Service
# | Present Value of Accumulated Benefit ($)(2)(3)(4) | Payments During Last Fiscal Year
($) |
| Gregg C. Sengstack | Basic Retirement Portion
Cash Balance Portion
Pension Restoration Plan | 28.0
23.1
33.1 | 132,474
648,209
9,986,206 | —
—
— |
| Jeffery L. Taylor | N/A | N/A | N/A | N/A |
| John J. Haines | Cash Balance Portion | 4.0 | 51,420 | — | |
| Donald P. Kenney | Basic Retirement Portion
Cash Balance Portion | 25.5
20.8 | 105,427
465,091 | —
— |
| DeLancey W. Davis | Basic Retirement Portion
Cash Balance Portion | 6.6
7.0 | 24,117
106,015 | —
— |
| Jonathan M. Grandon | N/A | N/A | N/A | N/A |
| | | | | | | | | | | | | | |
Named Executive Officer
| Plan Name(1) | Number of Years of Credited Service
# | Present Value of Accumulated Benefit ($)(2)(3)(4) | Payments During Last Fiscal Year
($) |
| Gregg C. Sengstack | Basic Retirement Portion
Cash Balance Portion
Pension Restoration Plan | 28.0
23.1
34.1 | 102,994
658,806
10,562,951 | —
—
— |
| Jeffery L. Taylor | N/A | N/A | N/A | N/A |
| Donald P. Kenney | Basic Retirement Portion
Cash Balance Portion | 25.5
20.8 | 81,814
450,984 | —
— |
| DeLancey W. Davis | Basic Retirement Portion
Cash Balance Portion | 6.6
7.0 | 16,673
91,813 | —
— |
| Jay J. Walsh | Basic Retirement Portion
Cash Balance Portion | 16.9
12.0 | 35,703
133,687 | —
— |
(1)As of December 31, 2011, the Basic Retirement Plan and Cash Balance Pension Plan were merged and renamed the Pension Plan.
(2)As of December 31, 2011, the named executive officers stopped accruing benefits under all plans except for Mr. Sengstack, who continues to accrue benefits under the Basic Retirement portion of the Pension Plan and the Pension Restoration Plan.
(3)The amounts in this column are based on a retirement age of 65 for Messrs. Haines, Kenney, Davis, and Davis.Walsh. For Mr. Sengstack, retirement age is 63.564.5 for the Basic Retirement portion of the Pension Plan and the Pension Restoration Plan, and age 65 for the Cash Balance portion of the Pension Plan.
(4)Messrs. Taylor and Grandon areis ineligible for the Basic Retirement Portion, Cash Balance Portion, and the Pension Restoration Plan.
Pension Plan
In 2011, the Company implemented a redesign of its retirement program. Its two tax-qualified defined benefit pension plans, the Basic Retirement Plan and the Cash Balance Pension Plan, were merged into a single plan called the Pension Plan. As
discussed below, as of December 31, 2011, benefit accruals under the Basic Retirement portion of the Pension Plan ceased for all participants younger than age 50 and benefit accruals under the Cash Balance portion of the Pension Plan ceased for all participants. In addition, benefits under the non-qualified Pension Restoration Plan ceased for all participants other than Mr. Sengstack. Participants will instead receive additional benefits under the Company’s defined contribution plans (see the
discussion in the Compensation Discussion and Analysis and in the 20212022 Nonqualified Deferred Compensation Table and narrative in this Proxy Statement).
Basic Retirement Plan
The Basic Retirement portion of the Pension Plan covers most U.S. employees of the Company and its affiliates, including the named executive officers, who were hired before February 21, 2006. The Basic Retirement Plan provides each eligible named executive officer with a monthly single life annuity commencing at normal retirement age (age 65) equal to the number of years of credited service times $25. Participants are eligible to receive benefits after completing five years of vesting service. Participants who terminate employment after age 55 with 10 years of vesting service are eligible to receive early retirement benefits that are reduced to reflect commencement prior to age 65. Participants who terminate employment on or after age 62 with 25 years of vesting service are eligible to receive early retirement benefits that are unreduced for commencement prior to age 65. Participants with five years of vesting service who terminate employment and are not eligible to receive early retirement benefits are eligible for benefits commencing at age 65. Mr. Sengstack and Mr. Kenney are currently eligible for early retirement benefits. Messrs.Mr. Taylor Haines, and Grandon areis not eligible to participate in the Plan because he was hired after February 21, 2006.
The benefit formula calculates the benefit payable in a single life annuity form, which is the normal form of benefit for unmarried participants. The normal form of benefit payment for married participants is a 50%50 percent joint and survivor annuity. Participants, with spousal consent, if applicable, can waive the normal form and elect to have benefits paid in various annuity forms, which are the actuarially equivalent of the single life annuity form.
The Basic Retirement Plan was amended in 2011 to provide that participants younger than age 50 as of December 31, 2011 (which includes Mr. Davis)Messrs. Davis and Walsh) stopped earning benefits as of such date, and participants 50 or older as of December 31, 2011 (which includes Messrs. Sengstack and Kenney) stopped earning benefits on December 31, 2016 (or if earlier, their termination of employment).
Cash Balance Pension Plan
The Cash Balance portion of the Pension Plan is a tax-qualified pension plan that covers most U.S. employees of the Company and its affiliates who are classified as "exempt" and who are not covered by a collective bargaining agreement, which includes each named executive officer. As of December 31, 2011, the Plan was closed to new participants and all participants stopped accruing further benefits. An account is maintained for each participant under the Plan, which consists of (i) an opening account balance equal to the then present value of the participant's accrued benefit, if any, earned as of December 31, 1999 under one of the Company's prior pension plans; (ii) annual contributions made by the Company as of the end of each calendar year through 2011 that ranged from 3%3 percent to 12%12 percent of the participant's compensation (based on the participant's credited service); (iii) annual transitional credits made by the Company from 2000-2004 equal to 6%6 percent of compensation of each participant whose age and years of vesting service as of December 31, 1999 totaled 45 or more; and (iv) until distribution of the account, annual interest credits made by the Company as of the end of each calendar year, based on the 30-year Treasury security rate for the November preceding each such year (subject to a minimum interest rate of 4.5%)4.5 percent). Compensation included wages subject to withholding, excluding income recognized in connection with the Company's stock based plans, reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation, and welfare benefits (as limited by applicable Internal Revenue Code limits).
Participants are eligible to receive benefits after completing three years of service. They can elect to receive their benefits upon termination of employment or they can defer receipt of benefits until age 65. Any accounts remaining in the Cash Balance Plan will continue to be credited with interest until the account is paid. The normal form of benefit payment for unmarried participants is a single life annuity, and the normal form of benefit payment for married participants is a 50%50 percent joint and survivor annuity. Participants, with spousal consent, if applicable, can waive the normal form and elect to have benefits paid in various annuity forms, which are the actuarially equivalent of the normal form, or in a lump sum.
Pension Restoration Plan
The Pension Restoration Plan is an unfunded, non-qualified pension plan that is intended to provide an employee with the portion of his benefits that cannot be paid under the Pension Plan or the Contributory Retirement Plan (the predecessor to the Cash Balance portion of the Pension Plan) due to Internal Revenue Code limitations on the amount of compensation that can be taken into account in determining benefits under, and the amount of benefits that can be paid from, tax-qualified pension plans.
The benefits of Mr. Sengstack are based on the formula in effect under the Contributory Retirement Plan on December 31, 1999, but without regard to the Internal Revenue Code limits. This formula is based on the employee's credited service and final three-year average compensation, with an offset for benefits provided by the Basic Retirement portion of the Pension Plan,
the Cash Balance portion of the Pension Plan and Social Security. There is a minimum benefit whereby if the monthly benefit amount paid to the employee under the Pension Plan, Pension Restoration Plan and Social Security is less than a designated percentage of the employee's three-year final average compensation, the difference is paid from the Pension Restoration Plan. The current designated percentage (which is based on years of service at retirement) for Mr. Sengstack is 50%50 percent (assuming retirement at age 63.5)64.5).
The benefits of Messrs. Haines andMr. Davis werewas determined by applying the formula in the Cash Balance portion of the Pension Plan for all eligible compensation (including compensation in excess of the Code limits), offset for the benefits provided by the Cash Balance portion of the Pension Plan. All participants other than Mr. Sengstack stopped earning benefits as of December 31, 2011 and instead participate in the Supplemental Retirement and Deferred Compensation Plan, under which they receive additional Company contributions. The value of their frozen benefit under the Pension Restoration Plan was transferred to the Supplemental Retirement and Deferred Compensation Plan as of January 1, 2012.
The benefit accrued under the Pension Restoration Plan is paid upon termination of employment as follows: (i) if the lump sum value is less than $1,000,000, it will be paid in a lump sum within 90 days following termination; (ii) if the lump sum value is more than $1,000,000 but less than $2,000,000, one-half of the benefit will be paid within 90 days following termination, the remaining benefit will be paid as a single life annuity over the first 12 months following termination, and the benefit remaining at the end of the 12-month period will be paid in a lump sum on the first anniversary of termination; (iii) if the lump sum value is $2,000,000 or more, one-third will be paid within 90 days following termination, the remaining benefit will be paid as a single life annuity over the first 12 months following termination, one-half of the benefit remaining at the end of the 12-month period will be paid in a lump sum on the first anniversary of termination, the remaining benefit will be paid as a single life annuity over the second 12-month period following termination and the benefit remaining at the end of the second 12-month period will be paid in a lump sum on the second anniversary of termination. If the participant is deemed to be a “key employee” as defined in Section 409A of the Internal Revenue Code, any distribution that is payable due to termination of employment will be delayed for six months following the date of such termination. Notwithstanding the foregoing, upon a change in control of the Company, all participants become fully vested in their benefits, all benefits will be paid in a lump sum within 60 days after the change in control and active participants will have three years of additional age and service credits in determining benefits.
Pension Plan Assumptions
The assumptions used in calculating the present value of the accumulated pension benefits are set forth in Note 7 of the audited financial statements contained in the Company's Annual Report to Shareholders for the year ended December 31, 2021.2022. The Company does not grant additional years of credited service under its pension plans.
2021
2022 Nonqualified Deferred Compensation
The following table sets forth (i) the contributions made by each named executive officer and the Company in fiscal 2021,2022, (ii) the earnings on the account balances as of December 31, 20212022 and (iii) the account balances as of December 31, 20212022 under the Company’s Supplemental Retirement and Deferred Compensation Plan. | | | | | | | | | | | | | | | | | |
Name
| Executive Contribution in Last Fiscal Year ($)(1) | Company Contribution in Last Fiscal Year ($)(2) | Aggregate Earnings in Last Fiscal Year ($)(3) | Aggregate Withdrawals/
Distributions
($) | Aggregate Balance at Last Fiscal Year End ($)(4)(5) |
| | | | | |
| Gregg C. Sengstack | — | | — | | 229,053 | | — | | 1,027,598 | |
| Jeffery L. Taylor | — | | 5,298 | | — | | — | | 5,298 | |
| John J. Haines | — | | 60,266 | | 30,747 | | — | | 586,336 | |
| Donald P. Kenney | — | | 80,415 | | 11,755 | | — | | 502,684 | |
| DeLancey W. Davis | — | | 59,182 | | 13,168 | | — | | 475,846 | |
| Jonathan M. Grandon | — | | 34,420 | | 8,385 | | — | | 117,108 | |
| | | | | | | | | | | | | | | | | |
Name
| Executive Contribution in Last Fiscal Year ($)(1) | Company Contribution in Last Fiscal Year ($)(2) | Aggregate Earnings in Last Fiscal Year ($)(3) | Aggregate Withdrawals/
Distributions
($) | Aggregate Balance at Last Fiscal Year End ($)(4)(5) |
| | | | | |
| Gregg C. Sengstack | — | | — | | (186,149) | | — | | 841,449 | |
| Jeffery L. Taylor | — | | 31,271 | | 238 | | — | | 36,807 | |
| Donald P. Kenney | — | | 110,654 | | 9,302 | | — | | 622,641 | |
| DeLancey W. Davis | — | | 83,498 | | 11,752 | | — | | 571,096 | |
| Jay J. Walsh | 193,558 | | 91,004 | | 2,226 | | — | | 806,757 | |
(1)This amount is reported in the "Salary" column of the Summary Compensation table in this Proxy Statement.
(2)The Company contributions are reflected in the "All Other Compensation" column of the Summary Compensation table of this Proxy Statement.
(3)The earnings reported in this column are not included in the Summary Compensation table.
(4)The aggregate balance reflects amounts previously reported in the Summary Compensation table except for the following earnings: Mr. Sengstack: $679,769;$493,620; Mr. Haines: $151,085;Taylor: $238; Mr Kenney: $43,861;$53,163; Mr. Davis: $64,516;$76,268; and Mr. Grandon: $21,421.Walsh: $2,226.
(5)For Messrs. Haines andMr. Davis, the aggregate balances also include the cash balance accounts under the Pension Restoration Plan that were transferred to this Plan as of January 1, 2012: Mr. Haines: $18,714; and Mr. Davis: $34,477.
The Supplemental Retirement and Deferred Compensation Plan permits executive officers of the Company to elect each year to defer up to 90%90 percent of their bonus awards and up to 50%50 percent of their salary. Deferred amounts are credited to a notional account maintained on behalf of the participant, which is adjusted for earnings and losses based on investment funds made available by the Management Organization and Compensation Committee.
Beginning in 2012, the Company provides two types of contributions to participants who do not continue to accrue benefits under the Pension Restoration Plan. The Company provides the portion of the service-based contribution that could not be made under the Retirement Program due to IRS limitations (the service-based contribution ranges from 3%3 percent to 9%9 percent of a participant’s compensation depending on years of service). The Company also provides a supplemental contribution of 2%2 percent to 4%4 percent of a participant’s total compensation depending on years of service. In addition, participants who stopped accruing benefits under the Pension Restoration Plan had their benefit transferred to the Plan as of January 1, 2012. A participant’s deferral account, service contribution account and transferred Pension Restoration Plan account will be credited with earnings and losses based on the investment funds made available by the Management Organization and Compensation Committee. Earnings on the supplemental contribution account will follow the methodology used in the now-frozen Cash Balance portion of the Pension Plan, which credits earnings based on the 30-year Treasury rate, but not less than 4.5%.4.5 percent.
A participant’s accounts under the Plan will generally be distributed to him as soon as practicable after the first of the month following termination of employment (provided that distribution to a “key employee” as defined in Section 409A of the Internal Revenue Code will be deferred for six months). TheMr. Walsh is the only Named Executive Officers did not contributeOfficer who contributed to the plan in 2021,2022, although Messrs. Taylor, Haines, Kenney, Davis, and GrandonDavis received Company contributions.
Potential Payments upon Termination or Change in Control of the Company
The Company provides benefits to certain of the named executive officers upon certain terminations of employment from the Company. These benefits are in addition to the benefits to which the executives would be entitled upon a termination of employment generally (i.e., vested retirement benefits accrued as of the date of termination, stock-based awards that are vested as of the date of termination and the right to elect continued health coverage pursuant to COBRA). The incremental benefits payable to the executives are described as follows:
Employment Agreement
The employment agreement of Mr. Sengstack has a three-year term that automatically renews for an additional year unless either party provides advance written notice of an election not to extend the term. The agreement provides the following severance benefits under the described termination scenarios:
•Termination – Nonrenewal of Employment Agreement. If the executive terminates his employment at any time during the term of the agreement after receipt of notice from the Company of its decision to not extend the term, he is entitled to (i) a later payment of a pro rata portion of the bonus payable for the year of termination), (ii) an immediate payment equal to 12 months of his then current salary and one times the target bonus for the year of termination, (iii) immediate vesting of all outstanding stock options, immediate pro rata vesting of time-based restricted stock and units, and pro rata vesting of performance-based restricted stock and units at the end of the performance period based on actual performance, (iv) continued participation in the Company’s health and welfare plans for 12 months, and (v) a lump sum payment equal to the benefits that would have accrued under the Company's retirement plans for 12 months.
•Termination – Prior to a Change in Control. If a Change in Control of the Company (as defined in the agreements) has not occurred and the executive’s employment is terminated by the Company for other than “Good Cause” or the executive terminates his employment for “Good Reason,” he is entitled to (i) a later payment of pro rata portion of the bonus payable for the year of termination), (ii) an immediate payment equal to 18 months of his then current salary and one and one-half times the target bonus for the year of termination, (iii) immediate vesting of all outstanding stock options, immediate pro rata vesting of time-based restricted stock and units and pro rata vesting of performance-based restricted stock and units at the end of the performance period based on actual performance, (iv) continued participation in the Company’s health and welfare plans for the applicable severance period, and (v) a lump sum payment equal to the benefits that would have been earned under the Company's retirement plans during the applicable severance period.
•Termination – Following a Change in Control. If following a Change in Control of the Company (as defined in the agreements) the executive’s employment is terminated within two years of the Change in Control by the Company for other than “Good Cause” or by the executive for “Good Reason”, he is entitled to an immediate payment equal to (i) a pro rata portion of the target bonus paid for the year of termination, (ii) an immediate
payment equal to 36 months of his then current salary and three times the target bonus for the year of termination,
(iii) immediate vesting and cash out of all outstanding stock options and immediate vesting of all other restricted stock and units (with performance-based awards vesting at target level), (iv) continued participation in the Company’s health and welfare plans for the applicable severance period, and (v) a lump sum payment equal to the benefits that would have accrued under the Company's retirement plans (other than the Pension Restoration Plan) during the applicable service period. With respect to any excise tax, each executive can elect to either (i) receive the full amount of severance benefits and be responsible for paying any excise tax or (ii) receive severance benefits that are reduced to the maximum amount that can be paid without triggering the excise tax.
The employment agreement contains a restrictive covenant that prohibits the executive from competing with the Company and soliciting the Company's customers and employees for 24 months following termination. The agreement provides that an amount of severance equal to one times salary and one times the prior year's bonus serves as consideration for this restrictive covenant as well as the separate confidentiality and non-compete agreement the executive has executed.
For purposes of the employment agreement:
•“Good Cause” means the executive’s death or disability, his fraud, misappropriation of, or intentional material damage to the property or business of the Company, his commission of a felony likely to result in material harm or injury to the Company, or his willful and continued material failure to perform his obligations.
•“Good Reason” exists if (a) there is a change in the executive’s title or a significant change in the nature or the scope of his authority, (b) there is a reduction in the executive’s salary or retirement benefits or a material reduction in the executive’s compensation and benefits in the aggregate, (c) the Company changes the principal location in which the executive is required to perform services to more than fifty miles away, (d) the executive reasonably determines that, as a result of a change in circumstances significantly affecting his position, he is unable to exercise the authority or duties attached to his positions, or (e) any purchaser of substantially all of the assets of the Company declines to assume the obligations under the employment agreement.
Employment Security Agreements
Certain executives, including Messrs. Taylor, Kenney, Davis, and Grandon,Walsh, are parties to employment security agreements (ESA) with the Company that provide benefits upon a Change in Control (as defined in the ESA). Each ESA provides that if within two years after a Change in Control the Company terminates the executive’s employment for any reason other than “Good Cause”, or the executive terminates his employment with the Company for “Good Reason” (as defined in the ESA), the executive is entitled to the following:
•a lump sum payment equal to the sum of two times the executive’s base salary, a pro-rata portion of the executive’s target bonus for the current year (based on the termination date), and two times the executive’s target bonus for the current year;
•a lump sum payment equal to the increase in benefits under the Company’s tax-qualified and supplemental retirement plans that results from crediting the executive with additional service for 24 months;
•immediate vesting of all stock-based awards and deemed satisfaction of all performance-based awards at target level;
•continued coverage under the Company’s health and welfare plans for 24 months following termination;
•12 months of executive outplacement services (not to exceed $50,000) with a professional outplacement firm selected by the Company; and
•with respect to any excise tax, each executive can elect to either receive the full amount of severance benefits and be responsible for paying any excise tax, or receive severance benefits that are reduced to the maximum amount that can be paid without triggering the excise tax.
For purposes of the ESAs:
•“Good Cause” means the executive’s intentional and material misappropriation of, or damage to, the property or business of the Company, his conviction of a criminal violation involving fraud or dishonesty or of a felony that causes material harm or injury to the Company, or his willful and continuous failure to perform his obligations under the ESA that is not cured.
•“Good Reason” means a material reduction in the executive’s salary or retirement benefits or a material reduction in his compensation and benefits in the aggregate, or any purchaser of substantially all of the assets of the Company declines to assume all of the Company’s obligations under the ESA.
The ESAs contain a restrictive covenant that prohibits the executive from soliciting employees of the Company for 18 months following termination. The agreements provide that an amount of severance equal to one times salary and one times the prior year’s bonus serves as consideration for this restrictive covenant as well as the separate confidentiality and non-compete agreement each executive has executed.
Executive Non-CIC Severance Plan
Certain executives, including Messrs. Taylor, Kenney, Davis, and GrandonWalsh are parties to the Executive Severance Policy, which provides non-CIC severance for executives if not already stated in the executive's employment agreement. Under the policy, if the executive’s employment is terminated by the Company without cause and prior to a change in control (as defined in the ESA), the executive is entitled to the following payments and benefits:
•A lump sum payment equal to the one and one-half times the sum of the annual base pay plus target bonus in the case of the Chief Executive Officer, and one times annual base pay plus target bonus for all other Executive Officers;
•A lump sum payment equal to a pro-rata portion of the Executive Officer’s annual bonus in effect on the employment termination date, based on the level of achievement of the Company’s performance goals, as approved by the Management Organization and Compensation Committee of the Board for the year in which the Executive’s termination of employment occurs;
•Accelerated vesting of stock-based awards not otherwise eligible for accelerated vesting under the terms of an applicable stock award agreement, and the removal of all restrictions on time-based awards of restricted stock or restricted stock units; and
•Accelerated vesting of any performance-based stock awards or units; and
•Payment of COBRA premiums until the eighteen-month anniversary, in the case of the Chief Executive Officer, or the one-year anniversary, in the case of all other Executive Officers, of the termination date.
Pension Restoration Plan
The Pension Restoration Plan, in which Mr. Sengstack participates, provides that upon a Change in Control of the Company (as defined in the Plan), (i) all participants will become 100%100 percent vested in their benefits, which will be paid in an immediate lump sum within 60 days, and (ii) active participants will have three years of additional credit for age and service in determining their benefits under the Plan.
Stock Plan
Awards under the Company's stock plans fully vest, and performance measures are deemed met at the target level, upon a Change in Control (as defined in the applicable stock plan) of the Company. Stock Option Agreements provide for full vesting upon a termination of employment due to death, disability or retirement. Restricted Stock Agreements and the Restricted Stock Unit Agreements provide for pro-rata vesting upon termination of employment due to death, disability or retirement. Performance Share Unit Agreements provide for pro-rata vesting at the end of the performance period upon termination due to death, disability or retirement.
The following tables set forth on the next page quantify the additional benefits described aboveon the previous pages that would be paid to each named executive officer, except for Mr. Haines as he retired effective December, 31, 2021, pursuant to the arrangements described above under the following termination scenarios: assuming a non-renewal of the employment agreement, termination of employment and/or change in control occurred on December 31, 2021.2022.
Termination – Nonrenewal of Employment Agreement | | | | | | | | | | | | | | | | | | | | | | |
Name
| Salary ($)(1) | Non-Equity Plan Compensation ($)(2) | Accelerated Vesting of Options ($)(3)(6) | | | Accelerated Vesting of Restricted Stock/Units/Performance Share Units ($)(4)(6) | Additional Retirement Plan Credits ($) | Continued Benefit Plan Coverage ($) |
| Gregg C. Sengstack | 870,000 | | 2,494,898 | | 5,624,736 | | | | 6,177,227 | | 2,219,851 | | 19,010 | |
| Jeffery L. Taylor | — | | — | | — | | | | — | | — | | — | |
| John J. Haines | — | | — | | — | | | | — | | — | | — | |
| Donald P. Kenney | — | | — | | — | | | | — | | — | | — | |
| DeLancey W. Davis | — | | — | | — | | | | — | | — | | — | |
| Jonathan M. Grandon | — | | — | | — | | | | — | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Name
| Salary ($)(1) | Non-Equity Plan Compensation ($)(2) | Accelerated Vesting of Options ($)(3)(6) | | | Accelerated Vesting of Restricted Stock/Units/Performance Share Units ($)(4)(6) | Additional Retirement Plan Credits ($) | Continued Benefit Plan Coverage ($) |
| Gregg C. Sengstack | 900,000 | | 2,129,611 | | 840,465 | | | | 3,524,632 | | 377,271 | | 19,302 | |
| Jeffery L. Taylor | — | | — | | — | | | | — | | — | | — | |
| Donald P. Kenney | — | | — | | — | | | | — | | — | | — | |
| DeLancey W. Davis | — | | — | | — | | | | — | | — | | — | |
| Jay J. Walsh | — | | — | | — | | | | — | | — | | — | |
Termination – No Change in Control | | | | | | | | | | | | | | | | | | | | | | |
Name
| Salary ($)(1) | Non-Equity Plan Compensation ($)(2) |
Accelerated Vesting of Options ($)(3)(6) | | | Accelerated Vesting of Restricted Stock/Units/Performance Share Units ($)(4)(6) |
Additional Retirement Plan Credits ($) |
Continued Benefit Plan Coverage ($) |
| Gregg C. Sengstack | 1,305,000 | | 2,973,398 | | 5,624,736 | | | | 6,177,227 | | 2,433,054 | | 28,515 | |
| Jeffery L. Taylor | 475,000 | | 517,954 | | — | | | | 709,200 | | — | | 11,475 | |
| John J. Haines | — | | — | | — | | | | — | | — | | — | |
| Donald P. Kenney | 477,000 | | 930,956 | | 1,269,785 | | | | 2,112,660 | | — | | 16,674 | |
| DeLancey W. Davis | 400,000 | | 841,050 | | 784,555 | | | | 1,288,380 | | — | | 16,906 | |
| Jonathan M. Grandon | 400,125 | | 703,974 | | 804,796 | | | | 1,322,611 | | — | | 19,010 | |
| | | | | | | | | | | | | | | | | | | | | | |
Name
| Salary ($)(1) | Non-Equity Plan Compensation ($)(2) |
Accelerated Vesting of Options ($)(3)(6) | | | Accelerated Vesting of Restricted Stock/Units/Performance Share Units ($)(4)(6) |
Additional Retirement Plan Credits ($) |
Continued Benefit Plan Coverage ($) |
| Gregg C. Sengstack | 1,350,000 | | 2,621,438 | | 840,465 | | | | 3,524,632 | | 551,284 | | 28,953 | |
| Jeffery L. Taylor | 492,500 | | 794,233 | | — | | | | 864,570 | | — | | 18,701 | |
| Donald P. Kenney | 492,500 | | 941,252 | | 207,877 | | | | 1,498,423 | | — | | 14,989 | |
| DeLancey W. Davis | 415,000 | | 798,216 | | 112,574 | | | | 807,868 | | — | | 14,026 | |
| Jay J. Walsh | 390,000 | | 720,760 | | 82,955 | | | | 657,698 | | — | | 1,314 | |
Termination – Change in Control | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name
|
Salary ($)(1) |
Non-Equity Plan Compensation ($)(2) |
Accelerated Vesting of Options ($)(3) | | |
Accelerated Vesting of Restricted Stock/Units/Performance Share Units ($)(4) |
Additional Retirement Plan Credits
($) |
Continued Benefit Plan Coverage ($) |
Outplacement Services ($) | Forfeiture ($)(5) |
| Gregg C. Sengstack | 2,610,000 | | 3,827,997 | | 5,624,736 | | | | 9,254,114 | | 2,654,650 | | 57,030 | | — | | (2,921,757) | |
| Jeffery L. Taylor | 950,000 | | 596,034 | | — | | | | 709,200 | | 63,843 | | 22,950 | | 50,000 | | (446,877) | |
| John J. Haines | — | | — | | — | | | | — | | — | | — | | — | | — | |
| Donald P. Kenney | 954,000 | | 1,073,250 | | 1,269,785 | | | | 2,112,660 | | 418,078 | | 33,348 | | 50,000 | | (476,225) | |
| DeLancey W. Davis | 800,000 | | 900,000 | | 784,555 | | | | 1,288,380 | | 316,001 | | 33,813 | | 50,000 | | — | |
| Jonathan M. Grandon | 800,250 | | 810,253 | | 804,796 | | | | 1,322,611 | | 199,091 | | 38,019 | | 50,000 | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name
|
Salary ($)(1) |
Non-Equity Plan Compensation ($)(2) |
Accelerated Vesting of Options ($)(3) | | |
Accelerated Vesting of Restricted Stock/Units/Performance Share Units ($)(4) |
Additional Retirement Plan Credits
($) |
Continued Benefit Plan Coverage ($) |
Outplacement Services ($) | Forfeiture ($)(5) |
| Gregg C. Sengstack | 2,700,000 | | 3,934,615 | | 840,465 | | | | 6,208,139 | | 1,079,702 | | 57,905 | | — | | — | |
| Jeffery L. Taylor | 985,000 | | 1,100,553 | | — | | | | 864,570 | | 175,207 | | 37,402 | | 50,000 | | — | |
| Donald P. Kenney | 985,000 | | 1,100,553 | | 207,877 | | | | 1,498,423 | | 549,366 | | 29,977 | | 50,000 | | — | |
| DeLancey W. Davis | 830,000 | | 927,260 | | 112,574 | | | | 807,868 | | 421,726 | | 28,052 | | 50,000 | | — | |
| Jay J. Walsh | 780,000 | | 783,909 | | 82,955 | | | | 657,698 | | 466,735 | | 2,628 | | 50,000 | | — | |
(1)Based on salary rates effective January 1, 2021.March 14, 2022.
(2)Reflects target annual bonus based on salary rates effective during 20212022 and actual bonus payments.
(3)Based on the difference between the exercise price of the unvested stock options multiplied by $94.56,$79.75, the closing price of the stock on December 31, 2021.2022.
(4)Based on the unvested awards (the target number in the case of performance-based awards) multiplied by the $94.56$79.75 closing price of the stock on December 31, 2021.2022.
(5)The employment agreements give the executive the choice of receiving full benefits or having them reduced so as not to trigger the excise tax. The severance benefits of Mr.Messrs. Sengstack, Kenney, and Davis waswere below the amount that would trigger the excise tax. Mr. Grandon'sMessrs. Taylor and Walsh's benefits exceeded the triggering amount and receipt of full benefits with payment of the excise tax resulted in a better after-tax situation than forfeiture of benefits in excess of the triggering amount. However, underUnder the "net-better" provision, Messrs. Sengstack, Taylor and Kenneythere are no named executive officers that would prefer to forfeit payments to avoid the excise tax.
(6)Stock Plan Agreements provide for full vesting of Options and pro-rata vesting of Restricted Stock Units upon termination due to death, disability, or retirement. As of December 31, 20212022 Messrs. Sengstack, Kenney, and Davis are retirement eligible.
DIRECTOR COMPENSATION
Compensation for non-employee directors is determined by the Board of Directors, upon recommendation of the Corporate Governance Committee. Management makes recommendations to the Corporate Governance Committee with respect to non-employee director compensation. The Management Organization and Compensation Committee, pursuant to the Company’s Stock Plan, makes the actual stock-based award. Director Compensation is determined by compiling the compensation data for each of the Peer Group companies listed in the Compensation Discussion and Analysis and comparing such compensation to the current pay for the Company’s directors.
The following table sets forth the compensation received by the Company’s non-employee directors for the year ended December 31, 2021.2022.
| Name
| Name
| Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | All Other Compensation ($) | Total ($) | Name
| Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | All Other Compensation ($) | Total ($) |
| Victor D. Grizzle | Victor D. Grizzle | 90,000 | 130,000 | | — | | — | | 220,000 | | Victor D. Grizzle | 96,000 | 130,000 | | — | | — | | 226,000 | |
| Alok Maskara | Alok Maskara | 93,500 | 130,000 | | — | | — | | 223,500 | | Alok Maskara | 93,500 | 130,000 | | — | | — | | 223,500 | |
| Renee J. Peterson | Renee J. Peterson | 97,500 | 130,000 | | — | | — | | 227,500 | | Renee J. Peterson | 97,500 | 130,000 | | — | | — | | 227,500 | |
| Jennifer L. Sherman | Jennifer L. Sherman | 96,000 | 130,000 | | — | | — | | 226,000 | | Jennifer L. Sherman | 96,000 | 130,000 | | — | | — | | 226,000 | |
| Thomas R. VerHage | Thomas R. VerHage | 109,500 | 130,000 | | — | | — | | 239,500 | | Thomas R. VerHage | 109,500 | 130,000 | | — | | — | | 239,500 | |
| Chris Villavarayan | | Chris Villavarayan | 87,500 | 130,000 | | — | | — | | 217,500 | |
| David M. Wathen | David M. Wathen | 87,500 | 130,000 | | — | | — | | 217,500 | | David M. Wathen | 87,500 | 130,000 | | — | | — | | 217,500 | |
(1)Fees deferred into the Non-Employee Directors’ Deferred Compensation Plan were: Mr. Grizzle $220,000,$96,000, Ms. Peterson $227,500,$97,500, Ms. Sherman $226,000,$96,000, Mr. VerHage $109,500, and Mr. VerHage $239,500.Villavarayan $87,500.
(2)The amounts in this column are the grant date fair values of the stock awards granted to the non-employee directors, computed in accordance with FASB Codification Topic 718. Each director received an award of 1,495 1,838 shares, and Messrs. Grizzle, and VerHage and Mses. Peterson and Sherman elected to defer their stock awards into the Non-Employee Directors’ Deferred Compensation Plan.
(3)No options were granted to non-employee directors in 20212022 and no non-employee director holds any outstanding options.
Retainer and Fees
Non-employee directors are paid an annual retainer of $75,000. The Audit Committee Chairperson receives an additional fee of $22,500 and Audit Committee members receive an additional fee of $12,500. The Governance Committee Chairperson and Compensation Committee Chairperson each receive an additional fee of $15,000, and members of each committee receive an additional fee of $6,000. The Lead Independent Director receives an additional fee of $22,500. Directors who are employees of the Company receive no additional compensation for serving on the Board or Board committees during their employment.
Stock Awards
On May 6, 2021,2022, each non-employee director received an award of 1,4951,838 shares of the Company’s common stock, which vested immediately upon grant and had a market value of $130,000 on the date of grant.
Deferred Compensation
Non-employee directors may participate in the Non-Employee Directors’ Deferred Compensation Plan (the “Deferred Compensation Plan”). Under the Deferred Compensation Plan, each non-employee director may elect to defer, for each calendar year, all or a portion of their annual retainer, fees or stock award. The non-employee director may elect to receive such deferred compensation in a lump sum payment or in equal monthly or annual installments beginning on a date of their choosing, provided such date is at least one year after the deferral election is made. At the time the director makes the deferral election, they must elect to have the deferred retainer and fees either (i) credited with interest on a monthly basis at the rate in effect for the Wells Fargo Stable Return fund or (ii) converted into stock units, with credits equal to the cash that would have been paid had the units been actual shares of common stock owned by the director. Deferred stock awards will also be converted into stock units and credited with dividends.
Stock Ownership Guidelines
The Company's stock ownership guidelines for the non-employee directors require them to maintain direct ownership in the Company’s common stock with a value equal to five times their annual retainer. An individual has five years to comply with these guidelines. All shares held directly or beneficially, including stock awards, shares acquired upon exercise of stock options and stock units credited under the Non-Employee Directors’ Compensation Plan, count toward these guidelines. Stock options do not count toward these guidelines. All non-employee directors either meet or exceed these guidelines or were within the applicable grace period to comply with such requirements.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER
EQUITY COMPENSATION PLANS
The following table sets forth information about the Company’s equity compensation plans as of March 1, 2022.2023.
| Plan Category
| Plan Category
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants & Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants & Rights
($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (b)) | Plan Category
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants & Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants & Rights
($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (b)) |
Equity Compensation Plans Approved by Security Holders(1) | Equity Compensation Plans Approved by Security Holders(1) | 1,149,224 | | 52.53 | 728,652(2) | Equity Compensation Plans Approved by Security Holders(1) | 1,049,223 | | 56.77 | 511,131(2) |
Equity Compensation Plans Not Approved by Security Holders(3) | Equity Compensation Plans Not Approved by Security Holders(3) | 214,229 | n/a | 166,091 | Equity Compensation Plans Not Approved by Security Holders(3) | 230,611 | n/a | 149,709 |
(1)This Plan category includes the Franklin Electric 2017 Stock Plan. As of March 1, 20222023 (i) outstanding stock options had a weighted average exercise price of $52.53$56.77 and a weighted average remaining term of 6.115.67 years and (ii) there were 284,266278,370 granted but unvested restricted stock awards/units.
(2)Amount of shares remaining available for future issuance assumes a 100%100 percent target payout for outstanding performance-based share units. Pursuant to the terms of the performance-based share units, actual payout can range from 0%0 percent to 200%.200 percent.
(3)This Plan category consists of the Non-Employee Directors’ Deferred Compensation Plan, adopted in 2000 and described above under the caption Director Compensation. The information included in this column represents shares underlying stock units, payable on a one-for-one basis, credited to the directors’ respective stock unit accounts as of March 1, 2022.2023. Non-employee directors may elect to receive the distribution of stock units in cash or in shares of the Company’s common stock.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors, which is composed solely of independent directors, is responsible, under guidelines established in the Audit Committee Charter (a copy of which is available on the Company's website at www.franklin-electric.com under “Governance”) for overseeing the risk management of the Company, accounting and financial reporting processes of the Company and the audits of the financial statements by reviewing: (i) the quality and integrity of the consolidated financial statements prepared by management; (ii) the performance of the internal audit function; and (iii) the qualifications, independence and performance of the Company's independent registered public accounting firm.
In accordance with SEC rules the Audit Committee of the Company states that:
•The Audit Committee has reviewed and discussed with management and Deloitte & Touche LLP, the Company's independent registered public accounting firm, the Company's audited financial statements for the fiscal year ended December 31, 2021.2022.
•The Audit Committee discussed with Deloitte & Touche LLP, the Company's independent registered public accounting firm, the matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees, as adopted by the PCAOB.
•The Audit Committee has received the written disclosures and the letter from Deloitte & Touche LLP required by the applicable independence rules of the PCAOB, and has discussed with Deloitte & Touche LLP the independent registered public accounting firm's independence.
Based upon the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 for filing with the SEC.
This report is submitted on behalf of all of the members of the Audit Committee:
| | | | | |
| Renee J. Peterson (Chairperson) |
| Alok Maskara |
| Chris Villavarayan |
| David M. Wathen |
PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE 20222023 FISCAL YEAR
The Audit Committee has appointed the firm of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the 20222023 fiscal year. Although shareholder ratification is not legally required, the Audit Committee believes it advisable to submit its decision to the shareholders. If the shareholders fail to ratify Deloitte & Touche LLP as the Company’s independent registered public accounting firm, the Audit Committee will reassess its appointment. Deloitte & Touche LLP has acted as independent auditors for the Company since 1988.
Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so, and to be available to respond to questions relating to their examination of the Company's financial statements.
The affirmative vote of the holders of a majority of the votes cast at the Annual Meeting is required to approve the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the 20222023 fiscal year.
Audit Fees
The aggregate fees for professional services rendered by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte”) for the audit of the Company’s annual financial statements and the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q were $2,348,923$2,421,014 and $2,231,545,$2,348,923, respectively, for the fiscal years ended December 31, 20212022 and December 31, 2020.2021.
Audit-Related Fees
The fees for professional services rendered by Deloitte for certain other attestation services were $0$2,736 and $2,217,$0, respectively, for the fiscal years ended December 31, 20212022 and December 31, 2020.2021.
Tax Fees
The fees for tax services rendered by Deloitte were $15,821$28,794 and $19,925,$15,821, respectively, for the fiscal years ended December 31, 20212022 and December 31, 2020.2021.
Audit Committee Pre-Approval Policy
The Audit Committee has adopted a Pre-Approval Policy for Audit, Audit-Related, and Non-Audit Services. The Audit Committee has delegated to the Audit Committee Chairperson the authority to pre-approve services not prohibited by law up to a maximum of $10,000 individually or $50,000 in the aggregate, provided that the Audit Committee Chairperson shall report any decisions to pre-approve services to the full Audit Committee at its next meeting. For the fiscal year ended December 31, 2021,2022, the company did not pay any fees for services pursuant to the exceptions to the pre-approval requirements set forth in 17 CFR 210.2-01 (c)(7)(i)(C).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 20222023 FISCAL YEAR.
PROPOSAL 3: ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to Section 14A of the Exchange Act, the Company is required to submit to shareholders a resolution subject to an advisory vote to approve the compensation of the Company’s named executive officers. At the 20212022 Annual Meeting of Shareholders, a majority of the Shareholders advised that the Board conduct the vote annually, and the Board so decided. The next such vote will occur at the 20222023 Annual Meeting of Shareholders.
The Company’s goal for its executive compensation program is to attract, motivate and retain a talented and creative team of executives who will provide leadership for the Company’s success. The Company seeks to accomplish this goal in a way that rewards performance and is aligned with its shareholders’ long-term interests. The Company believes that its executive compensation program, which emphasizes a performance-based cash incentive and long-term equity awards, satisfies this goal and is strongly aligned with the interests of its shareholders.
The Compensation Discussion and Analysis, beginning on page 17 of this Proxy Statement, describes the Company’s executive compensation program and the decisions made by the Management Organization and Compensation Committee in 20212022 in more detail. The Company believes the compensation program for the named executive officers is instrumental in helping the Company achieve its strong financial performance.
The Company requests shareholder approval of the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.
As an advisory vote, this proposal is not binding upon the Company. However, the Management Organization and Compensation Committee, which is responsible for designing and administering the Company’s executive compensation program, will carefully consider the outcome of the vote when making future compensation decisions for named executive officers.
Vote Required for Approval
Approval of Proposal No. 3 requires the affirmative vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting on this proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE EXECUTIVE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT.
DELINQUENT SECTION 16(a) REPORTSPROPOSAL 4: APPROVAL OF THE FRANKLIN ELECTRIC CO., INC. AMENDED AND RESTATED 2017 STOCK PLAN
The Company maintains the Franklin Electric Co., Inc. Amended and Restated 2017 Stock Plan (the “Plan”), as amended and restated effective March 15, 2023. The Plan is the Company’s only active stock-based compensation plan, and it provides for discretionary grants of stock options, stock awards, stock unit awards and stock appreciation rights (“SARs”) to key employees and non-employee directors. The purpose of the Plan is to recognize contributions made to the Company and its subsidiaries by key employees and non-employee directors and to provide them with additional incentive to expand and improve the profits of the Company and achieve the objectives of the Company.
Section 16(a)Request for Approval of Share Increase and Extension of Plan Term
The Board of Directors of the Company has approved amendments to the Plan to (i) increase the number of shares of common stock of the Company available under the Plan by 900,000, from 1,400,000 shares to 2,300,000 shares and (ii) extend the term of the Plan by six years, to March 15, 2033. These amendments require the approval by the Company’s shareholders, which the Company is seeking at this shareholders’ meeting.
It is expected that there may not be sufficient shares of the Company’s common stock under the Plan to cover future grants that are scheduled to be made beginning in 2024. Increasing the number of shares available under the Plan will allow the Company to accommodate planned future grants.
Why Shareholders Should Approve the Plan Amendments
Currently, awards under the Plan cannot be granted after March 10, 2027. Obtaining shareholder approval of the extension of the term of the Plan to March 15, 2033 will enable the Company to continue to make grants from the available shares already approved by shareholders without having to obtain further shareholder approval at a later date.
The purpose of the amendments is to ensure that the Company has the continued ability to make stock-based awards under the Plan. The Company believes that its future success depends in large part on its ability to attract, retain and motivate high-quality employees and non-employee directors, and that its ability to provide equity-based and performance-based awards is critical to achieving this success. The Company believes that it would be at a severe competitive disadvantage if it could not use these types of awards to recruit and compensate its employees and non-employee directors.
The Company views its use of stock-based awards as an essential part of the Company’s compensation program and as an important element in achieving the program’s goals. These awards help align pay with performance and allow the Company to better link the financial interests of employees and non-employee directors with shareholders. The Company also believes that equity compensation motivates employees and non-employee directors to create shareholder value because the value they realize from equity compensation is based in large part on the Company’s common stock price performance.
The Plan contains certain restrictions that the Company believes further the objectives of the Plan and reflect sound corporate governance principles:
•Shares that are used to pay the stock option exercise price or required tax withholding on any award cannot be used for future grants under the Plan.
•Dividends on all performance-based stock awards and dividend equivalents on all performance-based stock unit awards are paid only to the extent the awards vest. No dividends are paid on stock options or SARs.
•Stock options and SARs may not be granted with an exercise price less than the fair market value of the underlying common stock on the date of grant, and the term is limited to ten years from the date of grant.
•Repricing of stock options or SARs without shareholder approval is prohibited.
•Under its Incentive Compensation Recoupment Policy, the Company can recoup an executive’s stock compensation in the event the executive engages in conduct that causes a restatement of the Company’s financial statements or material loss or damage to the Company.
•Under the Company’s stock ownership guidelines, executives must retain 50 percent of all shares acquired under the Company’s compensation plans until the executive attains the requisite stock ownership.
•Awards do not automatically vest on a change in control.
The Company has not requested shareholder authorization for the issuance of shares under the Plan since 2017.
Burn Rate, Expected Duration and Dilution
We expect share usage under the Plan to be consistent with share usage under the Plan to date. The Plan’s three-year average “burn rate” was 0.5 percent for 2020-2022. The burn rate is calculated as the total number of shares subject to awards granted to participants in a single fiscal year expressed as a percent of the basic weighted average common shares outstanding for that fiscal year.
The Board recognizes the impact of dilution on shareholders, and through its Management Organization and Compensation Committee (the “Committee”), believes that it has prudently managed awards under the Plan, giving proper consideration to the dilutive impact of stock awards on shareholder equity. The total fully-diluted overhang as of March 1, 2023, assuming that the entire proposed share reserve is granted in stock options or SARs, would be 3.8 percent, and the total fully-diluted overhang, assuming the proposed share reserve is granted in full-value awards only, would be 3.5 percent. The Company’s historical practice has been to grant a combination of stock options and full-value awards, resulting in potential overhang between these two levels. In this context, fully-diluted overhang is calculated as the sum of shares subject to outstanding awards and shares available for future awards (numerator) divided by the sum of the numerator and common shares outstanding, with all data effective as of March 1, 2023. The Board believes that the proposed share reserve represents a reasonable amount of potential equity dilution.
The following table sets forth for the prior three fiscal years (i) the grant of all equity awards and (ii) the vesting of the equity awards. The Company believes that this disclosure helps to evaluate the dilutive impact of its equity compensation program, taking into account the shares that are actually delivered pursuant to the vesting of the stock awards and the shares that are subject to vested stock options.
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares Granted (#) | Shares Delivered/Vested (#)(1) |
| 2020 | 2021 | 2022 | 2020 | 2021 | 2022 |
| Performance-based restricted units | 36,476 | | 29,020 | | 40,673 | | 44,763 | | 38,796 | | 59,995 | | * |
| Time-based restricted stock/units | 81,852 | | 75,069 | | 75,225 | | 107,367 | | 93,164 | | 141,611 | | |
| Stock options | 214,381 | | 151,610 | | 110,246 | | 237,903 | | 276,719 | | 204,774 | | |
| Total | 332,709 | | 255,699 | | 226,144 | | 390,033 | | 408,679 | | 406,380 | | |
| Average weighted shares outstanding | 46,232,926 | | 46,420,710 | | 46,341,467 | | 46,232,926 | | 46,420,710 | | 46,341,467 | | |
(1)Represents shares delivered in connection with the vesting of stock and stock unit awards and shares subject to stock options that vest.
*Includes shares based on estimated release of performance share units earned in 2022. See the “Compensation Discussion & Analysis” section for further information.
Description of the Plan
The following is a summary of the Plan. It is qualified by reference to the full text of the Plan, which is attached as Exhibit A to this proxy statement. Shareholders are encouraged to review the Plan carefully.
Administration. The Plan is administered by the Committee, which is comprised of directors who satisfy the “non-employee director” definition under Rule 16b-3 of the Securities Exchange Act of 1934 requires(the “Exchange Act”). The Committee has full authority to select the Company's directors, officers,individuals who will receive awards under the Plan, determine the form and greater than 10 percent shareholdersamount of each of the awards to file withbe granted and establish the SEC initial reportsterms and conditions of ownership and reportsawards. The Committee may delegate to the Chief Executive Officer of changes in ownershipthe Company its authority to grant awards to employees who are not subject to Section 16 of the Exchange Act.
Number of Shares of Common Stock. The number of shares of the Company’s common stock that may be issued under the Plan is 1,400,000 (2,300,000 if the share increase is approved). Stock options and SARs reduce the number of available shares by one share for each share subject to the option or SAR, and stock awards and stock unit awards settled in shares reduce the number of available shares by 1.5 shares for every one share delivered. Awards that can only be settled in cash do not reduce the number of shares available for issuance.
Subject to certain adjustments, (i) the maximum number of shares as to which a key employee may receive stock options or SARs in any calendar year is 200,000 (or 400,000 in the calendar year in which the employee’s employment commences); (ii) the maximum number issuable as incentive stock options is 1,400,000; and (iv) the fair market value of awards granted to a non-employee director in any calendar year, together with cash compensation paid to such non-employee director in such calendar year, shall not exceed $600,000.
Shares issuable under the Plan may be authorized but unissued shares or treasury shares. If there is a lapse, forfeiture, expiration, termination or cancellation of any award made under the Plan for any reason, the shares subject to the award will again be available for issuance under the Plan, added back in the same multiple as they were awarded. Any shares subject to an award that are delivered to the Company by a participant, or withheld by the Company on behalf of a participant, as payment for an award (including the exercise price of a stock option) or payment of withholding taxes due in connection with an award, or that are purchased by the Company with proceeds received from a stock option exercise, will not again be available for issuance.
The number of shares of common stock issuable under the Plan is subject to adjustment in the event of any reorganization, recapitalization, stock split, stock distribution, special or extraordinary dividends, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the Company or any similar corporate transaction. In each case, the Committee has the discretion to make adjustments it deems necessary to preserve the intended benefits under the Plan.
Eligibility. The Committee has full authority to select the key employees and non-employee directors eligible to receive awards under the Plan. As of March 1, 2023, all non-employee directors and approximately 138 key employees were eligible to participate in the Plan. In 2022, 118 employees, including the five named executive officers, received awards under the Plan.
Performance Goals. The Committee may in its discretion provide that any award shall be subject to performance goals. The performance goals may be based on one or more business criteria, including, but not limited to: net earnings or net income (before or after taxes); earnings per share; net sales or revenue growth; net operating profit or income (including as a percentage of sales); return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue); cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); earnings before or after taxes, interest, depreciation, and/or amortization; gross or operating margins; productivity ratios; share price (including, but not limited to, growth measures and total shareholder return); cost control; margins; operating efficiency; market share; customer satisfaction or employee satisfaction; working capital; economic value added (net operating profit after tax minus the sum of capital multiplied by the cost of capital); taxes; depreciation and amortization; total shareholder return; low cost region labor percent of total labor; and top customer concentration percent of sales. Performance goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the Committee. The performance goals may be particular to one or more lines of business or subsidiaries or may be based on the performance of the Company and its subsidiaries as a whole. The performance goals may be identical for all participants for a given performance period or, at the discretion of the Committee, may differ among participants. In addition, performance goals may be adjusted for any events or occurrences (including acquisition expenses, extraordinary charges, losses from discontinued operations, restatements and accounting charges, restructuring expenses, asset write-downs, administrative costs associated with debt and equity refinancing, litigation or claim judgments or settlements, effect of changes in tax laws and foreign exchange gains and losses), as may be determined by the Committee.
Types of Awards. The Plan provides for discretionary awards of stock options, stock awards, stock units and SARs to furnishparticipants. Each award made under the Plan will be evidenced by a written award agreement specifying the terms and conditions of the award as determined by the Committee in its sole discretion, consistent with the terms of the Plan.
Stock Options. The Committee has the discretion to grant non-qualified stock options or incentive stock options to key employees and non-qualified stock options to non-employee directors. The Committee may set the terms and conditions applicable to the options, including the type of option, the number of shares subject to the option and the vesting schedule; provided that the exercise price of each stock option will not be less than the closing sales price of the Company’s common stock on the date on which the option is granted (“fair market value”), each option will expire ten years from the date of grant and no dividend equivalents may be paid with respect to stock options.
In addition, an incentive stock option is subject to the following rules: (i) the aggregate fair market value (determined at the time the option is granted) of the shares of common stock with respect to which incentive stock options are exercisable for the first time by a key employee during any calendar year (under all incentive stock option plans of the Company with copiesand its subsidiaries) cannot exceed $100,000, and if this limitation is exceeded, that portion of the incentive stock option that does not exceed the applicable dollar limit will be an incentive stock option and the remainder will be a non-qualified stock option; (ii) if an incentive stock option is granted to a key employee who owns stock possessing more than 10 percent of the total combined voting power of all Section 16(a) reports they file. Based solelyclass of stock of the Company, the exercise price of the incentive stock option will be 110 percent of the closing price of the common stock on the date of grant and the incentive stock option will expire no later than five years from the date of grant; and (iii) no incentive stock option can be granted after ten years from the date the Plan was adopted.
Stock Awards. The Committee has the discretion to grant stock awards to participants. Stock awards will consist of shares of common stock granted without any consideration from the participant or shares sold to the participant for appropriate consideration as determined by the Board. The number of shares awarded to each participant, and the restrictions, terms and conditions of the award, will be at the discretion of the Committee. Subject to the restrictions, a participant will be a shareholder with respect to the shares awarded to him or her and will have the rights of a shareholder with respect to the shares, including the right to vote the shares and receive dividends on the shares; provided that dividends otherwise payable on any performance-based stock award will be held by the Company and will be paid to the holder of the stock award only to the extent the restrictions on such stock award lapse, and the Committee in its discretion can accumulate and hold such amounts payable on any other stock awards until the restrictions on the stock award lapse.
Stock Units. The Committee has the discretion to grant stock unit awards to participants. Each stock unit entitles the participant to receive, on a reviewspecified date or event set forth in the award agreement, one share of common stock of the copiesCompany or cash equal to the fair market value of these reports furnishedone share on such date or event, as provided in the award agreement. The number of stock units awarded to each participant, and the terms and conditions of the award, will be at the discretion of the Committee. Unless otherwise specified in the award agreement, a participant will not be a shareholder with respect to the stock units awarded to him prior to the date they are settled in shares of common stock. The award agreement may provide that until the restrictions on the stock units lapse, the participant will be paid an amount equal to the dividends that would have been paid had the stock units been actual shares; provided that dividend equivalents otherwise payable on any performance-based stock units will be held by the Company and paid only to the extent the restrictions lapse, and the Committee in its discretion can accumulate and hold such amounts payable on any other stock units until the restrictions on the stock units lapse.
SARs. The Committee may grant SARs to any participant. Each SAR entitles the participant to receive the difference between the fair market value of the common stock on the date of exercise of the SAR and the exercise price thereof, multiplied by the number of shares with respect to which the SAR is being exercised. Upon exercise, the SAR will be paid in cash or in shares of common stock (based upon the fair market value on the date of exercise) or a combination thereof, as set forth in the award agreement. The Committee has the discretion to set the terms and conditions applicable to SARs, provided that the exercise price of each SAR will not be less than the fair market value of the shares on the date the SAR is granted, and each SAR will expire not later than ten years from the date of grant. Dividends or dividend equivalents are not paid on SARs.
Payment for Stock Options and Withholding Taxes. The Committee may make one or more of the following methods available for payment of any award, including the exercise price of a stock option, and for payment of the minimum required tax obligation associated with an award: (i) cash; (ii) cash received from a broker-dealer to whom the holder has submitted an exercise notice together with irrevocable instructions to deliver promptly to the Company and written representations that no other reports werethe amount of sales proceeds from the sale of the shares subject to the award to pay the exercise price or withholding tax; (iii) by directing the Company to withhold shares of common stock otherwise issuable in connection with the award having a fair market value equal to the amount required to be filed,withheld; and (iv) by delivery of previously acquired shares of common stock that are acceptable to the Committee and that have an aggregate fair market value on the date of exercise equal to the exercise price or withholding tax, or certification of ownership by attestation of such previously acquired shares.
Recoupment. Under its Incentive Compensation Recoupment Policy, the Company believescan recoup an executive’s stock compensation in the event the executive engages in conduct that its directors, officerscauses a restatement of the Company’s financial statements or material loss or damage to the Company.
Transferability. No awards granted under the Plan may be transferred, except by will, the laws of descent and greater than 10 percent shareholders complied with all Section 16(a) filing requirements applicable to them during 2021, exceptdistribution, or as permitted by the Committee with respect to a non-qualified stock option transferred without value by the participant during his lifetime.
Provisions Relating to a Change in Control of the Company. The Plan gives the Committee the discretion to determine how Plan awards are treated upon a Change in Control of the Company (as defined in the Plan). The current award agreements provide that vesting of unvested outstanding awards will accelerate in full if upon a Change in Control, (i) the outstanding awards are not assumed, continued or replaced, or (ii) the outstanding awards are assumed, continued or replaced and within one year following the Change in Control the participant’s employment is terminated by the Company without good cause or, the participant resigns for good reason.
Amendment of Award Agreements; Amendment and Termination of the Plan; Term of the Plan. The Committee may amend any award agreement at any time, provided that no amendment may adversely affect the right of any participant under any agreement in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or stock exchange rule.
The Board may terminate, suspend or amend the Plan, in whole or in part, from time to time, without the approval of the shareholders, unless such approval is required by applicable law, regulation or stock exchange rule, and provided that no
amendment may adversely affect the right of any participant under any outstanding award in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares of the Company’s common stock are listed.
Notwithstanding the foregoing, neither the Plan nor any outstanding award agreement can be amended in a way that results in the repricing of a stock option. Repricing is broadly defined to include reducing the exercise price of a stock option or cancelling a stock option in exchange for cash, other stock options with a lower exercise price or other stock awards. (This prohibition on repricing without shareholder approval does not apply in case of an equitable adjustment to the awards to reflect changes in the capital structure of the Company or similar events.)
Term of Plan.No awards may be granted under the Plan on or after March 10, 2027 (March 15, 2033 if the extension of the Plan term is approved).
Summary of Federal Income Tax Consequences
The following is a summary of the federal income tax consequences of the Plan. It is based on the federal tax laws and regulations currently in effect and existing administrative rulings of the Internal Revenue Service. Participants may also be subject to state and local taxes in connection with the grant of awards under the Plan. Participants should consult with their individual tax advisers to determine the tax consequences associated with awards granted under the Plan. This information may not be applicable to employees of foreign subsidiaries or to employees who are not residents of the United States.
Non-Qualified Stock Options. A participant will not recognize any income at the time the participant is granted a non-qualified stock option. On the date the participant exercises the non-qualified stock option, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the option is exercised. The Company generally will receive a tax deduction for the same amount of ordinary income recognized by the participant. When the participant sells these shares, any gain or loss recognized by the participant is treated as either short-term or long-term capital gain or loss depending on whether the participant has held the shares more than one year.
Incentive Stock Options. A participant will not recognize any income at the time the participant is granted an incentive stock option. If the participant is issued shares pursuant to the exercise of an incentive stock option, and if the participant does not make a disqualifying disposition of the shares within one year after the date of exercise or within two Form 5syears after the date of grant, the participant will not recognize any income, for Mr. Wathenfederal income tax purposes, at the time of the exercise. When the participant sells the shares issued pursuant to the incentive stock option, the participant will be taxed, for federal income tax purposes, as a long-term capital gain on any amount recognized by the participant in excess of the exercise price, and any loss sustained by the participant will be a long-term capital loss. No deduction will be allowed to the Company for federal income tax purposes. If, however, the participant sells the shares before the expiration of the holding periods, the participant will recognize ordinary income on the difference between the exercise price and the fair market value at exercise, and the Company generally will receive a tax deduction in the same amount. Upon exercise of an incentive stock option, the excess of the fair market value over the exercise price is an item of tax preference to the participant for purposes of determining the alternative minimum tax.
In order to qualify as an incentive stock option, the option must be exercised within three months after the participant’s termination of employment for any reason other than death or disability and within one year after termination of the participant’s employment due to disability. If the option is not exercised within this time period, it will be treated as a non-qualified stock option and taxed accordingly.
Stock Awards and Stock Unit Awards. If the participant receives a stock award, the participant will recognize ordinary income upon becoming entitled to transfer the shares at the end of any restriction period without forfeiture. A participant generally will recognize ordinary income when he receives shares or cash pursuant to the settlement of stock units, provided that if the shares are subject to any further restrictions on transfer, the participant will recognize ordinary income upon becoming entitled to transfer the shares at the end of the restriction period without forfeiture. The amount of income the participant recognizes will be equal to the fair market value of the shares on such date, or the amount of cash received, less the amount paid by the participant for the shares. This amount will also be the participant’s tax basis for the shares. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. In addition, the holding period begins on the day the restrictions lapse, or the date the shares are received if not subject to any restrictions, for purposes of determining whether the participant has long-term or short-term capital gain or loss on a subsequent sale of the shares. The Company generally will be entitled to a deduction with respect to the ordinary income recognized by the participant.
If a participant who during 2020receives a stock award subject to restrictions makes an election under Section 83(b) of the Code within 30 days after the date of the grant, the participant will have ordinary income equal to the fair market value on the date of grant, less the amount paid by the participant for the shares, and 2021, soldthe participant will recognize no additional income until the participant subsequently sells the shares. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. When the participant sells the shares, the tax basis will be equal to the fair market value on the date of grant and the holding period for capital gains purposes begins on the date of the grant. If the participant forfeits the shares subject to the Section 83(b) election, the participant will not be entitled to any deduction, refund, or loss for tax purposes (other than a capital loss with respect to the amount previously paid by the participant), and the Company will have to include the amount that it previously deducted from its gross income in the taxable year of the forfeiture.
SARs. A participant will not recognize any income at the time of the grant of an SAR. Upon exercise of the SAR, the participant will recognize ordinary income equal to the amount received upon exercise. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. The Company generally will be entitled to a deduction with respect to the ordinary income recognized by the participant.
Awards Granted under the Plan.
It is not possible at this time to determine all of the specific awards that will be made under the Plan. On March 1, 2023, the last reported sales price for the common stock was $94.88 per share.
As of March 1, 2023, a total of 249,925 stock options with exercise prices ranging from $73.14 to $95.90, and 470,408 stock units have been granted under the Plan since it was first approved by shareholders on May 5, 2017. A summary of certain individuals who received these awards is as follows:
•Gregg C. Sengstack: 139,164 stock options and 160,264 stock units
Chairperson of the Board and Chief Executive Officer
•Jeffery L. Taylor: 16,236 stock options and 21,628 stock units
Vice President and Chief Financial Officer
•Donald P. Kenney: 17,362 stock options and 33,718 stock units
Vice President and President, Global Water
•DeLancey W. Davis: 9,736 stock options and 19,094 stock units
Vice President and President, Headwater Companies
•Jay J. Walsh: 7,977 stock options and 13,188 stock units
Vice President and President, Franklin Fueling Systems
•All current executive officers as a group: 205,962 stock options and 278,554 stock units
•All current non-employee directors as a group: 0 stock options and 13,423 stock units
•Each other nominee for election as a director: 0 stock options and 0 stock units
•Each associate of any such directors, executive officers or nominees: 0 stock options and 0 stock units
•Each other person who received or is to receive 5 percent of such awards: 0 stock options and 0 stock units
•All non-executive officer employees as a group: 43,963 stock options and 178,431 stock units
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE FRANKLIN ELECTRIC CO., INC. AMENDED AND RESTATED 2017 STOCK PLAN.
PROPOSAL 5: ADVISORY VOTE OF THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION
Pursuant to Section 14A of the Exchange Act, we are asking shareholders to vote on whether future advisory votes on executive compensation of the nature reflected in Proposal Number 3 above should occur every year, every two years or every three years. The company has conducted annual votes starting with the 2012 Annual Meeting of Shareholders.
While the Company’s executive compensation programs are designed to promote a long-term connection between pay and performance, the Board recognizes that executive compensation disclosures are made annually. Our Board believes that an annual advisory vote on the compensation of our named executive officers will continue to facilitate shareholder input about executive compensation.
This advisory vote on the frequency of future advisory votes on executive compensation is not binding on the Board, although the Board will carefully consider the results in determining how frequently to conduct a vote on executive compensation. Shareholders are not voting to approve or disapprove the Board’s recommendation. Instead, shareholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years or abstain. The alternative attracting the most votes will be deemed to be the prevailing alternative.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS SHAREHOLDERS VOTE TO CONDUCT FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION EVERY ONE YEAR.
SHAREHOLDER PROPOSALS
November 22, 20222023 is the date by which proposals of shareholders intended to be presented at the next Annual Meeting must be received by the Company to be considered for the inclusion in the Company's proxy statement for the 20222023 Annual Meeting. Also, other proposals intended to be presented at the next Annual Meeting but not included in the Company’s proxy statement must be received by the Company no later than February 6, 20235, 2024 to be considered for presentation at that meeting. Such shareholder’s notice shall set forth: (A) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Company’s books, and of such beneficial owner and (ii) the class and number of shares of the Company which are owned beneficially and of record by such shareholder and such beneficial owner.
ANNUAL REPORT ON FORM 10-K
The Company will provide a copy of its Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 2021,2022, including the exhibits thereto, free of charge to any shareholder requesting a copy in writing. Inquiries should be directed to: Corporate Secretary, Franklin Electric Co., Inc., 9255 Coverdale Road, Fort Wayne, Indiana 46809. The report, which is also the Company’s Annual Report to Shareholders, may also be accessed through the investor relations menu on the Company’s website, www.franklin-electric.com.
OTHER BUSINESS
Management has no knowledge of any other matters to be presented for action by the shareholders at the 20212023 Annual Meeting. The enclosed proxy gives discretionary authority to the persons designated as proxies therein to vote on any additional matters that should properly and lawfully be presented.
| | | | | |
| By order of the Board of Directors |
| Dated: March 22, 202221, 2023 |
| |
| Jonathan M. Grandon |
| Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary |
THIS DOCUMENT CONSTITUTES PART OF A SECTION 10(a) PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
Franklin Electric Co., Inc.
Amended and Restated 2017 Stock Plan
______________________
Section 1.Purpose.
The purpose of the Franklin Electric Co., Inc. Amended and Restated 2017 Stock Plan (the “Plan”) is to attract and retain outstanding individuals as Key Employees and Directors of the Company and its Subsidiaries, to recognize the contributions made to the Company and its Subsidiaries by Key Employees and Directors, and to provide such Key Employees and Directors with additional incentive to expand and improve the profits and achieve the objectives of the Company and its Subsidiaries, by providing such Key Employees and Directors with the opportunity to acquire or increase their proprietary interest in the Company through receipt of Awards.
Section 2.Definitions.
As used in the Plan, the following terms shall have the meanings set forth below:
2.1 “Award” means any award or benefit granted under the Plan, which shall be a Stock Option, a Stock Award, a Stock Unit Award or an SAR Award.
2.2 “Award Agreement” means, as applicable, a Stock Option Agreement, Stock Award Agreement, Stock Unit Award Agreement or SAR Award Agreement evidencing an Award granted under the Plan.
2.3 “Board” means the Board of Directors of the Company.
2.4 “Change in Control” has the meaning set forth in Section 9.2 of the Plan.
2.5 “Code” means the Internal Revenue Code of 1986, as amended from time to time.
2.6 “Committee” means the Management Organization and Compensation Committee of the Board or such other committee as may be designated by the Board from time to time to administer the Plan.
2.7 “Common Stock” means the Common Stock, par value $.10 per share, of the Company.
2.8 “Company” means Franklin Electric Co., Inc., an Indiana corporation.
2.9 “Director” means a director of the Company who is not an employee of the Company or a Subsidiary.
2.10 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
2.11 “Fair Market Value” means, as of any date, the closing price of the Common Stock on The Nasdaq Stock Market (as reported in The Wall Street Journal) on such date, or if no trading occurred on such date, the trading day immediately preceding such date.
2.12 “Incentive Stock Option” or “ISO” means a Stock Option granted under Section 5 of the Plan that meets the requirements of Section 422(b) of the Code or any successor provision.
2.13 “Key Employee” means an employee of the Company or any Subsidiary selected to participate in the Plan in accordance with Section 3.
2.14 “Non-Qualified Stock Option” or “NSO” means a Stock Option granted under Section 5 of the Plan that is not an Incentive Stock Option.
2.16 “Plan” means this Franklin Electric Co., Inc. Amended and Restated 2017 Stock Plan as it may be amended from time to time.
2.17 “Stock Appreciation Right” or “SAR” means a grant of a right to receive shares of Common Stock or cash under Section 8 of the Plan.
2.18 “Stock Award” means a grant of shares of Common Stock under Section 6 of the Plan.
2.19 “Stock Option” means an Incentive Stock Option or a Non-Qualified Stock Option granted under Section 5 of the Plan.
2.20 “Stock Unit Award” means a grant of a right to receive shares of Common Stock or cash under Section 7 of the Plan.
2.21 “Subsidiary” means an entity of which the Company is the direct or indirect beneficial owner of not less than 50% of all issued and outstanding equity interest of such entity.
Section 3.Administration.
3.1 The Board.
The Plan shall be administered by the Committee, which shall be comprised of at least two members of the Board who satisfy the “non-employee director” definition set forth in Rule 16b-3 under the Exchange Act, unless the Board otherwise determines.
3.2 Authority of the Committee.
(a) The Committee, in its sole discretion, shall determine the Key Employees and Directors to whom, and the time or times at which Awards will be granted, the form and amount of each Award, the expiration date of each Award, the time or times within which the Awards may be exercised, the cancellation of the Awards and the other limitations, restrictions, terms and conditions applicable to the grant of the Awards. The terms and conditions of the Awards need not be the same with respect to each Participant or with respect to each Award.
(b) To the extent permitted by applicable law, regulation, and rules of a stock exchange on which the Common Stock is listed or traded, the Committee may delegate to the Chief Executive Officer of the Company its authority to grant Awards to Key Employees and to determine the terms and conditions thereof, on such terms and conditions as it may impose, except with respect to Awards to officers subject to Section 16 of the Exchange Act, and provided that such delegation sets forth the time period during which the Awards may be granted and the number of Awards that may be granted during such time period.
(c) The Committee may, subject to the provisions of the Plan, establish such rules and regulations as it deems necessary or advisable for the proper administration of the Plan, and may make determinations and may take such other action in connection with or in relation to the Plan as it deems necessary or advisable. Each determination or other action made or taken pursuant to the Plan, including interpretation of the Plan and the specific terms and conditions of the Awards granted hereunder, shall be final and conclusive for all purposes and upon all persons.
(d) No member of the Board or the Committee shall be liable for any action taken or determination made hereunder in good faith. Service on the Committee shall constitute service as a Director so that the members of the Committee shall be entitled to indemnification and reimbursement as Directors of the Company pursuant to the Company’s Certificate of Incorporation and By-Laws.
3.3 Performance Goals.
(a) The Committee may, in its discretion, provide that any Award granted under the Plan shall be subject to performance goals.
(b) Performance goals may be based on one or more business criteria, including, but not limited to: (i) net earnings or net income (before or after taxes); (ii) earnings per share; (iii) net sales or revenue growth; (iv) net operating profit or income (including as a percentage of sales); (v) return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue); (vi) cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); (vii) earnings before or after taxes, interest, depreciation, and/or amortization; (viii) gross or operating margins; (ix) productivity ratios; (x) share price (including, but not limited to, growth measures and total shareholder return); (xi) cost control; (xii) margins; (xiii) operating efficiency; (xiv) market share; (xv) customer satisfaction or employee satisfaction; (xvi) working capital; (xvii) economic value added (net operating profit after tax minus the sum of capital multiplied by the cost of capital); (xviii) taxes; (xix) depreciation and amortization; (xx) total shareholder return; (xxi) low cost region labor as a percent of total labor; and (xxii) top customer concentration as a percent of sales. Performance goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the Board. In addition, performance goals may be adjusted for any events or occurrences (including acquisition expenses, extraordinary charges, losses from discontinued operations, restatements and accounting charges and restructuring expenses, asset write-downs, administrative costs associated with debt and equity refinancing, litigation or claims, judgments or settlements, effect of changes in tax laws and foreign exchange gains and losses), as may be determined by the Committee. Performance goals may be particular to one or more lines of business or Subsidiaries or may be based on the performance of the Company and its Subsidiaries as a whole.
(c) With respect to each performance period, the Committee shall establish such performance goals relating to one or more of the business criteria identified above and shall establish targets for Participants for achievement of performance goals. Following the completion of each performance period, the Committee shall determine the extent to which performance goals for that performance period have been achieved and the related performance-based restrictions shall lapse in accordance with the terms of the applicable Award Agreement.
3.4 Award Agreements.
(a) Each Award shall be evidenced by a written Award Agreement specifying the terms and conditions of the Award. In the sole discretion of the Board, the Award Agreement may condition the grant of an Award upon the Participant’s entering into one or more of the following agreements with the Company: (i) an agreement not to compete with the Company and its Subsidiaries which shall become effective as of the date of the grant of the Award and remain in effect for a specified period of time following termination of the Participant’s employment with the Company; (ii) an agreement to cancel any employment agreement, fringe benefit or compensation arrangement in effect between the Company and the Participant; and (iii) an agreement to retain the confidentiality of certain information. Such agreements may contain such other terms and conditions as the Committee shall determine.
(b) If the Participant shall fail to enter into any such agreement at the request of the Committee, then the Award granted or to be granted to such Participant shall be forfeited and cancelled.
Section 4.Shares of Common Stock Subject to Plan.
4.1 Total Number of Shares.
(a) The total number of shares of Common Stock that may be issued under the Plan from and after May 5, 2017 shall be 2,300,000 (1,400,000 shares prior to May 5, 2023 and an additional 900,000 shares from and after May 5, 2023). Such shares may be either authorized but unissued shares or treasury shares, and shall be adjusted in accordance with the provisions of Section 4.3 of the Plan.
(b) Stock Options and SAR Awards shall reduce the number of shares of Common Stock available for Awards by one share for every share subject to the Stock Option or SAR Award; provided that SARs that may be settled only in cash shall not reduce the number of shares of Common Stock available for Awards. Stock Awards and Stock Unit Awards settled in shares of Common Stock shall reduce the number of shares available for Awards by 1.5 shares for each share delivered.
(c) The number of shares of Common Stock delivered by a Participant or withheld by the Company on behalf of any such Participant as full or partial payment of an Award, including the exercise price of a Stock Option or of any required withholding taxes, shall not again be available for issuance pursuant to subsequent Awards, and shall count towards the aggregate number of shares of Common Stock that may be issued under the Plan. Any shares of Common Stock purchased by the Company with proceeds from a Stock Option exercise shall not again be available for
issuance pursuant to subsequent Awards, shall count against the aggregate number of shares that may be issued under the Plan and shall not increase the number of shares available under the Plan.
(d) If there is a lapse, forfeiture, expiration, termination or cancellation of any Award for any reason (including for reasons described in Section 3.3), or if shares of Common Stock are issued under such Award and thereafter are reacquired by the Company pursuant to rights reserved by the Company upon issuance thereof, the shares of Common Stock subject to such Award or reacquired by the Company shall again be available for issuance pursuant to subsequent Awards, added back in the same multiple as they were awarded pursuant to Section 4.1(b) and shall not count towards the aggregate number of shares of Common Stock that may be issued under the Plan.
4.2 Shares Under Awards.
Of the shares of Common Stock authorized for issuance under the Plan pursuant to Section 4.1:
(a) The maximum number of shares of Common Stock as to which a Key Employee may receive Stock Options or SARs in any calendar year is 200,000, or, in the event the SAR is settled in cash, an amount equal to the Fair Market Value of such number of shares on the date on which the SAR is settled, except that the maximum number of shares of Common Stock as to which a Key Employee may receive Stock Options or SARs in the calendar year in which such Key Employee begins employment with the Company or its Subsidiaries is 400,000, or, in the event the SAR is settled in cash, an amount equal to the Fair Market Value of such number of shares on the date on which the SAR is settled.
(b) The maximum number of shares of Common Stock that may be subject to ISOs is 1,400,000.
(c) The maximum number of shares of Common Stock that may be used for Stock Awards and/or Stock Unit Awards that are performance-based that may be granted to any Key Employee in any calendar year is 200,000, or, in the event the Award is settled in cash, an amount equal to the Fair Market Value of such number of shares on the date on which the Award is settled.
(d) The Fair Market Value of shares of Common Stock that may be subject to Awards granted to any Director in any calendar year, together with the cash compensation paid to such Director in such calendar year, shall not exceed $600,000.
The numbers of shares described herein shall be as adjusted in accordance with Section 4.3 of the Plan.
4.3 Adjustment.
In the event of any reorganization, recapitalization, stock split, stock distribution, special or extraordinary dividend, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the Company or any similar corporate transaction, the Committee shall make such adjustments as it deems appropriate, in its sole discretion, to preserve the benefits or intended benefits of the Plan and Awards granted under the Plan. Such adjustments may include: (a) adjustment in the number and kind of shares reserved for issuance under the Plan; (b) adjustment in the number and kind of shares covered by outstanding Awards; (c) adjustment in the exercise price of outstanding Stock Options or SARs or the price of Stock Awards or Stock Unit Awards under the Plan; (d) adjustments to any of the shares limitations set forth in Section 4.1 or 4.2 of the Plan; and (e) any other changes that the Committee determines to be equitable under the circumstances.
Section 5.Grants of Stock Options.
5.1 Grant.
Subject to the terms of the Plan, the Committee may from time to time grant Stock Options to Participants. Unless otherwise expressly provided at the time of the grant, Stock Options granted under the Plan to Key Employees will be NSOs. Stock Options granted under the Plan to Directors who are not employees of the Company or any Subsidiary will be NSOs.
5.2 Stock Option Agreement.
The grant of each Stock Option shall be evidenced by a written Stock Option Agreement specifying the type of Stock Option granted, the exercise period, the exercise price, the terms for payment of the exercise price, the expiration date of the
Stock Option, the number of shares of Common Stock to be subject to each Stock Option and such other terms and conditions established by the Committee, in its sole discretion, not inconsistent with the Plan; provided, however, that no Stock Option shall be credited with any amounts equal to dividends and other distributions that a Participant would have received had he held the shares of Common Stock subject to an unexercised Stock Option.
5.3 Exercise Price and Exercise Period.
With respect to each Stock Option granted to a Participant:
(a) The per share exercise price of each Stock Option shall not be less than the Fair Market Value of the Common Stock subject to the Stock Option on the date on which the Stock Option is granted.
(b) Each Stock Option shall become exercisable as provided in the related Stock Option Agreement; provided that notwithstanding any other Plan provision, the Committee shall have the discretion to accelerate the date as of which any Stock Option shall become exercisable in the event of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by the Committee in its sole discretion).
(c) Each Stock Option shall expire, and all rights to purchase shares of Common Stock thereunder shall expire, on the date fixed by the Committee in the Stock Option Agreement, which shall not be later than ten years after the date of grant; provided however, if a Participant is unable to exercise a Stock Option because trading in the Common Stock is prohibited by law or the Company’s insider-trading policy, the Stock Option exercise date shall be extended to the date that is 30 days after the expiration of the trading prohibition.
5.4 Required Terms and Conditions of ISOs.
In addition to the foregoing, each ISO granted to a Key Employee shall be subject to the following specific rules:
(a) The aggregate Fair Market Value (determined with respect to each ISO at the time such Option is granted) of the shares of Common Stock with respect to which ISOs are exercisable for the first time by a Key Employee during any calendar year (under all incentive stock option plans of the Company and its Subsidiaries) shall not exceed $100,000. If the aggregate Fair Market Value (determined at the time of grant) of the Common Stock subject to an ISO which first becomes exercisable in any calendar year exceeds the limitation of this Section 5.4(a), so much of the ISO that does not exceed the applicable dollar limit shall be an ISO and the remainder shall be a NSO; but in all other respects, the original Stock Option Agreement shall remain in full force and effect.
(b) Notwithstanding anything herein to the contrary, if an ISO is granted to a Key Employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or its parent or subsidiaries within the meaning of Section 422(b)(6) of the Code): (i) the purchase price of each share of Common Stock subject to the ISO shall be not less than 110% of the Fair Market Value of the Common Stock on the date the ISO is granted; and (ii) the ISO shall expire, and all rights to purchase shares of Common Stock thereunder shall expire, no later than the fifth anniversary of the date the ISO was granted.
(c) No ISOs shall be granted under the Plan after ten years from the earlier of the date the Plan is adopted or approved by shareholders of the Company.
5.5 Exercise of Stock Options.
(a) A Participant entitled to exercise a Stock Option may do so by delivering written notice in accordance with procedures established by the Committee specifying the number of shares of Common Stock with respect to which the Stock Option is being exercised and any other information the Committee may prescribe. All notices or requests provided for herein shall be delivered to the Chief Financial Officer of the Company.
(b) The Committee in its sole discretion may make available one or more of the following alternatives for the payment of the Stock Option exercise price:
(i) in cash;
(ii) in cash received from a broker-dealer to whom the Participant has submitted an exercise notice together with irrevocable instructions to deliver promptly to the Company the amount of sales proceeds from the sale of the shares subject to the Stock Option to pay the exercise price;
(iii) by directing the Company to withhold such number of shares of Common Stock otherwise issuable in connection with the exercise of the Stock Option having an aggregate Fair Market Value equal to the exercise price;
(iv) by delivering previously acquired shares of Common Stock that have an aggregate Fair Market Value on the date of exercise equal to the Stock Option exercise price; or
(v) by certifying to ownership by attestation of such previously acquired shares of Common Stock.
The Committee shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for payment of the Stock Option exercise price.
(c) The Company shall issue, in the name of the Participant, stock certificates representing the total number of shares of Common Stock issuable pursuant to the exercise of any Stock Option as soon as reasonably practicable after such exercise; provided that any shares of Common Stock purchased by a Participant through a broker-dealer pursuant to Section 5.5(b)(ii) or Section 10(b) shall be delivered to such broker-dealer in accordance with 12 C.F.R. §220.3(e)(4) or other applicable provision of law. Notwithstanding the foregoing, the Company, in lieu of issuing stock certificates, may reflect the issuance of shares of Common Stock to a Participant on a non-certificated basis, with the ownership of such shares by the Participant evidenced solely by book entry in the records of the Company’s transfer agent.
Section 6.Stock Awards.
6.1 Grant.
The Committee may, in its discretion, (a) grant shares of Common Stock under the Plan to any Participant without consideration from such Participant or (b) sell shares of Common Stock under the Plan to any Participant for such amount of cash, Common Stock or other consideration as the Committee deems appropriate.
6.2 Stock Award Agreement.
Each share of Common Stock granted or sold hereunder shall be subject to such restrictions, conditions and other terms as the Committee may determine at the time of grant or sale, the general provisions of the Plan, the restrictions, terms and conditions of the related Stock Award Agreement, and the following specific rules:
(a) The related Stock Award Agreement shall specify whether the shares of Common Stock are granted or sold to the Participant and such other provisions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine.
(b) The restrictions to which the shares of Common Stock awarded hereunder are subject shall lapse as provided in the related Stock Award Agreement; provided that notwithstanding any other Plan provision, the Committee shall have the discretion to accelerate the date as of which the restrictions lapse with respect to any Award held by a Participant in the event of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by the Committee in its sole discretion).
(c) Except as provided in this subsection (c) and unless otherwise set forth in the related Stock Award Agreement, the Participant receiving a grant of or purchasing Common Stock shall thereupon be a shareholder with respect to such shares and shall have the rights of a shareholder with respect to such shares, including the right to vote such shares and to receive dividends and other distributions paid with respect to such shares; provided that (i) in the case of a performance-based Stock Award as described in Section 3.3, any dividends or other distributions payable with respect to the Stock Award shall be accumulated and held by the Company and paid to the Participant only upon, and to the extent, the performance-based restrictions lapse in accordance with the terms of the related Stock Award Agreement and (ii) in the case of all other Stock Awards, the Committee shall have the discretion to have the Company accumulate and hold such dividends or distributions and to pay the same to the Participant only when the time-based restrictions
lapse. In either case, any such dividends or other distributions held by the Company attributable to the portion of a Stock Award that is forfeited shall also be forfeited.
(d) The Company shall issue, in the name of the Participant, stock certificates representing the total number of shares of Common Stock granted or sold to the Participant, as soon as may be reasonably practicable after such grant or sale, which shall be held by the Secretary of the Company until such time as the Common Stock is forfeited, resold to the Company, or the restrictions lapse. Notwithstanding the foregoing, the Company, in lieu of issuing stock certificates, may reflect the issuance of shares of Common Stock to a Participant on a non–certificated basis, with the ownership of such shares by the Participant evidenced solely by book entry in the records of the Company’s transfer agent.
Section 7.Stock Unit Awards.
7.1 Grant.
The Committee may, in its discretion, grant Stock Unit Awards to any Participant. Each Stock Unit subject to the Award shall entitle the Participant to receive, on the date or the occurrence of an event (including the attainment of performance goals) as described in the Stock Unit Award Agreement, a share of Common Stock or cash equal to the Fair Market Value of a share of Common Stock on the date of such event as provided in the related Stock Unit Award Agreement.
7.2 Stock Unit Agreement.
Each Stock Unit Award shall be subject to such restrictions, conditions and other terms as the Committee may determine at the time of grant, the general provisions of the Plan, the restrictions, terms and conditions of the related Stock Unit Award Agreement and the following specific rules:
(a) The related Stock Unit Agreement shall specify such provisions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine.
(b) The restrictions to which the shares of Stock Units awarded hereunder are subject shall lapse as provided in the related Stock Unit Agreement; provided that notwithstanding any other Plan provision, the Committee shall have the discretion to accelerate the date as of which the restrictions lapse with respect to any Award held by a Participant in the event of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by the Committee in its sole discretion).
(c) Except as provided in this subsection (c) and unless otherwise set forth in the related Stock Unit Agreement, the Participant receiving a Stock Unit Award shall have no rights of a shareholder, including voting or dividends or other distributions rights, with respect to any Stock Units prior to the date they are settled in shares of Common Stock. The related Stock Unit Award Agreement may provide that until the Stock Units are settled in shares or cash, the Participant shall receive on each dividend or distribution payment date applicable to the Common Stock an amount equal to the dividends or other distributions that the Participant would have received had the Stock Units held by the Participant as of the related record date been actual shares of Common Stock. In the case of a performance-based Stock Unit Award as described in Section 3.3 above, such amounts shall be accumulated and held by the Company and paid to the Participant only upon, and to the extent, the performance-based restrictions lapse in accordance with the terms of the related Stock Unit Award Agreement and in the case of all other Stock Unit Awards, the Committee shall have the discretion to have the Company accumulate and hold such amounts and to pay the same to the Participant only when the time-based restrictions lapse. In either case, such amounts held by the Company attributable to the portion of the Stock Unit Award that is forfeited shall also be forfeited.
(d) Upon settlement of Stock Units into Common Stock, the Company shall issue, in the name of the Participant, stock certificates representing a number of shares of Common Stock equal to the number of Stock Units being settled. Notwithstanding the foregoing, the Company, in lieu of issuing stock certificates, may reflect the issuance of shares of Common Stock to a Participant on a non-certificated basis, with the ownership of such shares by the Participant evidenced solely by book entry in the records of the Company’s transfer agent.
Section 8.SARs.
8.1 Grant.
The Committee may grant SARs to Participants. Upon exercise, an SAR entitles the Participant to receive from the Company the number of shares of Common Stock having an aggregate Fair Market Value equal to the excess of the Fair Market Value of one share as of the date on which the SAR is exercised over the exercise price, multiplied by the number of shares with respect to which the SAR is being exercised. The Committee, in its discretion, shall be entitled to cause the Company to elect to settle any part or all of its obligations arising out of the exercise of an SAR by the payment of cash in lieu of all or part of the shares it would otherwise be obligated to deliver in an amount equal to the Fair Market Value of such shares on the date of exercise. Cash shall be delivered in lieu of any fractional shares. The terms and conditions of any such Award shall be determined at the time of grant.
8.2 SAR Agreement.
(a) Each SAR shall be evidenced by a written SAR Agreement specifying the terms and conditions of the SAR as the Committee may determine, including the SAR exercise price, expiration date of the SAR, the number of shares of Common Stock to which the SAR pertains, the form of settlement and such other terms and conditions established by the Committee, in its sole discretion, not inconsistent with the Plan; provided, however, that no SAR shall be credited with any amounts equal to dividends and other distributions that a Participant would have received had he held the shares of Common Stock subject to an unexercised SAR.
(b) The per Share exercise price of each SAR shall not be less than 100% of the Fair Market Value of a Share on the date the SAR is granted.
(c) Each SAR shall expire and all rights thereunder shall cease on the date fixed by the Committee in the related SAR Agreement, which shall not be later than the ten years after the date of grant; provided however, if a Participant is unable to exercise an SAR because trading in the Common Stock is prohibited by law or the Company’s insider-trading policy, the SAR exercise date shall be extended to the date that is 30 days after the expiration of the trading prohibition.
(d) Each SAR shall become exercisable as provided in the related SAR Agreement; provided that notwithstanding any other Plan provision, the Committee shall have the discretion to accelerate the date as of which any SAR shall become exercisable in the event of the Participant’s termination of employment, or service on the Board, without cause (as determined by the Committee in its sole discretion).
(e) A person entitled to exercise an SAR may do so by delivery of a written notice in accordance with procedures established by the Committee specifying the number of shares of Common Stock with respect to which the SAR is being exercised and any other information the Committee may prescribe. As soon as reasonably practicable after the exercise of an SAR, the Company shall (i) issue, in the name of the Participant, stock certificates representing the total number of full shares of Common Stock to which the Participant is entitled and cash in an amount equal to the Fair Market Value, as of the date of exercise, of any resulting fractional share, and (ii) if the Committee causes the Company to elect to settle all or part of its obligations arising out of the exercise of the SAR in cash, deliver to the Participant an amount in cash equal to the Fair Market Value, as of the date of exercise, of the shares it would otherwise be obligated to deliver.
Section 9.Change in Control.
9.1 Effect of a Change in Control.
(a) Notwithstanding any of the provisions of the Plan or any outstanding Award Agreement, and unless otherwise provided in a written agreement between Participant and the Company, upon a Change in Control of the Company (as defined in Section 9.2), the Committee is authorized and has sole discretion to provide that (i) all outstanding Awards shall become fully exercisable, (ii) all restrictions applicable to all Awards shall terminate or lapse and (iii) performance goals applicable to any Awards shall be deemed satisfied at the target level, as applicable, in order that Participants may fully realize the benefits thereunder.
(b) In addition to the Committee’s authority set forth in Section 3, upon such Change in Control of the Company, the Committee is authorized and has sole discretion as to any Award, either at the time such Award is granted
hereunder or any time thereafter, to take any one or more of the following actions: (i) provide for the purchase of any outstanding Stock Option, for an amount of cash equal to the difference between the exercise price and the then Fair Market Value of the Common Stock covered thereby had such Stock Option been currently exercisable; (ii) provide for payment with respect to any other vested Award, with payment (including payment in respect of a Stock Option under clause (i)) to be made in the form and on the terms and conditions as the Committee shall determine in its discretion (which may or may or not be the same, form, terms and conditions applicable to payments to the Company’s shareholders in connection with the Change in Control), (iii) cause any such Award then outstanding to be continued, replaced, or assumed (via express assumption of the contractual obligations of the Award or delivery to the Participant of a comparable equity based-award with substantially similar terms and conditions) by the acquiring or surviving entity (or its parent) after such Change in Control, and (iv) make such adjustment to any such Award then outstanding (or to an Award continued, replaced or assumed pursuant to clause (iii)) as the Committee deems appropriate to reflect such Change in Control and preserve the intrinsic value of the Award as of the time of the Change in Control. The Committee will not be required to treat all awards similarly for purposes of this Section 9.1.
9.2 Definition of Change in Control.
“Change in Control” of the Company shall be deemed to have occurred if at any time during the term of an Award granted under the Plan any of the following events occurs:
(a) any Person (other than the Company, a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of shares of Common Stock of the Company) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors (“Person” and “Beneficial Owner” being defined in Rule 13d-3 of the General Rules and Regulations of the Exchange Act);
(b) the Company is party to a merger, consolidation, reorganization or other similar transaction with another corporation or other Person unless, following such transaction, more than 50% of the combined voting power of the outstanding securities of the surviving, resulting or acquiring corporation or Person or its parent entity entitled to vote generally in the election of directors (or Persons performing similar functions) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Company’s outstanding securities entitled to vote generally in the election of directors immediately prior to such transaction, in substantially the same proportions as their ownership, immediately prior to such transaction, of the Company’s outstanding securities entitled to vote generally in the election of directors;
(c) the election to the Board, without the recommendation or approval of two-thirds of the incumbent Board, of the lesser of: (i) three Directors; or (ii) Directors constituting a majority of the number of Directors of the Company then in office; provided, however, that Directors whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of Directors of the Company will not be considered as incumbent members of the Board for purposes of this Section; or
(d) there is a complete liquidation or dissolution of the Company, or the Company sells all or substantially all of its business and/or assets to another corporation or other Person unless, following such sale, more than 50% of the combined voting power of the outstanding securities of the acquiring corporation or Person or its parent entity entitled to vote generally in the election of directors (or Persons performing similar functions) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Company’s outstanding securities entitled to vote generally in the election of directors immediately prior to such sale, in substantially the same proportions as their ownership, immediately prior to such sale, of the Company’s outstanding securities entitled to vote generally in the election of directors.
In no event, however, shall a Change in Control be deemed to have occurred, with respect to a Participant, if that Participant is part of a purchasing group which consummates the Change in Control transaction. A Participant shall be deemed “part of a purchasing group” for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (a) passive ownership of less than 3% of the shares of the purchasing company; or (b) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors).
Section 10.Payment of Taxes.
In connection with any Award, and as a condition to the issuance or delivery of any shares of Common Stock to the Participant in connection therewith, the Company may require the Participant to pay the Company an amount equal to the minimum amount of the tax the Company or any Subsidiary may be required to withhold to obtain a deduction for federal, state, local or foreign income tax purposes as a result of such Award or to comply with applicable law. The Committee in its sole discretion may make available one or more of the following alternatives for the payment of such taxes:
(a) in cash;
(b) in cash received from a broker-dealer to whom the Participant has submitted notice together with irrevocable instructions to deliver promptly to the Company the amount of sales proceeds from the sale of the shares subject to the Award to pay the withholding taxes;
(c) by directing the Company to withhold such number of shares of Common Stock otherwise issuable in connection with the Award having an aggregate Fair Market Value equal to the minimum amount of tax required to be withheld;
(d) by delivering previously acquired shares of Common Stock of the Company that have an aggregate Fair Market Value equal to the amount required to be withheld; or
(e) by certifying to ownership by attestation of such previously acquired shares of Common Stock.
The Committee shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for payment of the required withholding taxes.
Section 11.Postponement.
The Board may postpone any grant or settlement of an Award or exercise of a Stock Option or SAR for such time as the Committee in its sole discretion may deem necessary in order to permit the Company:
(a) to effect, amend or maintain any necessary registration of the Plan or the shares of Common Stock issuable pursuant to an Award, including upon the exercise of an Option, under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction;
(b) to permit any action to be taken in order to (i) list such shares of Common Stock on a stock exchange if shares of Common Stock are then listed on such exchange or (ii) comply with restrictions or regulations incident to the maintenance of a public market for its shares of Common Stock, including any rules or regulations of any stock exchange on which the shares of Common Stock are listed; or
(c) to determine that such shares of Common Stock and the Plan are exempt from such registration or that no action of the kind referred to in (b)(ii) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of any Award or any provision of the Plan to sell or issue shares of Common Stock in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof.
Any such postponement shall not extend the term of an Award and neither the Company nor its Directors or officers shall have any obligation or liability to a Participant, the Participant’s successor or any other person with respect to any shares of Common Stock as to which the Award shall lapse because of such postponement.
Section 12.Nontransferability.
(a) Awards granted under the Plan, and any rights and privileges pertaining thereto, may not be transferred, assigned, pledged or hypothecated in any manner, or be subject to execution, attachment or similar process, by operation of law or otherwise, other than by will or by the laws of descent and distribution.
(b) Notwithstanding Section 12(a), a Participant, at any time prior to his or her death, may assign all or any portion of an outstanding NSO to (i) his or her spouse or lineal descendant, (ii) the trustee of a trust for the primary benefit of his or her spouse or lineal descendant, (iii) a partnership of which his or her spouse and lineal descendants are the only partners, or (iv) a tax exempt organization as described in Section 50l(c)(3) of the Code. In such event, the
transferee shall be entitled to all of the rights of the Participant with respect to the assigned portion of such NSO, and such portion of the NSO shall continue to be subject to all of the terms, conditions and restrictions applicable to the NSO, as set forth herein, and in the related Option Agreement, immediately prior to the effective date of the assignment. Any such assignment will be permitted only if the Participant does not receive any consideration therefor, and the assignment is expressly approved by the Company. Any such assignment shall be evidenced by an appropriate written document executed by the Participant, and a copy thereof shall be delivered to the Company on or prior to the effective date of the assignment.
Section 13.Termination or Amendment of Plan and Award Agreements.
13.1 Termination or Amendment of Plan.
(a) Except as described in Section 13.3 below, the Board may terminate, suspend, or amend the Plan, in whole or in part, from time to time, without the approval of the shareholders of the Company, unless such approval is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed. No amendment or termination of the Plan shall adversely affect the right of any Participant under any outstanding Award in any material way without the written consent of the Participant, unless such amendment or termination is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed. Subject to the foregoing, the Committee may correct any defect or supply an omission or reconcile any inconsistency in the Plan or in any Award granted hereunder in the manner and to the extent it shall deem desirable, in its sole discretion, to effectuate the Plan.
(b) The Board shall have the authority to amend the Plan to the extent necessary or appropriate to comply with applicable law, regulation or accounting rules in order to permit Participants who are located outside of the United States to participate in the Plan.
13.2 Amendment of Award Agreements.
The Committee shall have the authority to amend any Award Agreement at any time; provided however, that no such amendment shall adversely affect the right of any Participant under any outstanding Award Agreement in any material way without the written consent of the Participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed.
13.3 No Repricing of Stock Options.
Notwithstanding the foregoing, and except as described in Section 4.3, there shall be no amendment to the Plan or any outstanding Stock Option Agreement or SAR Agreement that results in the repricing of Stock Options or SARs without shareholder approval. For this purpose repricing includes a reduction in the exercise price of the Stock Option or SAR or the cancellation of a Stock Option or SAR in exchange for cash, Stock Options or SARs with an exercise price less than the exercise price of the cancelled Options or SARs, Stock Awards or any other consideration provided by the Company, but does not include any adjustments described in Section 4.3.
Section 14.No Contract of Employment.
Neither the adoption of the Plan nor the grant of any Award under the Plan shall be deemed to obligate the Company or any Subsidiary to continue the employment of any Participant for any particular period, nor shall the granting of an Award constitute a request or consent to postpone the retirement date of any Participant.
Section 15.Applicable Law.
All questions pertaining to the validity, construction and administration of the Plan and all Awards granted under the Plan shall be determined in conformity with the laws of the State of Indiana, without regard to the conflict of law provisions of any state, and, in the case of Incentive Stock Options, Section 422 of the Code and regulations issued thereunder.
Section 16.Effective Date and Term of Plan.
16.1 Effective Date.
(a) The Plan was initially approved by the Board on March 10, 2017 and approved by the shareholders of the Company at the Company’s annual meeting of shareholders held on May 5, 2017.
(b) The Plan (as amended and restated) was adopted by the Board on March 15, 2023, with the share increase described in Section 4.1(a) to be effective upon approval by shareholders of the Company’s annual meeting of shareholders held on May 5, 2023, and any adjournment or postponement thereof (the “Annual Meeting”). In the event the share increase described in Section 4.1(a) is not approved by the shareholders at the Annual Meeting, the revisions to Sections 4.1(a) and 4.2(b) shall not become effective.
16.2 Term of Plan.
Notwithstanding anything to the contrary contained herein, no Awards shall be granted on or after March 10, 2033 (March 10, 2027 in the event the extension of the term of Plan is not approved by the shareholders of the Company at the Annual Meeting).
